ITEM 1A. RISK FACTORS
As a global manufacturer, marketer and distributor of high-performance coatings systems, we operate in a business environment that includes risks. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations, financial condition and cash flows could suffer materially and adversely. While the factors listed here are considered to be the more significant factors facing our business, they should not be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors, including those described in other documents we file from time to time with the SEC, may materially and adversely affect our business, results of operations, financial condition and cash flows.
Risk Factors Summary
The following is a summary of the material risks that could adversely affect our business, results of operations, financial condition and cash flows.
Risks Related to the Proposed Merger with Akzo Nobel N.V.
• The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.
• Failure to consummate the Merger could negatively impact the share price and the future business and financial results of the Company.
• The Merger Agreement contains provisions that limit the Company’s ability to pursue alternatives to the Merger.
• Because the value of the Company and AkzoNobel ordinary shares may fluctuate, our shareholders cannot be sure of the value of the Merger Consideration they will receive.
• The Merger Agreement subjects us to restrictions on business activities prior to the effective time of the Merger.
• While the Merger is pending, the Company will be subject to business uncertainties.
• If completed, the Merger may not achieve its intended results.
• After the Merger, our shareholders will have a significantly lower ownership and voting interest in the Combined Company than they currently have in the Company.
• The ordinary shares of the Combined Company will have different rights from our common shares and the market price of the Combined Company ordinary shares may be affected by factors different from those currently affecting the market price of our common shares.
• The Company and AkzoNobel may be targets of legal proceedings that could result in substantial costs and may delay or prevent the Merger from being completed.
• The Company and AkzoNobel have incurred, and will incur additional, substantial transaction fees and costs in connection with the Merger.
Risks Related to our Business
• Our financial position, results of operations and cash flows could be materially adversely affected by difficult economic conditions and/or significant volatility in the capital, credit and commodities markets.
• Improved safety features on vehicles, commercialization of autonomous vehicles, insurance company influence, the introduction of new business models or new methods of travel, and weather conditions may reduce the demand for some of our products.
• The loss of, or reduced purchases by, or our failure to meet our obligations to, any of our largest customers, or the consolidation of any of our customers, could adversely affect our business, financial condition, results of operations and cash flows.
• We may be unable to successfully execute on our growth initiatives or targets, business strategies or operating plans.
• We rely on our distributor network and third-party delivery services for the distribution and export of our products.
• Price increases, business and supply chain interruptions, declines in the supply of raw materials or disruptions to our major tolling arrangements could have a significant impact on our ability to grow or sustain earnings.
• We rely on certain of our manufacturing facilities to make a significant amount of product, and certain products can only be made at specific facilities.
• Failure to develop and market new products and manage product life cycles could impact our competitive position.
Risks Related to our Global Operations
• We are subject to risks associated with our non-U.S. operations and U.S. and foreign trade policy.
Risks Related to Legal and Regulatory Compliance and Litigation
• Our failure to comply with the anti-corruption laws of the United States and various international jurisdictions could negatively impact our reputation and results of operations.
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• Evolving environmental, safety, product stewardship, consumer protection or other regulations and laws could have a material adverse effect on our business and consolidated financial condition.
• As a result of our current and past operations and/or products, including operations and/or products related to our businesses prior to the Acquisition, we could incur significant environmental liabilities and costs.
• We handle and transport certain materials that are inherently hazardous due to their toxic nature.
• Our results of operations could be adversely affected by litigation and claims.
Risks Related to Human Resources
• If we are required to make unexpected payments to any pension plans applicable to our employees, our financial condition may be adversely affected.
• We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs.
• We may not be able to recruit and retain the experienced and skilled personnel we need to compete.
Risks Related to Intellectual Property
• Our inability to protect and enforce our intellectual property rights could adversely affect our financial results.
• If we are sued for infringing intellectual property rights of third parties, it could harm our business.
Risks Related to Other Aspects of our Business
• We may continue to engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses with, or disposing of divested businesses from, our current operations.
• Our joint ventures may not operate according to our business strategy.
• EIDP, Inc.’s potential breach of its obligations in connection with the Acquisition (as defined below), including failure to comply with its indemnification obligations, may materially affect our business and operating results.
• We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common shares.
Risks Related to our Indebtedness
• We have substantial indebtedness, which could have a material adverse effect on us.
• To service all of our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
• We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs.
• Our ability to obtain additional capital on commercially reasonable terms may be limited.
• Difficult and volatile conditions in the capital, credit and commodities markets and in the overall economy could have a material adverse effect on our business, financial condition, results of operations and cash flows.
• We are subject to risks associated with the current interest rate environment.
Risks Related to Ownership of our Common Shares
• Axalta Coating Systems Ltd. is a holding company with no operations of its own and is largely dependent on the receipt of distributions and dividends or other payments from subsidiaries and joint ventures for cash to fund operations and expenses.
• The price of our common shares has fluctuated, and may in the future fluctuate, significantly.
• We do not expect to pay dividends on our common shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common shares.
• Future sales of our common shares could lower our share price and may dilute your ownership in us.
• We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.
• Bermuda law differs from the laws in effect in the U.S. and may afford less protection to our shareholders.
• We have anti-takeover provisions in our bye-laws that may discourage a change of control.
General Risk Factors
• Interruption, interference with, or failure of our information technology and communications systems could hurt our ability to effectively provide our products and services.
• Uncertainty in the development, deployment, and use of artificial intelligence in our products and services, as well as our business more broadly, could adversely affect our business and reputation.
• Increased competition may adversely affect our business, financial condition, results of operations and cash flows.
• We take on credit risk exposure from our customers in the ordinary course of our business.
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• Currency risk may adversely affect our financial condition, results of operations and cash flows.
• Terrorist acts, conflicts, wars, natural disasters, pandemics and other health crises, among other events beyond our control, may materially adversely affect our business, financial condition, results of operations and cash flows.
• The insurance we maintain may not cover all potential exposures.
• We are subject to complex and evolving data privacy laws.
• We may be subject to changes in our tax rates, the adoption of tax legislation or additional tax liabilities.
• Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our sustainability practices may impose additional costs on us or expose us to new or additional risks.
For a more complete discussion of the material risks facing our business, see below.
Risks Related to the Proposed Merger with Akzo Nobel N.V.
The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.
The completion of the Merger is subject to the satisfaction or waiver of certain conditions as set forth in the Merger Agreement (the “Closing Conditions”) and there can be no assurance that such conditions will be satisfied or waived. The failure to timely satisfy the Closing Conditions could delay the completion of the Merger for a significant period of time or prevent the completion of the Merger from occurring at all. The Closing Conditions require that the parties seek certain applicable foreign antitrust and other regulatory approvals in connection with the Merger, and the governmental agencies from which such approvals are sought have broad discretion in administering applicable governing regulations. Those agencies may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of the Combined Company’s business after the closing. Such requirements, , costs, or restrictions could or prevent the consummation of the Merger or have a material effect on the Combined Company’s business and results of operations.
Approval by the Company’s shareholders is one such Closing Condition. A proxy contest or activist campaign related to the Merger could reduce the likelihood that we obtain shareholder approval for the Merger, demand extensive management attention and require that we incur additional costs to respond to the proxy contest or activist campaign, and, if successful, prevent the Merger from being completed.
In addition, the Merger Agreement contains certain termination rights for the Company and AkzoNobel, including (i) if the Merger is not consummated on or before the “outside date” of May 18, 2027 (subject to extension to November 18, 2027 under certain circumstances), (ii) subject to compliance with certain terms of the Merger Agreement, in order to enter into a definitive agreement providing for a superior proposal, or (iii) if, prior to the applicable shareholders’ meeting, the Company Board or either of the AkzoNobel Boards, as applicable, changes its recommendation or fails to reaffirm such recommendation in certain circumstances.
Failure to consummate the Merger could negatively impact the share price and the future business and financial results of the Company.
If the Merger is not consummated, the Company will not realize any of the potential benefits of consummation of the Merger and the Company will be subject to a number of risks, including the following:
• The Company may experience negative reactions from the financial markets, including significant and lasting negative impacts on its stock price;
• The Company may experience negative reactions from its customers, suppliers, business partners and employees;
• The Company will be required to pay certain costs and expenses relating to the Merger whether or not the Merger is consummated;
• Matters relating to the Merger (including integration planning) require substantial Company management time and resources, which could otherwise have been devoted to other beneficial opportunities;
• The Merger Agreement restricts the Company, without AkzoNobel’s consent and subject to certain exceptions, from taking certain specified actions during the pendency of the Merger. These restrictions may prevent the Company from pursuing otherwise attractive business opportunities, entering into contracts, incurring capital expenditures to grow its business and making other changes to its business; and
• If the Merger Agreement is terminated in certain circumstances, the Company may be required to pay a termination fee of €150 million to AkzoNobel.
If the Merger is not consummated, these risks may materialize and may materially and adversely affect our business, operations, financial results and share price .
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The Merger Agreement contains provisions that limit the Company’s ability to pursue alternatives to the Merger.
Under the Merger Agreement, the Company is subject to certain restrictions on its ability to solicit alternative business combination proposals from third parties, engage in discussion or negotiations with respect to such proposals or provide information in connection with such proposals, subject to certain customary exceptions. Further, other than in response to a superior proposal or an intervening event, the Board may not withdraw or modify its recommendation to the Company’s shareholders in favor of the adoption of the Merger Agreement, and AkzoNobel generally has a right to match any competing business combination proposals that may be made. The Company may terminate the Merger Agreement and enter into an agreement providing for a superior proposal only if specified conditions have been satisfied, and such a termination would result in the Company being required to pay AkzoNobel a termination fee equal to €150 million. If the Merger Agreement is terminated and the Company determines to seek another business combination, the Company may not be able to negotiate a transaction with another party on terms comparable to, or than, the terms of the Merger. While the Company believes these provisions and agreements are reasonable and customary and are not preclusive of other offers, these provisions could a third party that may have an interest in entering into a strategic transaction with the Company from proposing such a strategic transaction, even if such third party were prepared to pay consideration with a higher value than the Merger Consideration (as defined below).
Because the value of the Company and AkzoNobel ordinary shares may fluctuate, our shareholders cannot be sure of the value of the Merger Consideration they will receive.
Upon completion of the Merger, our shareholders will be entitled to receive 0.6539 ordinary shares in the Combined Company in exchange for each outstanding and issued ordinary share of the Company (the “Merger Consideration”). Because this exchange ratio is fixed and will only be adjusted in certain limited circumstances (including reclassifications, stock splits or combinations, exchanges or readjustments of shares, or stock dividends, reorganization, recapitalization or similar transactions involving the Company or AkzoNobel), any changes in the market value of Company ordinary shares or AkzoNobel common shares may affect the value that our shareholders will be entitled to receive upon completion of the Merger. Share price changes may result from a variety of factors, including changes in the business, operations or prospects of the Company or AkzoNobel, market assessments of the likelihood that the Merger will be completed, the timing of the Merger, regulatory considerations, general market and economic conditions and other factors.
The Merger Agreement subjects us to restrictions on business activities prior to the effective time of the Merger.
The Merger Agreement restricts us from entering into certain corporate transactions, including with respect to certain acquisitions, and taking other specified actions without the consent of AkzoNobel and generally requires us to continue our operations in the ordinary course through the completion of the Merger. These restrictions could be in place for an extended period of time as the pendency of the Merger continues and could prevent us from pursuing attractive business opportunities that may arise during the pendency of the Merger.
While the Merger is pending, the Company will be subject to business uncertainties which could adversely affect the Company’s business, results of operations, financial condition and cash flows.
Uncertainty about the effect of the Merger on our employees, customers, suppliers and other business partners may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is consummated and for a period of time thereafter. If, despite the Company’s retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Combined Company, the Combined Company’s (or, if the Merger is not consummated, the Company’s) business could be harmed and its ability to realize the anticipated benefits of the Merger could be adversely affected.
Parties with which the Company does business may experience uncertainty associated with the Merger, including with respect to current or future business relationships with the Company. The Company’s business relationships may be subject to disruption as customers and suppliers may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. These disruptions could have an adverse effect on the businesses, financial condition, results of operations or prospects of the Company, including an adverse effect on the anticipated benefits of the Merger, which may be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement. Additionally, certain contracts entered into by the Company contain change in control, anti-assignment, or certain other provisions that may be triggered as a result of the Merger. If the counterparties to these agreements do not consent to the Merger, the counterparties may have the ability to exercise certain rights (including termination rights), resulting in the Combined Company incurring liabilities as a consequence of such agreements, or causing the Combined Company to the of such agreements or incur costs in seeking replacement agreements.
If completed, the Merger may not achieve its intended results.
The Company and AkzoNobel entered into the Merger Agreement with the expectation that the Merger will result in various benefits. Achieving the anticipated benefits of the transaction is subject to a number of uncertainties, including whether the businesses of the Company and AkzoNobel can be integrated in an efficient and effective manner.
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It is possible that the integration process could take longer than anticipated, could give rise to unanticipated costs and could result in the loss of valuable employees, the disruption of each of our and AkzoNobel’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the Combined Company’s ability to achieve the anticipated benefits of the transaction. The Company and AkzoNobel may have difficulty addressing possible differences in corporate cultures and management philosophies, and there can be no assurance that the Company and AkzoNobel will be able to effectively integrate their management teams. Failure to successfully integrate the businesses of the Company and AkzoNobel in the expected timeframe may adversely affect the future results of the Combined Company, and, consequently, the value of the Merger Consideration.
In addition, there can be no assurance that the Combined Company will achieve a particular credit rating or maintain a particular credit rating in the future. Such credit ratings will affect the cost and availability of future borrowings and, accordingly, the Combined Company’s cost of capital. Further, there can be no guarantee that the Combined Company will obtain or maintain a listing on a U.S. stock exchange.
After the Merger, our shareholders will have a significantly lower ownership and voting interest in the Combined Company than they currently have in the Company.
Under the terms of the Merger Agreement, our shareholders are expected to own 45% of the Combined Company on a pro forma basis immediately after closing. As a result of this reduced ownership percentage, our shareholders will have less ability to influence matters that are put to a vote of the Combined Company.
The ordinary shares of the Combined Company will have different rights from our common shares and the market price of the Combined Company ordinary shares may be affected by factors different from those currently affecting the market price of our common shares.
Upon completion of the Merger, our shareholders will no longer be shareholders of the Company but will instead become holders of ordinary shares of the Combined Company. Certain rights of our shareholders as holders of Combined Company ordinary shares will be governed by Dutch law, and the terms of the Combined Company’s organizational documents are expected to be in some respects materially different than the terms of our memorandum of association and bye-laws, which currently govern the rights of our shareholders. For example, Dutch law significantly limits the circumstances under which shareholders of Dutch companies may bring an action on behalf of a company. In addition, the businesses of AkzoNobel differ from those of the Company in important respects, and, accordingly, the results of operations of the Combined Company, as well as the market price of the Combined Company ordinary shares, may be affected by factors different from those currently affecting the results of operations of the Company.
The Company and AkzoNobel may be targets of legal proceedings that could result in substantial costs and may delay or prevent the Merger from being completed.
Although, currently, we are not aware of any legal proceedings having been brought against the Company or AkzoNobel in connection with the Merger, securities class action lawsuits, derivative lawsuits and other legal proceedings are often brought against public companies that have entered into merger agreements. Even if such legal proceedings are without merit, defending against these claims can result in substantial costs and divert management attention, time and resources. An adverse judgment or settlement could result in significant costs, which could have a negative impact on our and AkzoNobel’s respective liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, such injunction may delay or prevent the Merger from being completed, or from being completed within the expected timeframe, which may affect our business, financial position and results of operation.
The Company and AkzoNobel have incurred, and will incur additional, substantial transaction fees and costs in connection with the Merger.
The Company and AkzoNobel have incurred, and expect to further incur, a number of non-recurring transaction-related costs associated with completing the Merger, combining the operations of the two organizations and achieving desired benefits of the Merger. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, retention, severance, change in control and other integration-related costs, filing fees and printing costs. Additional unanticipated costs may be incurred in order to complete the Merger (including, for example, in the event of a proxy fight or activist campaign) or as part of the integration of the businesses of the Company and AkzoNobel. Some of these costs will be payable by us regardless of whether or not the Merger is completed.
Risks Related to our Business Risks Related to Execution of our Strategic and Operating Plans
Our financial position, results of operations and cash flows could be materially adversely affected by difficult economic conditions and/or significant volatility in the capital, credit and commodities markets.
Several of the end-markets we serve are cyclical, and macroeconomic and other factors beyond our control have in the past and could in the future reduce demand from these end-markets for our products, including as a result of depressed demand for
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our customers' products or services, and materially adversely affect our business, financial condition, results of operations and cash flows. For example, weak economic conditions have in the past depressed and could in the future depress new car sales and/or production, reducing demand for our light vehicle OEM coatings and limiting the growth of the car parc. This has in the past and could in the future cause a related decline in demand for our automotive refinish coatings because, as the age of a vehicle increases, the propensity of car owners to pay for cosmetic repairs generally decreases. Also, during difficult economic times or times of significant cost inflation (including with respect to insurance premiums), car owners may refrain from seeking repairs for their damaged vehicles, which we saw in 2025. Similarly, periods of reduced global economic activity could hinder global industrial output or cause our customers to reduce or rationalize their levels of inventory, which we saw in our refinish end market in 2025 and which could further decrease demand for our products in the future.
Our global business is adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending, construction activity, Class 8 truck production and industrial manufacturing, which effects are exacerbated in a high interest rate environment. Disruptions in the U.S., Europe or other economies, or weakening of emerging markets, such as China or Latin America, could adversely affect our sales, profitability and/or liquidity.
Further, a tightening of credit in financial markets could adversely affect the ability of our customers to obtain financing to support their operations, which could result in a decrease in or cancellation of orders for our products and services and impact the ability of our customers to make payments owed to us. Similarly, a tightening of credit in financial markets could adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy, which could impact our ability to procure materials in a timely manner or at all. In addition, a tightening of credit markets and a high interest rate environment make it more difficult for our customers to borrow to fund construction activity, manufacturing operations and other capital projects, which in turn reduces demand for our products and could have a material adverse impact on our business, financial condition, results of operations and cash flows. Lastly, during times of economic conditions and cost inflation, car owners may choose to or forgo entirely repairing vehicles, thereby reducing the demand for our refinish coatings, which dynamic has impacted our refinish end-market since 2025.
Improved safety features on vehicles, commercialization of autonomous vehicles, insurance company influence, the introduction of new business models or new methods of travel, and weather conditions may reduce the demand for some of our products and could have a negative effect on our business, financial condition, results of operations and cash flows.
Vehicle manufacturers continue to develop new safety features such as collision avoidance technology and autonomous vehicles. The market for semi-autonomous and autonomous vehicles in particular is experiencing rapid growth, which is projected to continue or accelerate in the near-term. These advancements have reduced the rate and amount of vehicle collisions, which negatively impacts demand for our refinish coatings; this reduction could accelerate in the future and have a material adverse impact on our results of operations. Insurance companies may influence vehicle owners to use body shops that do not use our products, which could also negatively impact demand for our refinish coatings. In addition, through the introduction of new technologies, new business models or new methods of travel, such as ridesharing, the number of automotive OEM new builds may decline, potentially reducing demand for our automotive OEM coatings. Furthermore, weather conditions have had and may in the future have an adverse effect on our sales of coatings and related products. For example, unusually mild weather during winter months may lead to fewer vehicle , reducing demand for our refinish coatings. Any resulting reduction in demand for our refinish coatings could have a material effect on our business, financial condition, results of operations and cash flows.
The loss of, or reduced purchases by, or our failure to meet our obligations to, any of our largest customers, or the consolidation of any of our customers, including MSOs, distributors and/or body shops, could adversely affect our business, financial condition, results of operations and cash flows.
We have some customers that purchase a large amount of products from us and we are also reliant on distributors to assist us in selling our products and servicing certain customers. Our largest single customer accounted for approximately 5% of our 2025 net sales and our largest distributor accounted for approximately 2% of our 2025 net sales. Consolidation of any of our customers, including MSOs, distributors and body shops, could decrease our customer base and impact our business, financial condition, results of operations and cash flows. For example, consolidation among distributors, like that seen within the refinish end-market in 2024 and 2025, may create larger enterprises with greater negotiating power and has resulted, and may in the future result in changes to purchasing behaviors (including inventory rationalization measures) or the loss of our customers if the resulting business chooses to use one of our competitors for the consolidated business. Further, the loss of any of our large customers or significant changes in their level of purchases, as a result of changes in business conditions, working capital levels, product requirements, work stoppages, consolidation, inventory rationalization or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, certain key customers have substantial purchasing power and leverage in negotiating contractual arrangements with us. These customers have demanded and may in the future demand contract terms that differ considerably from our
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standard terms and conditions. Large orders have also included and may in the future also include severe liabilities if we fail to provide the quantity and quality of product at the required delivery times or fail to meet other obligations. While we attempt to obtain favorable terms in our contracts (including with respect to limiting our potential liability and maintaining customary payment terms), we have agreed to, and we may in the future agree to, unfavorable contracting terms to secure these orders. Such actions have exposed us, and in the future could expose us to, significant additional risks should we fail to meet our obligations. For example, failure to meet customer expectations or contractual obligations related to the quality of our products has previously resulted in liabilities or indemnification claims, including those resulting from the operational matter discussed in Note 5 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K; any such future may result in a material impact on our business, financial condition, results of operations and cash flows.
We may be unable to successfully execute on our growth initiatives or targets, business strategies or operating plans.
We continue to execute, and have in the past executed, on a number of growth initiatives, strategies and operating plans designed to enhance our business, including productivity enhancements, cost reduction measures, cost savings initiatives and restructurings. For example, during February 2024, we announced a global transformation initiative intended to simplify the Company’s organizational structure and enable us to be more proactive, responsive, and agile and to better serve our customers and to lower our cost base and improve financial performance and cash flow generation (the "2024 Transformation Initiative") and, at our Strategy Day in May 2024, we announced our three-year 2024-2026 strategy (the “2026 A Plan”). The anticipated benefits from these efforts are based on several assumptions that may prove to be inaccurate and a variety of factors could cause us to fail to realize some or all of the expected benefits and targets, including growth, cost savings, improved financial performance and productivity . These factors include, among others: in the anticipated timing of activities related to such growth initiatives, strategies and operating plans, including those related to actions needed to legal requirements in certain jurisdictions; changes in demand for our products; increased and cost in implementing these efforts; legal, reputational and financial effects on the Company resulting from such efforts; the incurrence of other costs associated with operating the business; and management’s time and attention paid to the Merger. Fu rther, our continued implementation of these programs may our operations and performance. We have in the past, and may in the future, to realize the full extent of the anticipated benefits from, or targets related to, such efforts and we cannot you that we will realize these benefits or targets. If, for any reason, the benefits we realize, or our actual results, are less than our estimates or targets, or the implementation of these growth initiatives, strategies and operating plans affect our operations or cost more or take longer to effectuate than we expect, or if our assumptions prove , our results of operations may be materially affected. From time to time, we may commence operations at new manufacturing facilities and operations at existing manufacturing facilities, including through relocating, eliminating or utilizing alternative sources for such operations. We may not be to commence such new operations or such existing operations and our to do so could have a material impact on our business results.
We rely on our distributor network and third-party delivery services for the distribution and export of certain of our products.
We ship a significant portion of our products to our customers through our distributor network as well as independent third-party delivery companies. If any of our key distributors or third-party delivery providers experiences a significant disruption, our products may not be timely delivered. Distributors may also decide to reduce their levels of inventory with respect to our products, which could have a material adverse impact on our business, financial condition, results of operations and cash flows. In addition, if any of our third-party delivery providers increase prices and we are not able to pass along these increases to customers, find comparable alternatives or adjust our delivery network, our business, financial condition, results of operations and cash flows could be adversely affected.
We rely on certain of our manufacturing facilities to make a significant amount of product, and certain products can only be made at specific facilities.
A small number of our manufacturing facilities have historically produced a substantial majority of our products, and certain of our products can only be made at specific facilities. Any disruption of operations at one of these facilities, like that which occurred in North America in the second quarter of 2023 due to production constraints following our implementation of a new enterprise resource planning system ("ERP") in the region in the quarter, have in the past and could in the future significantly affect our production, distribution or our ability to fulfill our contractual obligations, including to our largest customers, which have in the past and could in the future damage our customer relationships, and our business, financial condition, results of operations and cash flows could be adversely affected. While we have certain plans in place that are intended to mitigate the risks of such manufacturing concentration, we cannot be certain that such contingency plans would be effective.
Price increases, business and supply chain interruptions, declines in the supply of raw materials or disruptions to our major tolling arrangements could have a significant impact on our ability to grow or sustain earnings.
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Our manufacturing processes consume significant amounts of raw materials, the costs of which are subject to change based on fluctuations in worldwide supply and demand as well as other factors beyond our control, including inflationary pressures. We use a significant amount of raw materials derived from crude oil and natural gas. While the majority of our raw material inputs are fourth to sixth generation derivatives of crude oil and natural gas, volatile oil and gas prices, as well as other unrelated factors, can cause significant variations in our raw materials costs, affecting our operating results. While we attempt to limit the impact of such fluctuations by implementing raw material price adjustment mechanisms based on index pricing in certain of our contractual arrangements, such mechanisms may be ineffective and often lag market price changes and we can provide no assurance that we will be able to secure such contractual terms in future contracts or renewals of existing contracts. As a result, in rising raw material price environments, we may be unable to pass along these increased costs to our customers. Additionally, in declining raw material price environments, we may not realize raw material cost savings because of such , or customers may seek price concessions from us than any raw material cost savings we realize. If we are not to fully offset the effects of higher raw materials costs, or if customers demand raw material price concessions than we obtain in low raw material cost environments, our financial results could . Additionally, we obtain certain of our raw materials from selected key suppliers. If any sole source supplier of raw materials supplying raw materials to us, or if any of our key suppliers is to meet its obligations in a timely fashion or at an acceptable price, or at all, we may be to incur higher costs to obtain the necessary raw materials elsewhere or, in limited instances, we may not be to obtain the necessary raw materials. Additionally, in certain instances, we rely on third parties to toll manufacture certain of our intermediates and products. If any of our key tolling partners to provide toll manufacturing services to us, either permanently or temporarily, we would be required to arrange for alternative manufacturing arrangements, which we may not be to arrange on financially terms, on a timely basis or at all.
Supplier capacity constraints, supplier production disruptions, including as a result from work stoppages, supply chain and logistics congestion and disruptions, the unavailability of certain raw materials or disruptions to our key tolling arrangements could also result in harm to our manufacturing capabilities or supply imbalances that may have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, rising costs of freight, logistics, energy or labor may increase our cost of sales and reduce our profitability.
Failure to develop and market new products and manage product life cycles could impact our competitive position and have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our operating results are largely dependent on our development and management of our portfolio of current, new and developing products and services as well as our ability to bring those products and services to market. Difficulties or delays in product development, such as the inability to identify viable new products, successfully complete research and development, obtain relevant regulatory approvals, effectively manage our manufacturing process or costs, obtain intellectual property protection, or gain market acceptance of new products and services, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Because of the lengthy and costly development process, technological challenges and intense competition, we cannot assure you that any of the products we are currently developing, or that we may develop in the future, will achieve commercial success. For example, in addition to developing technologically advanced products, commercial of those products will depend on customer acceptance and implementation of those products as well as the products and services offered and developed by our current and future competitors and the related intellectual property rights held by such competitors. A to develop commercially products or to develop additional uses for existing products could materially affect our business, financial condition, results of operations or cash flows. Further, sales of our new products could replace sales of some of our current products, offsetting the of even a product introduction.
Risks Related to our Global Operations
As a global business, we are subject to risks associated with our non-U.S. operations and U.S. and foreign trade policy.
We conduct our business on a global basis, with approximately 69% of our 2025 net sales occurring outside the United States. We anticipate that international sales will continue to represent a substantial portion of our net sales and that our strategy for continued growth and profitability may entail further international expansion, particularly in emerging markets. Our financial results could be affected by factors including, but not limited to, changes in trade, monetary and fiscal policies, laws and regulations, activities of U.S. and non-U.S. governments, agencies and similar organizations, changes in a country's or region's social, economic or political conditions, military conflicts, including the current conflicts between Russia and Ukraine and in the Middle East, geopolitical disputes, including as a result of China-Taiwan relations, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, semiconductor chip shortages, reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange activities, trapped cash issues, burdensome taxes and tariffs and other trade barriers, as well as the imposition of economic or other trade sanctions or other protectionist policies, each of which could impact our ability to do business in certain jurisdictions or with certain persons.
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The U.S. government has taken actions or made proposals that are intended to address trade imbalances or trade practices and encourage increased production in the United States, including through measures such as the imposition of higher tariffs on imports into the U.S., the renegotiation of some U.S. trade agreements and other government regulations affecting trade between the U.S. and other countries where we conduct our business. These actions and proposals have resulted or could result in retaliatory actions by affected countries. Such changes increased prices for certain raw materials we import from such countries in 2025 and could further increase our raw material costs in 2026. In addition, these changes could reduce demand for our products in other countries and adversely impact the U.S. economy or certain sectors thereof or the economy of other countries in which we conduct operations, our industry and supply chain, all of which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Legal and Regulatory Compliance and Litigation
Our failure to comply with the anti-corruption laws of the United States and various international jurisdictions could negatively impact our reputation and results of operations.
Doing business on a global basis requires us to comply with the laws and regulations of the U.S. government and those of various international and sub-national jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities which may be significant. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”) and the United Kingdom Bribery Act 2010 (the “Bribery Act”), as well as anti-corruption laws of the various jurisdictions in which we operate. The FCPA, the Bribery Act and other laws prohibit us and our officers, directors, employees and agents acting on our behalf from corruptly offering, promising, authorizing or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining treatment. As part of our business, we may, from time to time, deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA or the Act. We are subject to the jurisdiction of various governments and regulatory agencies outside of the U.S., which may bring our personnel into contact with foreign officials responsible for issuing or renewing permits, licenses or approvals or for enforcing or overseeing other governmental regulations. In addition, some of the international locations in which we operate a developed legal system and have elevated levels of . Our global operations us to the risk of , or being of , the foregoing or other anti- laws. Such could be punishable by , , civil , of profits, and exclusion from government contracts, as well as other remedial measures. of can be very expensive, and to our reputation. Although we have implemented anti- policies and procedures and provide training on these matters, there can be no guarantee that these policies, procedures and training will effectively prevent or by our employees or representatives in the future, and we could face liability and reputational if our distributors and other business partners such laws or regulations.
Evolving environmental, safety, product stewardship, consumer protection or other regulations and laws, including with respect to disclosure of metrics related to such areas, could have a material adverse effect on our business and consolidated financial condition.
Our manufacturing activities and products, both inside and outside of the U.S., are subject to regulation by various federal, state, provincial and local laws, regulations and government agencies, including the EPA, as well as other authorities both inside and outside of the U.S. Legal and regulatory systems in emerging and developing markets may be less developed and less consistent. Laws and regulations, and the interpretation and enforcement thereof, may change as a result of a variety of factors, including political, economic, regulatory or social events or in response to climate change. Changes in our business, whether resulting from acquisitions or otherwise, have previously increased, and may further increase, our exposure to additional laws and regulations, such as consumer protection statutes. The specific impact of changing laws and regulations, or the interpretation or enforcement of current or future laws and regulations, on our business may vary depending on a number of factors. As a result of changing laws and regulations, or the interpretation or enforcement of current or future laws and regulations, we have been and may in the future be required to make expenditures to modify operations, relocate operations, perform site cleanups or other environmental remediation, or curtail or cease operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Requirements relating to product stewardship and resource sustainability, including product recycling, packaging, composition and disposal, may also require us to incur significant expenses, including expenses related to costs, or other , or modifications of products or manufacturing processes related to such products, or prohibitions of products we manufacture. In addition, new disclosure and due diligence requirements related to GHG emissions and climate change and other sustainability related topics, such as supply chain due diligence requirements, the California Climate Laws, the EU's CSRD and Corporate Sustainability Due Diligence Directive (“CSDDD”), and other requirements adopted by national and sub-national jurisdictions from time to time, may impact our business by resources and our reputation.
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We cannot predict the impact that changing climate conditions or more frequent and severe weather events, if any, will have on our business, results of operations, financial condition or cash flows. Moreover, we cannot predict how legal, regulatory and social responses to concerns about climate change, as well as other sustainability and environmental matters, will impact our business.
As a result of our current and past operations and/or products, including operations and/or products related to our businesses prior to the Acquisition, we could incur significant environmental liabilities and costs.
We are subject to various laws and regulations around the world governing the protection of the environment and health and safety, including the discharge of pollutants into the air and water and the management and disposal of hazardous substances. These laws and regulations not only govern our current operations and products, but also impose potential liability on us for our or our predecessors' past operations. We could incur fines, penalties and other sanctions as a result of violations of such laws and regulations. In addition, as a result of our operations and/or products, including our past operations and/or products related to our businesses prior to the acquisition of DuPont Performance Coatings ("DPC"), a business formerly owned by E. I. du Pont de Nemours and Company (now known as EIDP, Inc., a subsidiary of Corteva, Inc.) (“EIDP”), including certain assets of DPC and all of the capital stock and other equity interests of certain entities engaged in the DPC business (the "Acquisition"), we could incur substantial costs, including costs relating to remediation and restoration activities and third-party claims for property damage or personal injury. The ultimate costs under environmental laws and the timing of these costs are to accurately predict. Our accruals for costs and liabilities at sites where contamination is being or remediated may not be adequate because the estimates on which the accruals are based depend on a number of factors, including the nature and extent of contamination, the outcome of discussions with regulatory agencies, available technology, site-specific information, remediation alternatives and, at multi-party sites, other Potentially Responsible Parties ("PRPs") and the number and financial viability of the other PRPs. Additional contamination may also be identified, and/or additional cleanup obligations may be incurred, at these or other sites in the future. For example, periodic monitoring or activities are ongoing at a number of our sites where contaminants have been detected or are , and we may incur additional costs if more active or extensive remediation is required. In addition, in connection with the Acquisition, EIDP has, subject to certain exceptions and exclusions, agreed to indemnify us for certain liabilities relating to environmental remediation obligations and certain relating to the exposure to substances and products manufactured prior to our separation from EIDP. We could incur material additional costs if EIDP to meet its obligations, if the indemnification proves or if we otherwise are to recover costs associated with such liabilities. The costs of our current operations, complying with complex environmental laws and regulations, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future as environmental regulations become more .
We handle and transport certain materials that are inherently hazardous due to their toxic nature.
In our business, we handle and transport hazardous materials. If mishandled or released into the environment, whether by us or providers who are contracted for transportation, these materials could cause substantial property damage, environmental harm or personal injuries resulting in significant legal claims against us. In addition, evolving regulations concerning the handling and transportation of certain materials could result in increased future capital or operating costs.
Our results of operations could be adversely affected by litigation and claims.
We face risks arising from various litigation matters and other claims that have been asserted against us or that may be asserted against us in the future, including, but not limited to, claims for product liability, patent and trademark infringement, antitrust, warranty, contract and third-party property damage or personal injury, including claims arising from the matters described in Note 5 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. For instance, we have seen a continuing nationwide trend in purported class actions against chemical manufacturers generally seeking relief such as medical monitoring, property damages, off-site remediation and punitive damages arising from environmental torts without present personal . We have also seen a continuing trend in public and private suits being filed on behalf of states, counties, cities and utilities to the general public. There is also heightened by governments, regulators and potential on the usage of per- and polyfluoroalkyl substances (“PFAS”) and microplastics in products, the role of PFAS and microplastics in the contamination of soil, air and water and health related to the use of products containing PFAS and microplastics. Governmental inquiries or requirements involving PFAS and microplastics could cause us to incur liability for or other costs, civil proceedings, including personal , class actions, the imposition of and , or other remedies, as well as restrictions on or added costs for our business operations going forward.
Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development in any one or more of these matters could result in future charges that could have a material adverse effect on us or could be material to our business, financial condition, results of operations and cash flows.
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Risks Related to Human Resources
If we are required to make unexpected payments to any pension plans applicable to our employees, our financial condition may be adversely affected.
We have defined benefit pension plans in which many of our current and former employees outside the U.S. participate or have participated. Many of these plans are underfunded or unfunded and the liabilities in relation to these plans will need to be satisfied as they mature from our operating reserves. In jurisdictions where the defined benefit pension plans are intended to be funded with assets in a trust or other funding vehicle, the liabilities exceed the corresponding assets in many of the plans. Various factors, such as changes in actuarial estimates and assumptions (including as to life expectancy, discount rates and rate of return on assets) as well as changes in asset allocations and actual return on assets, can increase the expenses and liabilities of the defined benefit pension plans. The assets and liabilities of the plans must be valued from time to time under applicable funding rules and as a result we may be required to increase the cash payments we make in relation to these defined benefit pension plans.
Our financial condition, results of operations and cash flows may be adversely affected to the extent that we are required to make any additional payments to any relevant defined benefit pension plans in excess of the amounts assumed in our current projections and assumptions or report higher pension plan expenses under relevant accounting rules.
We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs.
Many of our employees globally are in unions or otherwise covered by labor agreements, including works councils. As of December 31, 2025, substantially all of our U.S. workforce was not unionized and approximately half of our workforce outside the U.S. was unionized or otherwise covered by labor agreements. Consequently, we have been and may in the future be subject to union campaigns, work stoppages, union negotiations and other labor disputes. Additionally, negotiations with unions or works councils in connection with existing labor agreements may result in significant increases in our cost of labor, limit our ability to restructure or manage our operations, divert management's attention away from operating our business or break down and result in the disruption of our operations. The occurrence of any of the preceding outcomes could impair our ability to manufacture our products and result in increased costs and/or worsened operating results.
We may not be able to recruit and retain the experienced and skilled personnel we need to compete.
Our future success depends on our ability to attract, retain, develop and motivate highly skilled personnel. We must have talented personnel to succeed, and competition for management and skilled employees in our industry is intense. Our ability to meet our performance and growth goals depends upon the personal efforts and abilities of our management and skilled employees. We cannot assure you that we will retain or successfully recruit senior management, or that their services will remain available to us. We may experience retention risks during periods of uncertainty, including during the pendency of the Merger. In addition, increasing legislative, regulatory and judicial scrutiny, or limitations, on employee non-compete and similar agreements and restrictions may make it easier for former employees to work for our competitors or to otherwise compete with our business. Failures in these areas could adversely affect our business, financial condition, results of operations and cash flows.
Risks Related to Intellectual Property
Our inability to protect and enforce our intellectual property rights could adversely affect our financial results.
Intellectual property rights both in the U.S. and in foreign countries, including patents, trade secrets, confidential information, trademarks and trade names, are important to our business and will be critical to our ability to grow and succeed in the future. We make decisions on whether to apply for intellectual property protection and what kind of protection to pursue based on a cost benefit analysis. While we endeavor to protect our intellectual property rights in certain jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported, the decision to file for intellectual property protection is made on a case-by-case basis and we may not accurately assess the jurisdictions where intellectual property protection is worthwhile. Our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the U.S. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We have applied for patent protection relating to certain existing and proposed products, processes and services in certain jurisdictions. If we fail to timely file a patent application in any jurisdiction, we may be precluded from doing so at a later date. Furthermore, the initial claims may be narrowed through the prosecution process and we cannot assure you that our pending patent applications will not be challenged by third parties or that such applications will eventually be granted by the applicable patent offices. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Our existing patents will all eventually expire, after which we will not be able to prevent our competitors from using our previously patented technologies, which could materially affect our competitive stemming from the applicable products and
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technologies. We also cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.
We also utilize and rely on a significant number of unpatented proprietary technologies. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require certain employees, consultants, advisors and collaborators to enter into confidentiality agreements as we deem appropriate. We cannot assure you that we will be able to enter into these confidentiality agreements or that they will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure.
We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties have in the past and in the future may oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
We also license certain of our trademarks for use by third parties. In an effort to preserve our trademark rights, we enter into license agreements with these third parties that govern the use of our trademarks and contain limitations on their use. Although we make efforts to police the use of our trademarks by our licensees, these efforts may not be sufficient to ensure that our licensees abide by the terms of their licenses and our trademark rights could be diluted. We are also a licensee of certain intellectual property owned by third parties. Failure to maintain such licenses or our inability to continue to use such intellectual property, due to disputes with those third parties or otherwise, could adversely affect our business.
If we are sued for infringing intellectual property rights of third parties, it may be costly and time consuming, and an unfavorable outcome in any litigation could harm our business.
We cannot assure you that our activities will not, unintentionally or otherwise, infringe on the intellectual property rights owned by others. We may spend significant time and effort and incur significant litigation costs if we are required to defend ourselves against infringement claims, regardless of whether the claims have merit. If we are found to have infringed on the intellectual property rights of others, we may be subject to substantial claims for damages, which could materially impact our business, financial condition, results of operations and cash flow. We may also be required to cease development, use or sale of the relevant products or processes, or we may be required to obtain a license on the disputed rights, which may not be available on commercially reasonable terms, if at all.
Risks Related to Other Aspects of our Business
We may continue to engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses with, or disposing of divested businesses from, our current operations and, as a result, we may not realize the anticipated benefits of these acquisitions and divestitures.
While the Merger Agreement contains certain restrictions in this regard, we may continue to seek to grow through acquisitions, joint ventures or other arrangements. Our due diligence reviews in these transactions may not sufficiently identify all problems, costs or liabilities with respect to a particular transaction and we may incur unanticipated costs or expenses from litigation and other liabilities. We may face regulatory scrutiny as a result of perceived concentration in certain markets, which could cause additional delay or prevent us from completing certain acquisitions that would be beneficial to our business. We may also encounter difficulties in integrating acquisitions with our operations. Additionally, we may not achieve the benefits, including synergies and cost savings, we anticipate when we first enter into a transaction in the amount or on the timeframe anticipated. Any of the foregoing could adversely affect our business and results of operations. Furthermore, we have in the past made and may in the future make divestitures from time to time. These may result in continued financial involvement in the businesses, such as through indemnities, guarantees or other financial arrangements, and could ultimately impose additional financial obligations upon us, affecting our financial condition, results of operations and cash flows. Acquisitions and may also require us to devote significant internal resources and could management's attention away from operating our business.
Our joint ventures may not operate according to our business strategy if our joint venture partners fail to fulfill their obligations.
As part of our business, we have entered into certain, and may in the future enter into additional, joint venture arrangements. Because the nature of a joint venture requires us to share control over significant decisions with unaffiliated third parties, we may not be able to require our joint ventures to take actions that we believe are necessary to implement our business strategy. Additionally, differences in views among joint venture participants may result in delayed decisions or failures to agree on major issues. If these differences cause the joint ventures to deviate from our business strategy, our results of operations could be materially adversely affected.
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EIDP’s potential breach of its obligations in connection with the Acquisition, including failure to comply with its indemnification obligations, may materially affect our business and operating results.
Although the Acquisition closed on February 1, 2013, EIDP still has performance obligations to us, including fulfilling certain indemnification requirements. We could incur material additional costs if EIDP fails to meet its obligations or if we otherwise are unable to recover costs associated with such liabilities.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common shares.
Based on the market price of our common shares and the composition of our income, assets and operations, we do not expect to be treated as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual determination that must be made annually after the close of each taxable year. If we are treated as a PFIC for any taxable year during which a U.S. person holds our common shares, certain adverse U.S. federal income tax consequences could apply to such U.S. person.
Risks Related to our Indebtedness
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy and our industry and our flexibility in managing our business, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations with respect to our indebtedness.
As of December 31, 2025, we had approximately $3.2 billion of indebtedness on a consolidated basis. As of December 31, 2025, we were in compliance with all of the covenants under our outstanding debt instruments. We are more leveraged than some of our competitors, which could adversely affect our business plans.
Our substantial indebtedness could have important consequences to you. For example, it could:
• limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;
• require us to devote a substantial portion of our annual cash flow to the payment of interest on our indebtedness;
• expose us to the risk of high interest rates, as, over the term of our debt, the interest cost on a significant portion of our indebtedness is subject to changes in interest rates;
• limit our ability to repurchase our common shares or pay dividends;
• limit our flexibility in managing our business through our obligation to comply with customary financial and other covenants in the instruments governing our indebtedness, including the indentures governing our Senior Notes (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) and the credit agreement governing our Senior Secured Credit Facilities (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K), which covenants are described in further detail in Note 18 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K; and
• increase our vulnerability to and limit our flexibility in planning for, or reacting to, downturns in general economic conditions or in one or more of our businesses.
In addition, we and our subsidiaries may incur significant additional indebtedness under the agreements governing our indebtedness or otherwise, which could intensify the risks noted above and other related risks. Although the indentures governing our Senior Notes and the credit agreement governing our Senior Secured Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of thresholds, qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. Additionally, these restrictions may not prevent us from incurring obligations that, although preferential to our common shares in terms of payment, do not constitute indebtedness. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financial Condition."
To service all of our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.
As described below in "Risks Related to Ownership of our Common Shares", our ability to generate cash is dependent on the earnings and receipt of funds from our subsidiaries and joint ventures, which businesses are subject to prevailing economic and competitive conditions, and to financial, business, legislative, regulatory and other factors beyond our control. Our business may not generate sufficient cash flow from operations and future borrowings may not be available under our Senior
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Secured Credit Facilities in an amount sufficient to enable us to pay the principal, premium, if any, and interest on our indebtedness, or to fund our other liquidity needs, including planned capital expenditures. In such circumstances, we may need to refinance all or a portion of our indebtedness at or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, issuing additional equity or reducing or delaying capital expenditures, strategic acquisitions and investments. Such actions, if necessary, may not be effected on commercially reasonable terms or at all. The instruments governing our indebtedness restrict our ability to sell assets and to use the proceeds from such sales, and we may not be able to consummate those dispositions or obtain proceeds in an amount sufficient to meet any debt service obligations then due.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness, and we may not be able to obtain waivers of such defaults from our lenders. In the event of such un-waived default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our Revolving Credit Facility (as defined in Note 18 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K) could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings our assets, and we could be into or .
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable or unwilling to fund borrowings under their credit commitments or we are unable to borrow, it could negatively impact our business.
We are dependent upon our lenders for financing to execute our business strategy and meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow from them for any reason, our business could be negatively impacted. During periods of volatility in the credit markets, there is risk that any lender, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including, but not limited to, extending credit up to the maximum permitted by a credit facility, or allowing access to additional credit features. If our lenders are unable or unwilling to fund borrowings under their revolving credit commitments or we are unable to borrow from them, it could be difficult to obtain sufficient liquidity to meet our operational needs.
Our ability to obtain additional capital on commercially reasonable terms may be limited.
Although we believe our cash and cash equivalents, together with cash we expect to generate from operations and unused capacity available under our Revolving Credit Facility, provide adequate resources to fund ongoing operating requirements, we may need to seek additional financing to compete effectively. If we are unable to obtain capital on commercially reasonable terms, it could:
• reduce funds available to us for purposes such as working capital, capital expenditures, research and development, strategic acquisitions and other general corporate purposes;
• restrict our ability to introduce new products, exploit business opportunities and compete effectively; and
• increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate.
Difficult and volatile conditions in the capital, credit and commodities markets and in the overall economy could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Difficult global economic conditions, including significant volatility in the capital, credit and commodities markets, low levels of business and consumer confidence and high levels of unemployment in certain parts of the world, could affect our business in a number of ways. For example:
• under difficult market conditions there can be no assurance that borrowings under our Revolving Credit Facility would be available or sufficient to meet our operational needs, and in such a case, we may not be able to successfully obtain additional financing on reasonable terms, or at all;
• in order to respond to market conditions, we may need to seek waivers from the applicability of various provisions in the credit agreement governing our Senior Secured Credit Facilities or the indentures governing our Senior Notes, and in such case, there can be no assurance that we can obtain such waivers at a reasonable cost, if at all; and
• market conditions could cause the counterparties to the derivative financial instruments we may use to hedge our exposure to interest rate, commodity or currency fluctuations to experience financial difficulties and, as a result, our efforts to hedge these exposures could prove unsuccessful and, furthermore, our ability to engage in additional hedging activities may decrease or become more costly.
We are subject to risks associated with the current interest rate environment and, to the extent we use debt to fund our operations, changes in interest rates will affect our cost of debt.
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A substantial portion of our indebtedness bears interest at variable rates, including the Secured Overnight Financing Rate ("SOFR"), making our cost of debt higher in elevated interest rate environments, which increased costs could have a material adverse effect on our financial condition. While we may choose to, and routinely do, enter into interest rate hedging transactions to mitigate the effect of fluctuations in interest rates, we can provide no assurance that we will enter any such transactions in the future or that any such transactions would be successful in mitigating the risks of fluctuations in interest rates.
Risks Related to Ownership of our Common Shares
Axalta Coating Systems Ltd. is a holding company with no operations of its own. Because our operations are conducted almost entirely through our subsidiaries and joint ventures, we are largely dependent on our receipt of distributions and dividends or other payments from our subsidiaries and joint ventures for cash to fund all of our operations and expenses, including to make future dividend payments, if any. We may engage in restructurings and similar transactions that have the effect of altering the economic features of, and rights associated with, our common shares.
Though Axalta Coating Systems Ltd. is party to certain intercompany financing arrangements and is a guarantor of third party debt of certain of its indirect subsidiaries, our operations are conducted almost entirely through our subsidiaries and joint ventures and our ability to generate cash to meet our debt service obligations or to make future dividend payments, if any, or to fund any share repurchases, is highly dependent on the earnings and the receipt of funds from our subsidiaries and joint ventures in the form of intercompany distributions, loans or advances and through repayment of loans or advances from us. Payments to us by our subsidiaries and joint ventures will be contingent upon our subsidiaries' or joint ventures' earnings and other business considerations and may be subject to statutory or contractual restrictions. In addition, there may be significant tax and other legal restrictions on the ability of foreign subsidiaries or joint ventures to remit money to Axalta Coating Systems Ltd. Any payment of intercompany distributions, loans or advances to and from our subsidiaries and joint ventures could be subject to restrictions on, or taxation of, dividends or repatriation of earnings under applicable local law, monetary transfer restrictions, foreign currency exchange regulations in the jurisdictions in which our subsidiaries operate or other restrictions imposed by current or future agreements, including debt instruments, to which our non-U.S. subsidiaries may be a party. From time to time, we may engage in internal reorganizations to manage such restrictions and other . However, any such reorganizations may, among other things, affect our operating results and cash flows.
The price of our common shares has fluctuated, and may in the future fluctuate, significantly and you could lose all or part of your investment.
Volatility in the market price of our common shares may prevent you from being able to sell your common shares at or above the price you paid for your common shares. The market price of our common shares has in the past fluctuated, and could in the future fluctuate, significantly for various reasons, including the realization of any risks described under this "Risk Factors" section. This volatility may increase further during the pendency of the Merger.
In addition, over the past several years, the stock markets have experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including us and other companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common shares could fluctuate based upon factors that have little or nothing to do with our business, and these fluctuations could materially reduce our share price and cause you to lose all or part of your investment. Further, in the past, market fluctuations and price declines in a company's stock have led to securities class action litigation. If such a suit were to arise, it could have a substantial cost, adversely impact our business and divert our resources regardless of the outcome.
We do not expect to pay dividends on our common shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common shares.
We currently do not declare or pay dividends on our common shares. Therefore, the success of an investment in our common shares will depend upon any future appreciation in their value. There is no guarantee that our common shares will appreciate in value or even maintain the price at which our shareholders have purchased their shares. The payment of future dividends, if any, will be at the discretion of our Board and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends (including pursuant to the Merger Agreement during the pendency of the Merger) and other relevant considerations. The credit agreement governing our Senior Secured Credit Facilities and the indentures governing our Senior Notes also limit our ability to pay dividends. In addition, Bermuda law imposes requirements that may restrict our ability to pay dividends to holders of our common shares. As a consequence of these limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common shares.
The Board has authorized a common share repurchase program of $700 million, of which $435 million remains available, though the Merger Agreement prohibits us from repurchasing shares, whether under the repurchase program or otherwise,
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without the prior written consent of AkzoNobel. Accordingly, there is no guarantee with respect to the timing or amount of any future share repurchases. Common share repurchases may reduce the liquidity available to the Company for other activities, including repayment of debt, working capital, capital expenditures, research and development, strategic acquisitions and other general corporate purposes.
Future sales of our common shares in the public market could lower our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the market price of our common shares.
We and our shareholders may sell additional common shares in subsequent offerings, subject to certain limitations, including those set forth in the Merger Agreement during the pendency of the Merger. We may also issue additional common shares or convertible debt securities. As of February 6, 2026, we had 1,000,000,000 common shares authorized and 213,373,942 common shares outstanding.
We cannot predict the size of future issuances or sales of our common shares or the effect, if any, that future issuances and sales of our common shares will have on the market price of our common shares. Sales of substantial amounts of our common shares (including sales by members of management and shares that may be issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common shares. See Part III, Item 13, "Certain Relationships and Related Transactions and Director Independence."
We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.
We are a Bermuda exempted company. As a result, the rights of our shareholders are governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in another jurisdiction, and a substantial portion of our assets are located outside the U.S. As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is questionable whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.
Bermuda law differs from the laws in effect in the U.S. and may afford less protection to our shareholders.
We are organized under the laws of Bermuda. As a result, our corporate affairs are governed by the Companies Act 1981, which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Shareholder class actions are not available under Bermuda law. The circumstances in which shareholder derivative actions may be available under Bermuda law are substantially more limited and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company's memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are to constitute a the minority shareholders or, for instance, where an action requires the approval of a percentage of the company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company's affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company. Additionally, under our bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of our shareholders and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the U.S., particularly the State of Delaware. Therefore, our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction within the U.S.
We have anti-takeover provisions in our bye-laws that may discourage a change of control.
Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board, including that directors may only be removed for cause and our Board can determine the powers, preferences and rights of our preference shares and issue the preference shares without shareholder approval.
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These provisions could discourage, delay or prevent a transaction involving a change in control of our Company and may prevent our shareholders from receiving the benefit from any premium to the market price of our common shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common shares if the provisions are viewed as discouraging takeover attempts in the future. These provisions could also discourage proxy contests, make it more difficult for you and other shareholders to elect directors of your choosing and allow us to take corporate actions other than those you desire.
General Risk Factors
Interruption, interference with, or failure of our information technology and communications systems could hurt our ability to effectively provide our products and services, which could harm our reputation, financial condition, operating results and cash flows.
The availability of our products and services and fulfillment of our customer obligations depend on the continuing operation of our information technology and communications systems. Our systems are vulnerable to damage, interference, or interruption from modifications or upgrades, terrorist attacks, natural disasters or pandemics, power loss, telecommunications failures, user errors, computer viruses, ransomware attacks, computer denial of service attacks, phishing schemes, or other attempts to harm or access our systems, and we have in the past experienced, and may in the future experience, such events, though the effects have yet to have a material adverse effect on our business. Some of our systems are not fully redundant, and disaster recovery planning cannot account for all eventualities. Any such event relating to our systems (or the systems of third parties that we rely on) could result in theft, , modification or of information, including trade secrets and confidential business information, and cause business , including those that may production at our manufacturing facilities, reputational and third-party , any of which could have a material effect on our business, financial condition, results of operations or cash flows.
Since the techniques used to obtain unauthorized access to systems, or to otherwise sabotage them, change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As these threats continue to evolve, particularly around cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices, and other countermeasures. While we have designed and implemented controls to restrict access to our data and information technology infrastructure, it is still vulnerable to unauthorized access through cyber attacks, theft and other security breaches. These types of attacks have occurred against our systems from time to time, and we believe there have been no material adverse impacts to date. We expect these attacks to continue, and our protective measures may not be adequate to ensure that our operations will not be , should another such event occur in the future. In addition, these attacks may increase in frequency or intensity during the pendency of the Merger. Geopolitical tensions or may further heighten the risk of cyber attacks, and the emergence and maturation of artificial intelligence capabilities may also lead to more sophisticated methods of attack. Although we continually seek to our to prevent such events, we may be to anticipate every scenario and it is possible that certain cyber or will be or unmitigated in time to prevent an attack on us and our customers, which risk is especially heightened when demands of management’s attention are heightened in other areas such as the Merger. We have in the past been, and may in the future be, to the effects of cybersecurity that occur at third parties such as our customers, suppliers or business partners, and a of a third party's safeguards, policies or procedures could compromise our own data or operations. While we maintain safeguards to mitigate the effects of such , we cannot be certain that such safeguards would be . These safeguards are reviewed periodically and modified to mitigation of such risks. See Part I, Item 1C, “Cybersecurity”.
In addition, we rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of a multi-year implementation of a new ERP system, which will replace much of our existing core financial systems. We have in the past experienced temporary operational disruptions from our ERP system implementation and may in the future experience similar delays in any of the regions in which the new ERP system has not yet been implemented, which may result in increased costs and other difficulties, including the diversion of management from the day-to-day operation of the business. Failure to successfully implement the ERP system could harm our business, financial condition, results of operations and cash flow. Additionally, the ERP system is critical to our ability to provide important information to our management on a timely basis, obtain and deliver products to our customers, provide services and customer support, send invoices and track payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and reliable reports on our financial and operating results, our data management, and otherwise operate our business. of the ERP system to perform in any of these areas could our business, financial condition, operating results and cash flows, and, in the case of functions that impact our customers, could result in to our customer relationships. Lastly, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be affected.
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Uncertainty in the development, deployment, and use of artificial intelligence in our products and services, as well as our business more broadly, could adversely affect our business and reputation. Artificial intelligence (“AI”) technologies may enable disruption in our industry and threaten our competitive positioning.
We use systems and tools that incorporate technologies based on AI, including systems and tools that may include generative AI for customers and our workforce. As with many new and emerging technologies, AI presents numerous risks and challenges that could adversely affect our business. AI continues to be an emerging technology, and ineffective or inadequate AI deployment, safeguards, controls or application practices by us or third parties could result in unintended consequences. For example, models, including large language models, underlying AI solutions that we use may be flawed or may be based on datasets that are biased or insufficient or of poor quality. There is also uncertainty around the validity and enforceability, as well as the nature, of our rights in intellectual property that is created in connection with our use, development, and deployment of AI, including the potential compromise of our rights in our intellectual property that is input into AI tools, whether done intentionally or by our employees or agents without permission to do so. In addition, our use of AI could unintentionally the intellectual property rights of third parties. Developing, testing, and deploying resource-intensive AI systems may require additional investment and increase our costs. Certain of our competitors may deploy AI technologies that provide more value to customers than those deployed by us, which could affect customer demand for our products and services. Additionally, certain AI technologies may , or accelerate the pace of, in our industry, including by allowing existing and future competitors to compete and/or outpace Axalta in areas that we have a competitive in currently, including color-matching and certain application technologies. Any of the foregoing may result in decreased demand for our products or to our business, results of operations or reputation.
The legal and regulatory landscape surrounding AI technologies is rapidly evolving and uncertain, including in the areas of intellectual property, cybersecurity, and privacy and data protection. Compliance with new or changing laws, regulations or industry standards relating to AI may impose significant operational costs, limit or foreclose our ability to develop, deploy or use AI technologies or result in legal liability, regulatory action, or reputational harm.
Increased competition may adversely affect our business, financial condition, results of operations and cash flows.
As described in greater detail in the "Performance Coatings Competition" section on page 7 and the "Mobility Coatings Competition" section on page 10, we face substantial competition from many international, national, regional and local competitors of various sizes in the manufacturing, distribution and sale of our coatings and related products. Our inability to compete successfully could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We take on credit risk exposure from our customers in the ordinary course of our business.
We routinely offer customers pre-bates, loans and other financial incentives to purchase our products. These arrangements generally obligate the customer to purchase products from us and/or repay us such incentives. In the event that a customer is unwilling or unable to fulfill its obligations under these arrangements, we have incurred, and may in the future incur, financial losses. In addition, in the ordinary course of our business, we guarantee certain of our customers' obligations to third parties. Any default by our customers on their obligations could force us to make payments to the applicable creditor. See Note 5 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further detail on guarantees of our customers’ obligations to third parties. It is possible that customer defaults on obligations owed to us and on third-party obligations that we have guaranteed could be significant, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our level of credit risk exposure from our customers has remained stable in recent years.
Currency risk may adversely affect our financial condition, results of operations and cash flows.
We derive a significant portion of our net sales from outside the U.S. and conduct our business and incur costs in the local currency of most countries in which we operate. Because our financial statements are presented in U.S. dollars, we must translate our financial results as well as assets and liabilities into U.S. dollars at exchange rates in effect during or at the end of each reporting period, as applicable. Therefore, increases or decreases in the value of the U.S. dollar against currencies in such countries will affect our results of operations and the value of balance sheet items denominated in foreign currencies. In particular, we are exposed to the Euro, the Brazilian Real, the Chinese Yuan, the British Pound, the Australian Dollar, the Turkish Lira, the Mexican Peso, the Indian Rupee, the Swedish Krona, the Swiss Franc and the Argentinian Peso, among others. Furthermore, many of our local businesses import or buy raw materials in a currency other than their functional currency, which can impact the operating results for these operations if we are unable to mitigate the impact of the currency exchange fluctuations. We cannot accurately predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. Accordingly, fluctuations in foreign exchange rates may have an effect on our financial condition, results of operations and cash flows.
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Terrorist acts, conflicts, wars, natural disasters, pandemics and other health crises, among other events beyond our control, may materially adversely affect our business, financial condition, results of operations and cash flows.
As a multinational company with a large international footprint, we are subject to increased risk of damage or disruption to us, our employees and other personnel, facilities, partners, suppliers, distributors, resellers or customers due to terrorist acts, conflicts, wars, adverse weather conditions, natural disasters, power outages, pandemics or other public health crises and environmental incidents, wherever located around the world. The potential for such events, the national and international responses to such events, or perceived threats or potential conflicts relating to or arising out of such events may create economic and political uncertainties and challenges for us, our customers, suppliers and logistic partners that could have a materially adverse effect on our business, financial condition, results of operations and cash flows. Such events may compromise the safety of, and continued provision of services by, our employees and other personnel, including executive officers and other key personnel, and any resulting or of services could our business. A of the use of all or a portion of one of our key manufacturing facilities due to , labor issues, weather conditions, acts of war, political , geopolitical risk, terrorist activity, pandemic or other public health , natural or otherwise, whether short- or long-term, and any in production capability, could require us to make substantial capital expenditures to remedy the situation, which could affect our business, financial condition, results of operations and cash flows.
Russia's conflict with Ukraine, conflicts in the Middle East and the sanctions and other measures imposed by various governments in response to these conflicts have increased the level of economic and political uncertainty globally. A significant escalation or expansion of economic disruption, countries subject to sanctions or the scope of any of these conflicts could have a material adverse effect on our business, financial condition, results of operations and cash flows and could result in, among other things, supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign exchange rates, rising interest rates or heightened cybersecurity risks, any of which may adversely affect the Company’s business.
The insurance we maintain may not cover all potential exposures.
Our product liability, property, business interruption, cybersecurity and casualty insurance coverages may not cover all risks associated with the operation of our business and may not be sufficient to offset the costs of any losses, lost sales or increased costs experienced during business interruptions. For some risks, we may elect not to obtain insurance. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Losses and liabilities from uninsured or underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to complex and evolving data privacy laws.
Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection and other matters, including GDPR. We could be liable for loss or misuse of our customers' and/or our employees' personally-identifiable information if we fail to prevent or mitigate such misuse or loss. Although we have developed systems and processes that are designed to protect customer and employee information and prevent misuse of such information and other security breaches, failure to prevent or mitigate such misuse or breaches may affect our reputation and operating results negatively and may require significant management time and attention and could result in significant regulatory fines and/or other penalties.
We may be subject to changes in our tax rates, the adoption of tax legislation or additional tax liabilities, each of which may adversely affect our results of operations.
We are subject to taxes in the U.S. and non-U.S. jurisdictions where our subsidiaries are organized. Due to economic and political conditions, tax rates, tax laws and other non-tax legislation, such as economic substance regulations, in various jurisdictions may be subject to significant change. Our effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in available tax credits or tax deductions and changes in tax and other non-tax laws or their interpretation, such as interpretations as to the legality of tax advantages granted under the EU state aid rules, impacts of the EU's Anti-Tax Avoidance Directive and local exit tax rules with respect to business restructurings. Our tax returns and other tax matters are subject to examination by local tax authorities and governmental bodies. Additionally, we and our subsidiaries are engaged in intercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in place, tax authorities may propose and sustain adjustments.
We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to
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increase, or if the ultimate determination of the taxes owed by us is for an amount in excess of amounts previously accrued, our financial condition, operating results and cash flows could be adversely affected.
The Organization for Economic Cooperation and Development (“OECD”), which represents a coalition of member countries globally, is supporting changes to numerous long-standing tax principles through its base erosion and profit shifting (“BEPS”) project. The BEPS project is focused on a number of issues, including the shifting of profits among affiliated entities located in jurisdictions with different tax rates and a global minimum corporate income tax under “Pillar Two.” The Pillar Two framework imposes, among other items, a minimum tax rate of 15% that has been implemented by several jurisdictions in which we operate, with effect from January 1, 2024. Many jurisdictions continue to announce changes in their tax laws and regulations based on the Pillar Two framework. While we continue to evaluate the impact of these legislative changes as additional guidance becomes available, uncertainty remains regarding the timing and interpretation by tax authorities in affected jurisdictions. The effect of Pillar Two rules did not have a significant impact on our condensed consolidated financial statements as of December 31, 2025, but could have adverse impact on our effective tax rate, tax liabilities and cash tax in future years.
On July 4, 2025, the President of the U.S. signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA maintains the 21% corporate tax rate and makes permanent many of the beneficial expired and expiring provisions originally enacted in the Tax Cuts and Jobs Act of 2017, including immediate expensing of domestic research and development expenditures, more favorable interest deductibility, and 100% business depreciation with effective dates in 2025. Revisions to the international tax framework are effective in 2026. The effect of the OBBBA did not have a material impact on the effective tax rate in our condensed consolidated financial statements as of December 31, 2025. The OBBBA reduced cash paid for taxes during the year ended December 31, 2025.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our sustainability practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices and disclosure. Recently adopted disclosure requirements related to sustainability, including the EU’s CSRD and CSDDD and the California Climate Laws, have already and will continue to increase our sustainability-related compliance costs, which could result in increases to our overall operational costs. New government regulations could also result in new or more stringent forms of sustainability oversight, including increased limitation on, or required reduction of, GHG emissions, and the expansion of mandatory and voluntary reporting, diligence, and disclosure regarding sustainability matters. In addition, we may be subject to heightened scrutiny, negative publicity, boycotts, lawsuits or demands from activists, politicians or other individuals or organizations opposed to sustainability, and the expectations of these individuals or organizations may conflict with regulatory requirements or stakeholder expectations. Failure to adapt to or comply with regulatory requirements or investor, employee, customer, or other stakeholder expectations, including any perceived , could impact our reputation, ability to do business with certain customers, and our stock price.
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