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What changed in Masco's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Masco's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+196 added−214 removedSource: 10-K (2024-02-08) vs 10-K (2023-02-09)

Top changes in Masco's 2023 10-K

196 paragraphs added · 214 removed · 179 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeForeign manufacturers competing with us are located primarily in Europe, China and Canada. Additionally, we face significant competition from private label products and digitally native brands. The businesses in our Plumbing Products segment manufacture products primarily in North America and Europe as well as in Asia and source products from Asia and other regions.
Biggest changeCompetitors of our spas, exercise pools, aquatic fitness systems and saunas include Artesian Spas, Harvia, Jacuzzi and Master Spas brands, among others. Foreign manufacturers competing with us are located primarily in Europe, China and Canada. Additionally, we face significant competition from private label products and digitally native brands.
Our competitors in this segment include large national and international brands such as Benjamin Moore & Co., PPG Industries, Inc.'s Glidden, Olympic, Pittsburgh Paints and PPG brands, The Sherwin‑Williams Company's Minwax, Sherwin-Williams, Thompson’s Water Seal, Valspar and Purdy brands, RPM International, Inc.'s Rust-Oleum and Zinsser brands and the Wooster Brush Company, as well as many regional and other national brands.
Our competitors in this segment include large national and international brands such as Benjamin Moore & Co., PPG Industries, Inc.'s Glidden, Olympic, Pittsburgh Paints and PPG brands, RPM International, Inc.'s Rust-Oleum and Zinsser brands, The Sherwin‑Williams Company's Minwax, Sherwin-Williams, Thompson’s Water Seal, Valspar and Purdy brands and the Wooster Brush Company, as well as many regional and other national brands.
The EEO-1 leadership benchmark includes executive-level/senior-officials and managers, and first-level officials and managers. • In the U.S., our salaried workforce is comprised of approximately 36 percent women and 30 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 28 percent and 28 percent, respectively.
The EEO-1 leadership benchmark includes executive-level/senior-officials and managers, and first-level officials and managers. • In the U.S., our salaried workforce is comprised of approximately 36 percent women and 30 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 28 percent and 29 percent, respectively.
These products are marketed primarily in North America under our BRASSCRAFT ® , PLUMBSHOP ® , COBRA ® and MASTER PLUMBER ® brands and are also sold under private label. • Within our Plumbing Products segment we develop connected water products that enhance the experience with water in homes and businesses.
These products are marketed primarily in North America under our BRASSCRAFT ® , PLUMBSHOP ® and MASTER PLUMBER ® brands and are also sold under private label. • Within our Plumbing Products segment we develop connected water products that enhance the experience with water in homes and businesses.
This Report is being posted on our website concurrently with its filing with the SEC. Material contained on our website is not incorporated by reference into this Report. Our reports filed with the SEC also may be found on the SEC’s website at www.sec.gov.
This Report is being posted on our website concurrently with its filing with the SEC. Material contained on our website is not incorporated by reference into this Report. Our reports filed with the SEC also may be found on the SEC’s website at www.sec.gov. 6
These products are sold in North America, South America and China under the brand names BEHR ® , KILZ ® , WHIZZ ® , Elder & Jenks ® and other trademarks to “do‑it‑yourself” and professional customers through home center retailers and other retailers.
These products are sold in North America and South America under the brand names BEHR ® , KILZ ® , WHIZZ ® , Elder & Jenks ® and other trademarks to “do‑it‑yourself” and professional customers through home center retailers and other retailers.
Competitors of these products include Acuity, FX Luminaire, Generation Brands, Hinkley Lighting, Inc., Hubbell Incorporated's Progress Lighting brand, Hunter Fan Company and private label brands. 4 Additional Information Intellectual Property We hold numerous U.S. and foreign patents, patent applications, licenses, trademarks, trade names, trade secrets and proprietary manufacturing processes.
Competitors of these products include Acuity, FX Luminaire, Generation Brands, Hinkley Lighting, Inc., Hunter Fan Company, Progress Lighting brand and private label brands. 4 Additional Information Intellectual Property We hold numerous U.S. and foreign patents, patent applications, licenses, trademarks, trade names, trade secrets and proprietary manufacturing processes.
Leadership We support and foster the growth of our employees by providing development opportunities, experiences and tools that build and strengthen leadership capabilities. Our Leadership Framework, which is how we internally describe the capabilities and behaviors that we believe make great leaders, serves as the foundation for how we select, develop and measure the performance of our leaders.
Leadership We support and foster the growth of our employees by providing development opportunities, experiences and tools that build and strengthen leadership capabilities. Our Leadership Profile, which is how we internally describe the capabilities and behaviors that we believe make great leaders, serves as the foundation for how we select, develop and measure the performance of our leaders.
We believe that our solid results of operations and financial position for 2022 resulted from our continued focus on our three strategic pillars: • drive the full potential of our core businesses; • leverage opportunities across our enterprise; and • actively manage our portfolio.
We believe that our solid results of operations and financial position for 2023 resulted from our continued focus on our three strategic pillars: • drive the full potential of our core businesses; • leverage opportunities across our enterprise; and • actively manage our portfolio.
The majority of our faucet, bathing and showering products are sold primarily in North America, Europe and China under the brand names DELTA ® , BRIZO ® , PEERLESS ® , HANSGROHE ® , AXOR ® , KRAUS ® , EASY DRAIN ® , STEAMIST ® , ELITESTEAM ® , GINGER ® , NEWPORT BRASS ® , BRASSTECH ® and WALTEC ® .
The majority of our faucet, bathing and showering products are sold primarily in North America, Europe and China under the brand names DELTA ® , BRIZO ® , PEERLESS ® , HANSGROHE ® , AXOR ® , KRAUS ® , EASY DRAIN ® , GINGER ® , NEWPORT BRASS ® , BRASSTECH ® and WALTEC ® .
Human Capital Management The performance of our Company is impacted by our human capital management, and as a result we are focused on attracting, developing and retaining highly qualified, engaged and diverse employees. We have developed three strategic talent priorities: leadership, diversity, equity and inclusion, and future workforce.
Human Capital Management The performance of our Company is impacted by our human capital management, and as a result we are focused on attracting, developing and retaining highly qualified, engaged employees, who have diverse experiences and backgrounds. We have developed three strategic talent priorities: leadership, diversity, equity and inclusion, and future workforce.
In addition, the prices of crude oil, natural gas, propylene, methyl methacrylate (MMA) and certain petroleum by-products can impact our costs and results of operations in this segment. We have multiple sources, both domestic and foreign, for the raw materials used in this segment. We have encountered price volatility for propylene and MMA.
In addition, the prices of crude oil, natural gas, propylene and certain petroleum by-products can impact our costs and results of operations in this segment. We have multiple sources, both domestic and foreign, for the raw materials used in this segment. We have encountered price volatility for propylene and certain petroleum by-products.
Our MIROLIN products are also sold to wholesalers and distributors in Canada. • Our spas, exercise pools and aquatic fitness systems are manufactured and sold under our HOT SPRING ® , CALDERA ® , FREEFLOW SPAS ® , FANTASY SPAS ® and ENDLESS POOLS ® brands, as well as under other trademarks.
Our MIROLIN products are also sold to wholesalers and distributors in Canada. • Our spas, exercise pools, aquatic fitness systems and saunas are manufactured and sold under our HOT SPRING ® , CALDERA ® , FREEFLOW SPAS ® , FANTASY SPAS ® , ENDLESS POOLS ® , TYLO and FINNLEO brands, as well as under other trademarks.
We are focused on the following three key areas: • Our workplace: who we are and how it feels to work at Masco • Our marketplace: how we deliver innovative solutions that meet the needs of all our consumers and customers • Our communities: how we can help increase access, equity, and inclusion through strong community partners and business partnerships 5 Each strategic focus area has a series of enterprise-wide initiatives, and our businesses have aligned plans that are tailored to meet their specific needs.
We are focused on the following three key areas: • Our workplace: who we are and how it feels to work at Masco • Our marketplace: how we deliver innovative solutions that meet the needs of all our consumers and customers • Our communities: how we can help increase access, equity, and inclusion through strong community partners and business partnerships 5 We have developed enterprise-wide initiatives in each strategic focus area and our businesses have developed plans designed to meet their specific needs that are aligned with these initiatives.
Our enterprise DE&I Council along with business unit councils and employee resource groups serve as advisors, ambassadors and change agents in implementing our enterprise-wide initiatives and their business unit plans. Our workforce representation statistics are one indicator of our performance in advancing a diverse workforce.
Our executive leadership team, DE&I Councils, and employee resource groups serve as advisors, ambassadors and change agents in implementing our enterprise-wide initiatives and their business unit plans. Our workforce representation statistics are one indicator of our performance in advancing a diverse workforce.
The EEO-1 salaried employees benchmark includes leadership, professionals and technicians. • In the U.S., our hourly workforce, which includes hourly and exception hourly, is comprised of 37 percent women and 55 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 28 percent and 38 percent, respectively.
The EEO-1 salaried employees benchmark includes leadership, professionals and technicians. • In the U.S., our hourly workforce, which includes hourly and exception hourly, is comprised of 37 percent women and 54 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 29 percent and 40 percent, respectively.
Net sales of architectural coatings comprised approximately 32 percent, 30 percent and 33 percent of our consolidated net sales from our continuing operations in 2022, 2021, and 2020, respectively. Our BEHR products are sold through The Home Depot, our largest customer overall, as well as this segment’s largest customer.
Net sales of architectural coatings comprised approximately 32 percent, 32 percent and 30 percent of our consolidated net sales in 2023, 2022, and 2021, respectively. Our BEHR products are sold through The Home Depot, our largest customer overall, as well as this segment’s largest customer.
Following is our workforce representation statistics as of December 31, 2022: • In the U.S., our leadership team is comprised of 33 percent women and 26 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 25 percent and 21 percent, respectively.
Following is our workforce representation statistics as of December 31, 2023: • In the U.S., our leadership team is comprised of 34 percent women and 26 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 26 percent and 23 percent, respectively.
Our Decorative Architectural Products segment includes branded cabinet and door hardware, functional hardware, wall plates, hook and hook rail products, closet organization systems and picture hanging accessories, which are manufactured for us and sold to home center retailers, mass retailers, online retailers, other specialty retailers, original equipment manufacturers and wholesalers.
Our Decorative Architectural Products segment includes branded cabinet and door hardware, functional hardware, wall plates, hook and hook rail products, and outdoor living hardware, which are manufactured for us and sold to home center retailers, mass retailers, online retailers, other specialty retailers, original equipment manufacturers and wholesalers.
To develop a sustainable pipeline of leaders, we have robust and proactive talent management and succession planning processes to support our businesses. In addition, our Board of Directors and executive management team regularly review our Company’s critical leadership roles and succession plans.
To develop a sustainable pipeline of leaders, we have robust and proactive talent management and succession planning processes to support our businesses. In addition, our Board of Directors and executive management team regularly review our Company’s critical leadership roles and succession plans. We are focused on building a continuous improvement and learning culture.
Our spa and exercise pools are sold worldwide to independent specialty retailers and distributors and to online mass merchant retailers.
Our spas, exercise pools and saunas are sold worldwide to independent specialty retailers and distributors and our spas and exercise pools are also sold to online mass merchant retailers.
We are focused on building a continuous learning culture by enabling frequent and candid feedback discussions about performance and development between employees and their managers, across peers, and within teams. Diversity, Equity and Inclusion ("DE&I") We believe a workplace that encourages different voices, perspectives and backgrounds creates better teams, better solutions and more innovation.
This is supported by frequent and candid feedback discussions about performance and development between employees and their managers, across peers, and within teams. Diversity, Equity and Inclusion ("DE&I") We believe a workplace that encourages different voices, perspectives and backgrounds creates better teams, better solutions and more innovation. We strive to cultivate a sense of belonging for our employees.
This segment also includes decorative indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems. These products are sold to home center retailers, online retailers, electrical distributors, landscape distributors and lighting showrooms under the brand names KICHLER ® and ÉLAN ® and under other trademarks.
These products are sold to home center retailers, online retailers, electrical distributors, landscape distributors and lighting showrooms under the brand names KICHLER ® and ÉLAN ® and under other trademarks.
KG, Zurn Elkay Water Solutions Corporation, Fortune Brands Innovations, Inc.'s Moen, Rohl and Riobel brands, Kohler Co., Lixil Group Corporation’s American Standard and Grohe brands, Spectrum Brands Holdings, Inc.'s Pfister faucets and private label brands. Competitors of our spas and exercise pools and systems include Artesian Spas, Jacuzzi and Master Spas brands, among others.
KG, Zurn Elkay Water Solutions Corporation, Fortune Brands Innovations, Inc.'s Moen, Rohl and Riobel brands, Kohler Co., Lixil Group Corporation’s American Standard and Grohe brands, Spectrum Brands Holdings, Inc.'s Pfister faucets as well as private label and digitally native brands.
Decorative bath hardware, shower accessories, mirrors and shower doors are sold under the brand names DELTA ® and FRANKLIN BRASS ® and other trademarks to home center retailers, mass retailers, online retailers, other specialty retailers and wholesalers. Competitors for these products include Fortune Brands Innovations, Inc.'s Moen brand, Gatco Fine Bathware, Kohler Co. and private label brands.
Decorative bath hardware, shower accessories, mirrors and shower doors are sold under the brand names DELTA ® and FRANKLIN BRASS ® and other trademarks to home center retailers, mass retailers, online retailers, other specialty retailers and wholesalers.
Competition for our plumbing products is based largely on brand reputation, product features and innovation, product quality, customer service, breadth of product offering and price.
The businesses in our Plumbing Products segment manufacture products primarily in North America and Europe as well as in Asia and source products from Asia and other regions. Competition for our plumbing products is based largely on brand reputation, product features and innovation, product quality, customer service, breadth of product offering and price.
In 2022, we continued to return value to our shareholders by repurchasing approximately 16.6 million shares of our common stock and increasing our quarterly dividend by approximately 19 percent compared to 2021. Our Business Segments We report our financial results in two segments, our Plumbing Products segment and our Decorative Architectural Products segment, which are aggregated by product similarity.
Our Business Segments We report our financial results in two segments, our Plumbing Products segment and our Decorative Architectural Products segment, which are aggregated by product similarity.
We describe those goals in our Corporate Social Responsibility report, which is not incorporated by reference into this Report. Future Workforce There are critical capabilities that our employees and our organization need to help us achieve our businesses objectives.
The EEO-1 hourly employees benchmark includes all other EEO categories we did not include in the EEO-1 leadership and salaried benchmark. Future Workforce There are critical capabilities that our employees and our organization need to help us achieve our businesses objectives.
Throughout 2022, we continued to implement the best practices and recommendations from the Centers for Disease Control and the Department of Labor (OSHA). Our Workforce At December 31, 2022, we employed approximately 19,000 people. 6 Available Information Our website is www.masco.com.
Our Workforce At December 31, 2023, we employed approximately 18,000 people. Available Information Our website is www.masco.com.
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We strive to cultivate a sense of belonging for our employees.
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In 2023, we acquired all of the share capital of Sauna360 Group Oy ("Sauna360") for approximately €124 million ($136 million), net of cash acquired. In addition, we continued to return value to our shareholders by repurchasing approximately 6.2 million shares of our common stock and increasing our quarterly dividend by approximately two percent compared to 2022.
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The EEO-1 hourly employees benchmark includes all other EEO categories we did not include in the EEO-1 leadership and salaried benchmark. We have established specific aspirational representation goals for 2025 for certain groups within our U.S. workforce along with goals linked to employees’ experiences related to inclusion and belonging.
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Competitors for these products include American Bath Group, LLC's Dreamline brand, Fortune Brands Innovations, Inc.'s Moen brand, Gatco Fine Bathware, Kohler Co. and private label brands. This segment also includes decorative indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems.
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These aspirational goals are ambitious and are not intended to be commitments, promises, or guarantees of future achievement. Any progress towards these goals is regularly measured and is reviewed by our Compensation and Talent Committee of our Board of Directors and executive management team.
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After establishing these goals, we faced and continue to face complexities and variables that are impacting our progress and may result in us not achieving our goals, such as a tightening labor market, challenging economic environment, changes to our portfolio of businesses via acquisitions or divestitures, and adjustments to our job levels and managerial headcount.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese attacks have led and could in the future lead to business interruption, production or operational downtime, product shipment delays, exposure or loss of proprietary confidential or financial information or the personal information of our employees, suppliers, customers or consumers, data corruption, an inability to report our financial results in a timely manner, damage to the reputation of our brands, damage to our relationships with our employees, suppliers, customers and consumers, exposure to litigation, and increased costs associated with the remediation and mitigation of such attacks.
Biggest changeThese attacks could have the following impacts on our business, some of which we have experienced: • business interruption; • damage to our relationships with our employees, suppliers, customers and consumers; • damage to the reputation of our brands; • data corruption; • exposure or loss of proprietary confidential or financial information or the personal information of our employees, suppliers, customers or consumers; • exposure to litigation; • inability to report our financial results in a timely manner; • increased costs associated with the remediation and mitigation of such attacks; • product shipment delays; • production or operational downtime; and • theft of our assets. 12 In addition, we could be adversely impacted if any of our significant customers, suppliers or service providers experiences any similar events that disrupt their business operations or damage their reputation.
Risks associated with our international operations include: • differences in culture, economic and labor conditions and practices; • the policies of the U.S. and foreign governments; • disruptions in trade relations and economic instability; • differences in enforcement of contract and intellectual property rights; • timeliness of transportation and port congestion; • social and political unrest; and • natural disasters, terrorist attacks, pandemics, wars or conflicts or other catastrophic events.
Risks associated with our international operations include: • differences in culture, economic and labor conditions and practices; • differences in enforcement of contract and intellectual property rights; • differences in the policies of the U.S. and foreign governments; • disruptions in trade relations and economic instability; • natural disasters, terrorist attacks, pandemics, wars or conflicts or other catastrophic events; • social and political unrest; and • timeliness of transportation and port congestion.
Competitive Risks We could lose market share if we do not maintain our strong brands, develop innovative products or respond to changing purchasing practices and consumer preferences. Our competitive advantage is due, in part, to our ability to maintain our strong brands and to develop and introduce innovative new and improved products.
Competitive Risks We could lose market share if we do not maintain our strong brands, develop innovative products or respond to changing consumer purchasing practices and preferences. Our competitive advantage is due, in part, to our ability to maintain our strong brands and to develop and introduce innovative new and improved products.
We are subject to a wide variety of federal, state, local and foreign laws and regulations pertaining to: • anti-bribery/anti-corruption; • climate change and protection of the environment; • competition practices; • data privacy; • employment and labor matters; • environment, health and safety matters; • product safety and performance; • protection of employees and consumers; • securities matters; • sanctions; • taxation; • trade, including duties and tariffs; and • wage and hour matters.
We are subject to a wide variety of federal, state, local and foreign laws and regulations, including those pertaining to: • anti-bribery/anti-corruption; • climate change and protection of the environment; • competition practices; • data privacy; • employment and labor matters; • environment, health and safety matters; • product safety and performance; • protection of employees and consumers; • securities matters; • sanctions; • taxation; • trade, including duties and tariffs; and • wage and hour matters.
If the frequency or severity of extreme weather increases, we may experience interruptions to our operations, further impact on our supply chain, increased operating costs or loss or damage to our property or inventory, which could adversely affect our results of operations and financial position. Restrictive covenants in our credit agreement could limit our financial flexibility.
If the frequency or severity of extreme weather increases, we may experience interruptions to our operations, further impact on our supply chain, increased operating costs or loss or damage to our property or inventory, which could adversely impact our results of operations and financial position. Restrictive covenants in our credit agreement could limit our financial flexibility.
Increases in the cost of the materials we purchase, including as a result of diminished availability, increased tariffs and inflation or unfavorable fluctuations in foreign currency exchange rates have increased and may in the future increase the prices for our products and negatively impact our results of operations and financial position.
Increases in the cost of the materials we purchase, including as a result of diminished availability, increased tariffs and inflation or unfavorable fluctuations in currency exchange rates have increased and may in the future increase the prices for our products and negatively impact our results of operations and financial position.
If we do not timely and effectively identify and respond to these changes our relationships with our customers and with consumers could be harmed, our ability to retain our customers and consumers may be negatively impacted, the demand for our brands and products could be reduced and our results of operations and financial position could be adversely affected.
If we do not timely and effectively identify and respond to these changes our relationships with our customers and with consumers could be harmed, our ability to retain our customers and consumers may be negatively impacted, the demand for our brands and products could be reduced and our results of operations and financial position could be adversely impacted.
Such risks include: • difficulties realizing expected synergies and economies of scale; • diversion of management attention and our resources; • unforeseen liabilities; • issues or conflicts with our new or existing customers or suppliers; and • difficulties in retaining critical employees of the acquired businesses.
Such risks include: 7 • difficulties in retaining critical employees of the acquired businesses; • difficulties realizing expected synergies and economies of scale; • diversion of management attention and our resources; • issues or conflicts with our new or existing customers or suppliers; and • unforeseen liabilities.
Strategic Risks Our business strategy is focused on residential repair and remodeling activity and, to a lesser extent, on new home construction activity, both of which are impacted by a number of economic factors and other factors. Our business relies on residential repair and remodeling activity and, to a lesser extent, on new home construction activity.
Strategic Risks Our business strategy is focused on residential repair and remodeling activity and, to a lesser extent, on new home construction activity, both of which are impacted by a number of economic and other factors. Our business performance relies on residential repair and remodeling activity and, to a lesser extent, on new home construction activity.
In addition, we face competitive pricing pressure in the marketplace, including sales promotion programs, that could affect our market share or result in price reductions, which could adversely impact our results of operations and financial position. 11 Further, the growing e-commerce channel brings an increased number of competitors and greater pricing transparency for consumers, as well as conflicts between our existing distribution channels and a need for different distribution methods.
In addition, we face competitive pricing pressure in the marketplace, including sales promotion programs, that could impact our market share or result in price reductions, which could adversely impact our results of operations and financial position. 11 The growing e-commerce channel brings an increased number of competitors and greater pricing transparency for consumers, as well as conflicts between our existing distribution channels and a need for different distribution methods.
Current and former employees, contractors, customers or suppliers have or may have had access to proprietary or confidential information regarding our business operations that could harm us if used by them, or disclosed to others, including our competitors. Protecting and preventing the unauthorized use of our intellectual property could be costly, time consuming and require significant resources.
Current and former employees, contractors, customers or suppliers have or may have had access to proprietary or confidential information regarding our business operations that could harm us if used by them, or disclosed to others, including our competitors. Protecting and preventing the unauthorized use of our intellectual property is costly, time consuming and require significant resources.
Our results of operations and financial position, as well as the effectiveness of our internal controls over financial reporting, could be adversely affected if we do not appropriately select, implement, maintain or upgrade our critical systems in a timely manner or if we experience significant unanticipated expenses or disruptions in connection with the implementation, upgrade or update of such systems.
Our results of operations and financial position, as well as the effectiveness of our internal controls over financial reporting, could be adversely impacted if we do not appropriately select, implement, maintain or upgrade our critical systems in a timely manner or if we experience significant unanticipated expenses or disruptions in connection with the implementation, upgrade or update of such systems.
Pursuing the acquisition of businesses complementary to our portfolio is a component of our strategy for future growth. If we are not able to identify suitable acquisition candidates or consummate potential acquisitions within a desired time frame or at acceptable terms and prices, our long-term competitive positioning may be affected.
Pursuing the acquisition of businesses complementary to our portfolio is a component of our strategy for future growth. If we are not able to identify suitable acquisition candidates or consummate potential acquisitions within a desired time frame or at acceptable terms and prices, our long-term competitive positioning may be impacted.
From time to time we enter into long-term agreements with certain significant suppliers to help ensure continued availability of the commodities we require to produce our products and to establish firm pricing, but at times these contractual commitments may result in our paying above market prices for commodities during the term of the contract.
From time to time we enter into long-term agreements with certain significant suppliers to help ensure continued availability of the commodities we require to produce our products and to establish firm pricing, but these contractual commitments may result in our paying above market prices for commodities during the term of the contract.
These customers can significantly affect the prices we receive for our products and the terms and conditions on which we do business with them. Additionally, these customers have reduced in the past and may in the future reduce the number of vendors from which they purchase and could make significant changes in their volume of purchases from us.
These customers can significantly impact the prices we receive for our products and the terms and conditions on which we do business with them. Additionally, these customers have reduced in the past and may in the future reduce the number of vendors from which they purchase and could make significant changes in their volume of purchases from us.
Any such loss would have a material adverse effect on our business, results of operations and financial position. In addition, our Behr business grants Behr brand exclusivity in the retail sales channel in North America to The Home Depot, and from time to time, certain of our other businesses grant product and/or brand exclusivity to our customers.
Any such loss would have a material adverse impact on our business, results of operations and financial position. In addition, our Behr business grants Behr brand exclusivity in the retail sales channel in North America to The Home Depot, and from time to time, certain of our other businesses grant product and/or brand exclusivity to our customers.
Further, our production has been and may in the future be affected if we or our suppliers are unable to procure our requirements for various commodities, including, among others, brass, resins, titanium dioxide and zinc, or if a shortage of these commodities results in significantly increased costs.
Further, our production has been and may in the future be impacted if we or our suppliers are unable to procure our requirements for various commodities, including, among others, brass, resins, titanium dioxide and zinc, or if a shortage of these commodities results in significantly increased costs.
These factors could adversely affect our results of operations and financial position. It can be difficult for us to pass on to customers our cost increases. Our existing arrangements with customers, competitive considerations and customer resistance to price increases may delay or make us unable to adjust selling prices.
These factors could adversely impact our results of operations and financial position. It can be difficult for us to pass our cost increases on to our customers. Our existing arrangements with customers, competitive considerations and customer resistance to price increases may delay or make us unable to adjust selling prices.
Item 1A. Risk Factors. There are a number of business risks and uncertainties that could affect our business. These risks and uncertainties could cause our actual results to differ from past performance or expected results. We consider the following risks and uncertainties to be most relevant to our specific business activities.
Item 1A. Risk Factors. There are a number of business risks and uncertainties that could impact our business. These risks and uncertainties could cause our actual results to differ from past performance or expected results. We consider the following risks and uncertainties to be most relevant to our specific business activities.
Home center retailers, which have historically concentrated their sales efforts on retail consumers and remodelers, are increasingly selling directly to professional contractors and installers, which may adversely affect our margins on our products that contractors and installers would otherwise buy through our dealers and wholesalers.
Home center retailers, which have historically concentrated their sales efforts on retail consumers and remodelers, are increasingly selling directly to professional contractors and installers, which may adversely impact our margins on our products that contractors and installers would otherwise buy through our dealers and wholesalers.
Our results of operations and financial position could be adversely affected by negative claims and comments in social media or the press, a negative perception regarding our products or company practices, positions or public statements, even if unfounded, or a data breach.
Our results of operations and financial position could be adversely impacted by a negative perception regarding our products or company practices, positions or public statements, even if unfounded, negative claims and comments in social media or the press or a data breach.
If we are not able to sufficiently increase the prices of our products or achieve cost savings to offset increased material, production, transportation and labor costs, our results of operations and financial position could be adversely affected.
If we are not able to sufficiently increase the prices of our products or achieve cost savings to offset increased material, production, transportation and labor costs, our results of operations and financial position could be adversely impacted.
These compliance activities are costly and require significant management attention and resources. If we do not effectively and timely comply with such regulations and other requirements, our results of operations and financial position could be adversely affected.
These compliance activities are costly and require significant management attention and resources. If we do not effectively and timely comply with such regulations and other requirements, our results of operations and financial position could be adversely impacted.
A failure or perceived failure by us in this regard may damage our reputation and adversely affect our results of operations and financial position. We face significant competition and operate in an evolving competitive landscape. Our products face significant competition.
A failure or perceived failure by us in this regard may damage our reputation and adversely impact our results of operations and financial position. We face significant competition and operate in an evolving competitive landscape. Our products face significant competition.
If we are unable to maintain our competitive position in our industries, our results of operations and financial position could be adversely affected. Our sales are concentrated with three significant customers and this concentration may continue to increase.
If we are unable to maintain our competitive position in our industries, our results of operations and financial position could be adversely impacted. Our sales are concentrated with three significant customers and this concentration may continue to increase.
International acquisitions that we have made, and international acquisitions that we may make in the future, may continue to increase our exposure to foreign currency risks, risks associated with interpretation and enforcement of foreign regulations and the policies of foreign governments.
International acquisitions that we have made, and those that we may make in the future, may continue to increase our exposure to foreign currency risks, and risks associated with interpretation and enforcement of international regulations and the policies of other governments.
If we are not able to protect our existing intellectual property rights, or prevent unauthorized use of our intellectual property, sales of our products may be affected and we may experience reputational damage to our brand names, increased litigation costs and adverse impact to our competitive position, which could adversely affect our results of operations and financial position.
If we are not able to protect our existing intellectual property rights, or prevent unauthorized use of our intellectual property, sales of our products may be impacted and we may experience reputational damage to our brand names, increased litigation costs and adverse impact to our competitive position, which could adversely impact our results of operations and financial position.
We have and may continue to incur significant costs as a result of claims and litigation. We are also subject to product safety regulations, product recalls and direct claims for product liability that can result in significant costs and, regardless of the ultimate outcome, create adverse publicity and damage the reputation of our brands and business.
We have and may in the future incur significant costs as a result of claims and litigation. 13 We are also subject to product safety regulations, product recalls and direct claims for product liability that can result in significant costs and, regardless of the ultimate outcome, create adverse publicity and damage the reputation of our brands and business.
These types of events can be disruptive to our operations and may impact consumer spending. In addition, we have certain suppliers located in areas that have experienced extreme weather events which have impacted and may in the future impact the availability and cost of some of our raw materials, components and finished products.
These types of events can be disruptive to our operations and may impact consumer spending. In addition, some of our suppliers are located in areas that have experienced extreme weather events which have impacted and may in the future impact the availability and cost of some of our raw materials, components and finished products.
Increased selling prices for our products have and may in the future lead to sales declines and loss of market share, particularly if those prices are not competitive. When our material costs decline, we have experienced and may in the future receive pressure from our customers to reduce our prices.
Increased selling prices for our products have led and may in the future lead to sales declines and loss of market share, particularly if those prices are not competitive. When our material costs decline, we have received and may in the future receive pressure from our customers to reduce our prices.
We could also be adversely affected if we have not appropriately prioritized and balanced our strategic initiatives or if we are unable to effectively manage change throughout our organization. 7 We may not be able to successfully execute our acquisition strategy or integrate businesses that we acquire.
We could also be adversely impacted if we have not appropriately prioritized and balanced our strategic initiatives or if we are unable to effectively manage change throughout our organization. We may not be able to successfully execute our acquisition strategy or integrate businesses that we acquire.
A number of factors impact consumers’ spending on home improvement projects as well as new home construction activity, including: • consumer confidence levels; • fluctuations in home prices; • existing home sales; • inflationary pressures; • unemployment and underemployment levels; • consumer income and debt levels; • household formation; • the availability of skilled tradespeople for repair and remodeling work; • the availability of home equity loans and mortgages and the interest rates for and tax deductibility of such loans; • trends in lifestyle and housing design; and • natural disasters, terrorist acts, pandemics, wars or conflicts or other catastrophic events.
A number of factors impact consumers’ spending on home improvement projects as well as new home construction activity, including: • consumer confidence levels; • consumer income and debt levels; • unemployment and underemployment levels; • the availability of home equity loans and mortgages and the interest rates for and tax deductibility of such loans; • inflationary pressures; • changing government policies and programs; • existing home sales; • age of the housing stock; • fluctuations in home prices; • household formation; • trends in lifestyle and housing design; • the availability of skilled tradespeople for repair and remodeling work; and • natural disasters, terrorist acts, pandemics, wars or conflicts or other catastrophic events.
Additionally, while it is difficult to assess what changes may occur and the relative effect on our international tax structure, significant changes in how U.S. and foreign jurisdictions tax cross-border transactions could adversely affect our results of operations and financial position. 9 Our results of operations and financial position are also impacted by changes in currency exchange rates.
Additionally, while it is difficult to assess what changes may occur and the relative effect on our international tax structure, significant changes in how U.S. and international jurisdictions tax cross-border transactions could adversely impact our results of operations and financial position. Our results of operations and financial position are also impacted by changes in currency exchange rates.
Damage to our public reputation could adversely affect our results of operations and financial position. Our public image and reputation are important to maintaining our strong brands.
Damage to our public image and reputation could adversely impact our results of operations and financial position. Our public image and reputation are important to maintaining our strong brands.
We execute our strategy by investing in our brands, developing innovative products, making capital investments, and focusing on continuous productivity improvement and operational excellence, among other initiatives. Our business performance and results could be adversely affected if we are unable to timely and effectively execute our strategy.
We execute our strategy by investing in our brands, developing innovative products, making capital investments, and focusing on continuous productivity improvement and operational excellence, among other initiatives. Our business performance and results of operations could be adversely impacted if we are unable to timely and effectively execute our strategy.
Extreme weather events and changes in climate could adversely impact our results of operations and financial position. Extreme weather events, such as severe winter and other storms, hurricanes, fires, floods, tornados and droughts, as a result of climate change or other factors, have negatively impacted and may continue to negatively impact our business.
Extreme weather events and changes in climate could adversely impact our results of operations and financial position. Extreme weather events, such as severe winter and other storms, hurricanes, fires, floods, tornados and droughts, as a result of climate change or other factors, have negatively impacted and may in the future negatively impact our business.
We are dependent on third parties for our raw materials, many of our components and finished products and for certain services. Our ability to offer a wide variety of products and provide high levels of service to our customers depend on our ability to obtain an adequate and timely supply of these goods and services.
We are dependent on third parties for our raw materials, many of our components and finished products and for certain services. Our ability to offer a wide variety of products and provide high levels of service to our customers depends on whether we can obtain an adequate and timely supply of these goods and services.
Our failure to comply with laws, government regulations and other requirements could adversely affect our results of operations and financial position.
Our failure to comply with laws, government regulations and other requirements could adversely impact our results of operations and financial position.
If any significant accident, judgment, claim or other event is not fully insured or indemnified against, it could adversely affect our results of operations and financial position. 13 Refer to Note U to the consolidated financial statements included in Item 8 of this Report for additional information about litigation involving our businesses.
If any significant accident, judgment, claim or other event is not fully insured or indemnified against, it could adversely impact our results of operations and financial position. Refer to Note T to the consolidated financial statements included in Item 8 of this Report for additional information about litigation involving our businesses.
In addition, we may not be able to achieve our aspirational goals related to our ESG initiatives, which are and may continue to be impacted by many complexities and variables, such as a tightening labor market, challenging economic environment, changes to our operations, changes to our portfolio of businesses via acquisitions or divestitures, and adjustments to our job levels and managerial headcount.
In addition, we may not be able to achieve our aspirational goals related to our ESG initiatives, which are and may continue to be impacted by many complexities and variables, such as renewable energy infrastructure and availability, changes to the labor market, a challenging economic environment, changes to our operations, changes to our portfolio of businesses via acquisitions or divestitures, and adjustments to our job levels and managerial headcount.
Certain of our customers are selling products sourced from low-cost foreign manufacturers under their own private label brands, which directly compete with our brands.
Certain of our customers sell products sourced from low-cost foreign manufacturers under their own private label brands, which directly compete with our brands.
Litigation and Regulatory Risks Claims and litigation could be costly. We are involved in various claims and litigation, including class actions, mass torts and regulatory proceedings, that arise in the ordinary course of our business and that could have a material adverse effect on us.
Litigation and Regulatory Risks Claims and litigation could be costly. We are involved in various claims and litigation, including class actions, mass torts and regulatory proceedings, that arise in the ordinary course of our business and that could have an adverse impact on us.
Energy prices have also increased and, this coupled with potential energy supply shortages, could continue to increase our production and transportation costs. In addition, water is a significant component of our architectural coatings products and may be subject to shortages and restrictions on supply in certain regions, due to climate-related and other influences.
Energy prices have also increased and, this coupled with potential energy supply shortages, has resulted in increased production and transportation costs, which may continue in the future. In addition, water is a significant component of our architectural coatings products and may be subject to shortages and restrictions on supply in certain regions, due to climate-related and other influences.
In addition, as home center retailers develop customer experience programs to attract and retain contractors and installers, they are relying on us to support their efforts. Such support has been and could continue to be time-consuming and costly and these efforts may not be successful, which may affect our growth and operating results.
In addition, as home center retailers develop customer experience programs to attract and retain contractors and installers, they are relying on us to support their efforts. Such support has been and could continue to be time-consuming and costly and these efforts may not be successful, which may impact our growth, results of operations and financial position.
Our success with our customers is dependent on, among other things, our ability to provide quality products with desired features at the right price, timely delivery and a high level of customer service.
Our success with our customers is dependent on, among other things, our ability to provide quality products with desired features at acceptable prices with timely delivery and a high level of customer service.
There are risks associated with our international operations and global strategies. In 2022, 20 percent of our sales from continuing operations were made outside of North America (principally in Europe) and transacted in currencies other than the U.S. dollar.
There are risks associated with our international operations and global strategies. In 2023, 20 percent of our sales were made outside of North America (particularly in Europe) and transacted in currencies other than the U.S. dollar.
These factors could affect our results of operations and financial position. In addition, our relationships with our customers, including our home center customers, may be affected if we increase the amount of business we transact in the e-commerce channel.
These factors have impacted and could in the future impact our results of operations and financial position. In addition, our relationships with our customers, including our home center customers, may be impacted if we increase the amount of business we transact in the e-commerce channel.
An economic contraction or recession have in the past resulted in and could in the future result in a decline in residential repair and remodeling activity or in demand for new home construction, adversely affecting our results of operations and financial position. We may not achieve all of the anticipated benefits of our strategic initiatives.
Economic contractions or recessions have resulted in and could in the future result in a decline in residential repair and remodeling activity or in demand for new home construction, adversely impacting our results of operations and financial position. We may not achieve all of the anticipated benefits of our strategic initiatives.
System implementations and upgrades are complex and require significant management oversight, and we have experienced, and may continue to experience, unanticipated expenses and interruptions to our operations during these implementations and upgrades.
System implementations and upgrades are complex and require significant management oversight, and we have experienced, and in the future experience, unanticipated expenses and interruptions to our operations during these implementations and upgrades.
Sourcing these raw materials, components, finished products and services from alternate suppliers, including suppliers from new geographic regions, or re-engineering our products as a result of supplier disruptions, is time-consuming and costly and could result in inefficiencies or delays in our business operations or could negatively impact the quality of our products.
Sourcing these goods and services from alternate suppliers, including suppliers from new geographic regions, or re-engineering our products as a result of supplier disruptions, can be time-consuming and costly and could result in inefficiencies or delays in our business operations or could negatively impact the quality of our products.
As a result of this trend, we have experienced and may in the future experience lower demand for our products or a shift in the mix of some products we sell toward more value-priced or opening price point products, which may affect our operating results.
As a result of this trend, we have experienced and may in the future experience lower demand for our products or a shift in the mix of some products we sell toward more value-priced or opening price point products, which has impacted and may in the future impact our results of operations and financial position.
A number of consumer preferences are changing, including a continued shift in consumer purchasing practices toward e-commerce and increased consumer demand for products with potential desired attributes, such as connected products and sustainable products.
Consumer preferences are also changing, including a continued shift in consumer purchasing practices toward e-commerce and a potential increase in consumer demand for products with certain attributes, such as connected products and sustainable products.
The granting of exclusivity affects our ability to sell those products and brands to other customers and can increase the complexity of our product offerings and our costs. Technology and Intellectual Property Risks We have been and may continue to be subject to cybersecurity attacks, which could adversely affect our results of operations and financial position.
The granting of exclusivity impacts our ability to sell those products and brands to other customers and can increase the complexity of our product offerings and our costs. Technology and Intellectual Property Risks We are subject to cybersecurity attacks, which could adversely impact our results of operations and financial position.
Expectations regarding ESG practices are diverse and rapidly changing, and we may not be able to align our ESG practices with such evolving expectations within the timeframes expected by stakeholders or without incurring significant costs.
Furthermore, stakeholders are increasingly scrutinizing companies' environmental, social and governance (“ESG”) practices, and stakeholders’ expectations regarding ESG practices are diverse and rapidly changing. We may not be able to align our ESG practices with such evolving expectations within the timeframes expected by stakeholders or without incurring significant costs.
In 2022, our net sales from our continuing operations to The Home Depot were $3.3 billion (approximately 38 percent of our consolidated net sales), and our net sales from our continuing operations to Ferguson and Lowe’s were each less than 10 percent of our consolidated net sales.
In 2023, our net sales to The Home Depot were $3.1 billion (approximately 39 percent of our consolidated net sales), and our net sales to Ferguson and Lowe’s were each less than 10 percent of our consolidated net sales.
Our failure to address these risks could cause us to incur additional costs and fail to realize the anticipated benefits of our acquisitions and could adversely affect our results of operations and financial position. Business and Operational Risks We are dependent on suppliers and service providers.
Our failure to address these risks could cause us to incur additional costs and fail to realize the anticipated benefits of our acquisitions and could adversely impact our results of operations and financial position.
If we are unable to successfully provide this support to our customers or if our customers are unable to successfully execute their strategies, our brands may lose market share.
If we are unable to successfully provide this support to our customers or if our customers are unable to successfully execute their strategies, our brands may lose market share, which could adversely impact our results of operations and financial position.
We purchase substantial amounts of raw materials, component parts and finished products from outside sources, including international sources, and we manufacture certain of our products outside of the United States.
Business and Operational Risks Variability in the cost and availability of our raw materials, component parts and finished products could impact our results of operations and financial position. We purchase substantial amounts of raw materials, component parts and finished products from outside sources, including international sources, and we manufacture certain of our products outside of the United States.
Unfavorable currency exchange rates, particularly the euro, the Chinese renminbi, the Canadian dollar, the British pound sterling and the Mexican peso, have in the past adversely affected us, and could adversely affect us in the future. Fluctuations in currency exchange rates may present challenges in comparing operating performance from period to period.
Unfavorable currency exchange rates, particularly the euro, the Chinese renminbi, the Canadian dollar, the British pound sterling and the Mexican peso, have in the past adversely impacted us, and could adversely impact us in the future.
In addition, the loss of critical suppliers, or a substantial decrease in the availability of supply, has disrupted and could continue to disrupt our business and may have a material adverse effect on our results of operations and financial position. Many of the suppliers we rely upon are located in foreign countries, primarily China.
In addition, the loss of critical suppliers, or a substantial decrease in the availability of supply, has disrupted and could in the future disrupt our business and has had and may in the future have an adverse impact on our results of operations and financial position.
Occasionally, we may also use derivative instruments, including commodity futures and swaps. This strategy increases the possibility that we may make commitments for these commodities at prices that subsequently exceed their market prices, which has occurred and could occur in the future and may adversely affect our results of operations and financial position.
This strategy increases the possibility that we may make commitments for these commodities at prices that subsequently exceed their market prices, which has occurred and could occur in the future has had and may in the future have an adverse impact on our results of operations and financial position. We are dependent on suppliers and service providers.
Such events could adversely affect our results of operations and financial position. 12 We rely on information systems and technology, and a breakdown or interruption of these systems could adversely affect our results of operations and financial position.
Such events could adversely impact our results of operations and financial position. We rely on information systems and technology, and a breakdown or interruption of these systems could adversely impact our results of operations and financial position. We rely on many on-site and cloud-based information systems and technology to process, transmit, store and manage information to support our business activities.
The long-term performance of our businesses relies on our ability to attract, develop and retain a talented and diverse workforce. To be successful, we must invest significant resources to attract, develop and retain highly qualified, talented and diverse employees at all levels, who have the experience, knowledge and expertise to implement our strategic and business initiatives.
For our businesses to be successful, we must invest significant resources to attract, develop and retain highly qualified, talented and diverse employees, who have the experience, knowledge and expertise to implement our strategic and business initiatives. We compete for employees with a broad range of employers in many different industries, including large multinational firms.
We rely on many on-site and cloud-based information systems and technology to process, transmit, store and manage information to support our business activities. We may be adversely affected if these information systems breakdown, fail, or are no longer supported by third-party service providers, including cloud platform providers.
We may be adversely impacted if these information systems breakdown, fail, or are no longer supported by third-party service providers, including cloud platform providers.
We compete for employees with a broad range of employers in many different industries, including large multinational firms. We may face challenges in recruiting, developing, motivating and retaining employees, particularly when the labor market is experiencing low unemployment levels, increasing compensation and increasing competition.
We have faced and may continue to face challenges in recruiting, developing, motivating and retaining employees, particularly when the labor market is experiencing low unemployment levels, increasing compensation and increasing competition.
Compliance with these laws is costly, and future changes to these laws may require significant management attention and disrupt our operations.
These include anti-bribery/anti-corruption laws, laws regulating competition, sanctions, tax laws, trade regulations, including duties and tariffs, and other business practices. Compliance with these laws is costly, and future changes to these laws may require significant management attention and disrupt our operations.
The operations of the third parties on whom we depend could be impacted by: changing laws, regulations and policies, including those related to climate change; cybersecurity breaches; labor availability; raw material shortages; energy availability; supply disruptions; and adverse weather conditions, pandemics, and other force majeure events.
Failure of our suppliers to timely provide us goods and services on commercially reasonable terms or to comply with applicable contractual, legal and regulatory requirements or our supplier business practices policy could have an adverse impact on our results of operations and financial position or could damage our reputation. 8 The operations of the third parties on which we depend have been and could in the future be impacted by: changing laws, regulations and policies, including those related to climate change; cybersecurity breaches; labor availability; raw material shortages; energy availability; supply disruptions; and adverse weather conditions, pandemics, wars or conflicts and other force majeure events.
We have experienced and may continue to experience constraints on and disruptions to transporting our raw materials, components and finished products from our international and domestic suppliers and have had to pay higher transportation costs.
We have experienced and may in the future experience constraints on and disruptions to transporting our raw materials, components and finished products from our international and domestic suppliers as well as higher transportation costs. If we are unable to effectively manage our supply chain our results of operations and financial position could be adversely impacted.
We have been and continue to be affected by a shortage of qualified personnel primarily for our hourly workforce. Additionally if we are unable to attract, develop and retain key employees, build strong and diverse leadership teams, successfully implement our talent strategies or develop effective succession planning, our results of operations and financial position could be adversely affected.
If we are unable to successfully implement our talent strategies, including attracting, developing and retaining key employees, building strong and diverse leadership teams, developing effective succession planning and successfully executing organizational change and leadership transition, our results of operations and financial position could be adversely impacted.
Such reductions could adversely affect our results of operations and financial position.
Such reductions have had and could in the future have an adverse impact on our results of operations and financial position.
We are also affected by domestic and international laws and regulations applicable to companies doing business outside of the U.S. or importing and exporting goods and materials. These include anti-bribery/anti-corruption laws, laws regulating competition, sanctions, tax laws, and other business practices, and trade regulations, including duties and tariffs.
We have been and may in the future be negatively impacted by adverse changes or uncertainty involving one or more of the factors listed above. We are also affected by domestic and international laws and regulations applicable to companies doing business outside of the U.S., or importing and exporting goods and materials.
Removed
Failure of our suppliers to timely provide us goods and services on commercially reasonable terms or to comply with applicable legal and regulatory requirements or our supplier business practices policy could have a material adverse effect on our results of operations and financial position or could damage our reputation.
Added
Occasionally, we may also use derivative instruments, including commodity futures and swaps.
Removed
If we are unable to effectively manage our supply chain or if we continue to experience such issues, our results of operations and financial position could be adversely affected. 8 Variability in the cost and availability of our raw materials, component parts and finished products could affect our results of operations and financial position.
Added
Many of the suppliers we rely upon are located in countries outside of the United States.
Removed
Furthermore, there is increased scrutiny by stakeholders on environmental, social and governance (“ESG”) practices by companies, and we may not be able to meet such stakeholders’ expectations.
Added
Fluctuations in currency exchange rates may also present challenges in comparing our operating performance from period to period. 9 The long-term performance of our businesses relies on our ability to attract, develop and retain a talented and diverse workforce.
Removed
In addition, we could be adversely affected if any of our significant customers, suppliers or service providers experiences any similar events that disrupt their business operations or damage their reputation.
Removed
Coronavirus Disease Risks The ongoing COVID-19 pandemic has and may continue to impact our operations, which may impact our results and our financial condition.
Removed
We operate facilities in the U.S. and around the world which have been and may in the future be adversely affected by the COVID-19 pandemic, including the closure or reduced capacity of certain of our facilities; delays or disruptions in our ability to source and increases in the cost of raw materials, components and finished products; constraints in shipping, transportation and logistics; and decreased employee availability.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBusiness Segment Manufacturing Warehouse and Distribution Plumbing Products 8 16 Decorative Architectural Products — — Totals 8 16 Most of our international facilities are in China, Germany and the United Kingdom. We own most of our international manufacturing facilities, none of which is subject to significant encumbrances. A substantial number of our international warehouse and distribution facilities are leased.
Biggest changeBusiness Segment Manufacturing Warehouse and Distribution Plumbing Products 12 17 Decorative Architectural Products — — Totals 12 17 Most of our international facilities are in Europe and China. We own most of our international manufacturing facilities, none of which is subject to significant encumbrances. A substantial number of our international warehouse and distribution facilities are leased.
We own most of our North American manufacturing facilities, none of which is subject to significant encumbrances. A substantial number of our warehouse and distribution facilities are leased. The table below lists principal properties outside of North America as of December 31, 2022.
We own most of our North American manufacturing facilities, none of which is subject to significant encumbrances. A substantial number of our warehouse and distribution facilities are leased. The table below lists principal properties outside of North America as of December 31, 2023.
Item 2. Properties. The table below lists principal North American properties as of December 31, 2022. Business Segment Manufacturing Warehouse and Distribution Plumbing Products 22 12 Decorative Architectural Products 8 18 Totals 30 30 Most of our North American facilities range from single warehouse buildings to complex manufacturing facilities.
Item 2. Properties. The table below lists principal North American properties as of December 31, 2023. Business Segment Manufacturing Warehouse and Distribution Plumbing Products 22 10 Decorative Architectural Products 8 17 Totals 30 27 Most of our North American facilities range from single warehouse buildings to complex manufacturing facilities.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAt December 31, 2022, we had $2.0 billion remaining under the 2022 authorization. 16 Performance Graph The table below compares the cumulative total shareholder return on our common stock with the cumulative total return of (i) the Standard & Poor's 500 Composite Stock Index ("S&P 500 Index"), (ii) The Standard & Poor's Industrials Index ("S&P Industrials Index") and (iii) the Standard & Poor's Consumer Durables & Apparel Index ("S&P Consumer Durables & Apparel Index"), from December 31, 2017 through December 31, 2022, when the closing price of our common stock was $46.67.
Biggest changePeriod Total Number Of Shares Purchased Average Price Paid Per Common Share Total Number Of Shares Purchased As Part Of Publicly Announced Plans or Programs Maximum Value Of Shares That May Yet Be Purchased Under The Plans Or Programs 10/1/23 - 10/31/23 505,966 $ 51.49 505,966 $ 1,847,945,558 11/1/23 - 11/30/23 2,061,426 $ 57.25 2,061,426 $ 1,729,925,568 12/1/23 - 12/31/23 1,274,183 $ 65.15 1,274,183 $ 1,646,913,344 Total for the quarter 3,841,575 $ 59.11 3,841,575 $ 1,646,913,344 17 Performance Graph The table below compares the cumulative total shareholder return on our common stock with the cumulative total return of (i) the Standard & Poor's 500 Composite Stock Index ("S&P 500 Index"), (ii) The Standard & Poor's Industrials Index ("S&P Industrials Index") and (iii) the Standard & Poor's Consumer Durables & Apparel Index ("S&P Consumer Durables & Apparel Index"), from December 31, 2018 through December 31, 2023, when the closing price of our common stock was $66.98.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The New York Stock Exchange is the principal market on which our common stock is traded, under the ticker symbol MAS. On January 31, 2023, there were approximately 2,600 holders of record of our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The New York Stock Exchange is the principal market on which our common stock is traded, under the ticker symbol MAS. On January 31, 2024, there were approximately 2,500 holders of record of our common stock.
The graph assumes investments of $100 on December 31, 2017 in our common stock and in each of the three indices and the reinvestment of dividends.
The graph assumes investments of $100 on December 31, 2018 in our common stock and in each of the three indices and the reinvestment of dividends.
This included 0.6 million shares to offset the dilutive impact of restricted stock units granted in 2022. Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2021.
Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise.
The Board of Directors declared a quarterly dividend of $0.285 per share in the first quarter of 2023 with the intention to increase the annual dividend to $1.14 per share. We repurchased and retired 16.6 million shares of our common stock for the year ended December 31, 2022 for approximately $914 million.
The Board of Directors declared a quarterly dividend of $0.29 per share in the first quarter of 2024 with the intention to increase the annual dividend 2 percent to $1.16 per share.
The table below sets forth the value, as of December 31 for each of the years indicated, of a $100 investment made on December 31, 2017 in each of our common stock, the S&P 500 Index, the S&P Industrials Index and the S&P Consumer Durables & Apparel Index and includes the reinvestment of dividends. 2018 2019 2020 2021 2022 Masco $ 66.55 $ 109.22 $ 125.01 $ 159.81 $ 106.21 S&P 500 Index $ 93.76 $ 120.84 $ 140.49 $ 178.27 $ 143.61 S&P Industrials Index $ 85.00 $ 107.81 $ 117.52 $ 140.32 $ 130.35 S&P Consumer Durables & Apparel Index $ 86.69 $ 114.67 $ 135.78 $ 164.21 $ 114.07
The table below sets forth the value, as of December 31 for each of the years indicated, of a $100 investment made on December 31, 2018 in each of our common stock, the S&P 500 Index, the S&P Industrials Index and the S&P Consumer Durables & Apparel Index and includes the reinvestment of dividends. 2019 2020 2021 2022 2023 Masco $ 164.12 $ 187.86 $ 240.15 $ 159.61 $ 229.07 S&P 500 Index $ 128.88 $ 149.83 $ 190.13 $ 153.16 $ 190.27 S&P Industrials Index $ 126.83 $ 138.25 $ 165.07 $ 153.35 $ 177.94 S&P Consumer Durables & Apparel Index $ 132.28 $ 156.63 $ 189.42 $ 131.58 $ 153.72
Added
We repurchased and retired 6.2 million shares of our common stock for the year ended December 31, 2023 for approximately $356 million, inclusive of excise tax of $3 million. This included 0.2 million shares to offset the dilutive impact of restricted stock units granted in 2023. At December 31, 2023, we had $1.6 billion remaining under the 2022 authorization.
Added
The following table provides information regarding the repurchase of our common stock for the three-month period ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe currently do not have any derivative instruments for which we have designated hedge accounting. 27 Cash Flows Significant sources and (uses) of cash for the years ended December 31, 2022 and 2021 are summarized as follows, in millions: 2022 2021 Net cash from operating activities $ 840 $ 930 Retirement of notes — (1,326) Purchase of Company common stock (914) (1,026) Cash dividends paid (258) (211) Dividends paid to noncontrolling interest (68) (43) Capital expenditures (224) (128) Proceeds from term loan 500 — Payment of term loan (300) — Debt extinguishment costs — (160) Proceeds from the exercise of stock options 1 5 Acquisition of businesses, net of cash acquired — (57) Issuance of notes, net of issuance costs — 1,481 Employee withholding taxes paid on stock-based compensation (17) (15) Proceeds from disposition of: Businesses, net of cash disposed — 5 Property and equipment 1 — Financial investments 1 171 Payment of debt (10) (3) Effect of exchange rate changes on cash and cash investments (18) (20) Other, net (8) (3) Cash decrease $ (474) $ (400) Our working capital days were as follows: At December 31, 2022 2021 Receivable days 53 51 Inventory days 80 85 Accounts payable days 68 66 Working capital (receivables plus inventories, less accounts payable) as a percentage of net sales 17.4 % 16.0 % Operating Activities Net cash provided by operations of $840 million primarily benefited from operating profit, partially offset by changes in working capital, primarily lower accounts payable and accrued liabilities balances.
Biggest changeCash Flows Significant sources and (uses) of cash for the years ended December 31, 2023 and 2022 are summarized as follows, in millions: 2023 2022 Net cash from operating activities $ 1,413 $ 840 Purchase of Company common stock (353) (914) Cash dividends paid (257) (258) Dividends paid to noncontrolling interest (49) (68) Proceeds from short-term borrowings 77 — Payment of short-term borrowings (77) — Proceeds from term loan — 500 Payment of term loan (200) (300) Proceeds from the exercise of stock options 38 1 Employee withholding taxes paid on stock-based compensation (29) (17) Payment of debt (5) (10) Capital expenditures (243) (224) Acquisition of business, net of cash acquired (136) — Effect of exchange rate changes on cash and cash investments 6 (18) Other, net (4) (6) Cash increase (decrease) $ 182 $ (474) Our working capital days were as follows: At December 31, 2023 2022 Receivable days 52 53 Inventory days 77 80 Accounts payable days 70 68 Working capital (receivables plus inventories, less accounts payable) as a percentage of net sales 16.0 % 17.4 % 27 Operating Activities Net cash provided by operations was $1,413 million, primarily driven by operating profit and changes in working capital, mostly attributable to lower inventory.
See Note L to the consolidated financial statements for additional information. The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0.
See Note K to the consolidated financial statements for additional information. The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0.
Commitments and Contingencies Litigation Information regarding our legal proceedings is set forth in Note U to the consolidated financial statements, which is incorporated herein by reference. Other Commitments We enter into contracts, which include reasonable and customary indemnifications that are standard for the industries in which we operate.
Commitments and Contingencies Litigation Information regarding our legal proceedings is set forth in Note T to the consolidated financial statements, which is incorporated herein by reference. Other Commitments We enter into contracts, which include reasonable and customary indemnifications that are standard for the industries in which we operate.
We continue to leverage the Masco Operating System, our methodology to drive growth and productivity, and continuous improvement initiatives across our enterprise to identify additional opportunities to improve our business operations.
We continue to leverage the Masco Operating System, our approach to drive growth and productivity, and continuous improvement initiatives across our enterprise to identify additional opportunities to improve our business operations.
While we attempt to diversify these investments in a prudent manner to minimize risk, it is possible that future changes in the financial markets could affect the security or availability of these investments. Of the cash and cash investments we held at December 31, 2022 and 2021, $321 million and $490 million, respectively, was held in our foreign subsidiaries.
While we attempt to diversify these investments in a prudent manner to minimize risk, it is possible that future changes in the financial markets could affect the security or availability of these investments. Of the cash and cash investments we held at December 31, 2023 and 2022, $323 million and $321 million, respectively, was held in our foreign subsidiaries.
A detailed discussion of our consolidated, Business Segment and Geographic Area results of operations for the years ended December 31, 2021 compared to the year ended December 31, 2020 can be found under “Item 7.
A detailed discussion of our consolidated, Business Segment and Geographic Area results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 can be found under “Item 7.
We also consider the profitability of the business, among other factors, to determine the royalty rate for use in the impairment assessment. We utilize our weighted average cost of capital of approximately 8.75 percent as the basis to determine the discount rate to apply to the estimated future cash flows.
We also consider the profitability of the business, among other factors, to determine the royalty rate for use in the impairment assessment. We utilize our weighted average cost of capital of approximately 9.50 percent as the basis to determine the discount rate to apply to the estimated future cash flows.
Our assumptions included U.S. and Eurozone Gross Domestic Product growing at approximately 1.3 percent and 1.5 percent, respectively, in 2023, and 2.0 percent and 1.5 percent, respectively, per annum over the remainder of the five-year forecast.
Our assumptions included U.S. and Eurozone Gross Domestic Product both growing at approximately 1.0 percent in 2024, and 2.0 percent and 1.5 percent, respectively, per annum over the remainder of the five-year forecast.
This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period.
This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives.
See also “Cautionary Statement Concerning Forward-Looking Statements” at the beginning of this Report. Overview We design, manufacture and distribute branded home improvement and building products. These products are sold primarily for repair and remodeling activity and, to a lesser extent, new home construction.
See also “Cautionary Statement Concerning Forward-Looking Statements” at the beginning of this Report. Amounts may not add due to rounding. Overview We design, manufacture and distribute branded home improvement and building products. These products are sold primarily for repair and remodeling activity and, to a lesser extent, new home construction.
We utilize our weighted average cost of capital of approximately 8.75 percent as the basis to determine the discount rate to apply to the estimated future cash flows.
We utilize our weighted average cost of capital of approximately 9.50 percent as the basis to determine the discount rate to apply to the estimated future cash flows.
Refer to Note S to the consolidated financial statements for additional information.
Refer to Note R to the consolidated financial statements for additional information.
Dividend to holders of our Common Shares We paid a quarterly dividend of $0.28 per common share for an annual dividend of $1.12 per share.
Dividend to holders of our Common Shares We paid a quarterly dividend of $0.285 per common share for an annual dividend of $1.14 per share.
In 2022, based upon our assessment of the risks impacting each of our businesses and the nature of the other indefinite-lived intangible assets (i.e., trade name), we applied a risk premium to increase the discount rate to a range of 11.25 percent to 13.75 percent for our other indefinite-lived intangible assets.
In 2023, based upon our assessment of the risks impacting each of our businesses and the nature of the other indefinite-lived intangible assets (i.e., trade name), we applied a risk premium to increase the discount rate to a range of 12.25 percent to 14.50 percent for our other indefinite-lived intangible assets.
Refer to Note O to the consolidated financial statements for additional information. During 2021, we repurchased and retired 17.6 million shares of our common stock (including 0.7 million shares to offset the dilutive impact of restricted stock units granted during the year), for approximately $1,026 million.
Refer to Note N to the consolidated financial statements for additional information. During 2022, we repurchased and retired 16.6 million shares of our common stock (including 0.6 million shares to offset the dilutive impact of restricted stock units granted during the year), for approximately $914 million.
(C) Due to the high degree of uncertainty regarding the timing of future cash outflows associated with uncertain tax positions, we are unable to make a reasonable estimate for the year in which cash settlements may occur with applicable tax authorities.
(C) Due to the high degree of uncertainty regarding the timing of future cash outflows associated with uncertain tax positions, we are unable to make a reasonable estimate for the year in which cash settlements may occur with applicable tax authorities. Refer to Note M to the consolidated financial statements for defined-benefit pension plan obligations.
The senior unsecured term loan and commitments thereunder are subject to prepayment or termination at our option and the loans will bear interest at SOFR plus a spread adjustment and 0.70%. The covenants, including the financial covenants, are substantially the same as those in the 2022 Credit Agreement. We repaid $300 million during 2022.
The term loan and commitments thereunder were subject to prepayment or termination at our option and the loans bore interest at SOFR plus a spread adjustment and 0.70%. The covenants, including the financial covenants, were substantially the same as those in the 2022 Credit Agreement.
Goodwill and Other Intangible Assets We record the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets.
This determination is updated each reporting period. 29 Goodwill and Other Intangible Assets We record the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets.
Liquidity and Capital Resources Overview of Capital Structure Historically, we have largely funded our growth through cash provided by our operations, the issuance of notes in the financial markets, bank borrowings and the issuance of our common stock, including issuances for certain mergers and acquisitions. Maintaining high levels of liquidity and focusing on cash generation are among our financial strategies.
Liquidity and Capital Resources Overview of Capital Structure Historically, we have largely funded our growth through cash provided by our operations, the issuance of notes in the financial markets, bank borrowings and, to a lesser extent, the issuance of our common stock, including issuances for certain mergers and acquisitions.
We consider the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term.
We utilize a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term.
INCOME AND INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS- ATTRIBUTABLE TO MASCO CORPORATION Below is a summary of our income and diluted income per common share from continuing operations, in millions, except per share data, for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Favorable / (Unfavorable) Income from continuing operations $ 844 $ 410 $ 434 Diluted income per common share from continuing operations $ 3.63 $ 1.62 $ 2.01 22 Business Segment and Geographic Area Results The following table sets forth our net sales and operating profit information for our continuing operations by Business Segment and Geographic Area, dollars in millions.
NET INCOME AND INCOME PER COMMON SHARE - ATTRIBUTABLE TO MASCO CORPORATION Below is a summary of our net income, in millions, and diluted income per common share for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Favorable / (Unfavorable) Net income $ 908 $ 844 $ 64 Diluted income per common share $ 4.02 $ 3.63 $ 0.39 22 Business Segment and Geographic Area Results The following table sets forth our net sales and operating profit information by Business Segment and Geographic Area, dollars in millions.
Financing Activities Net cash used for financing activities was $1,066 million, primarily due to $914 million for the repurchase and retirement of our common stock (including 0.6 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2022), $300 million for the partial payment of the 364-day term loan, $258 million for the payment of cash dividends, $68 million for dividends paid to noncontrolling interest and $17 million for employee withholding taxes paid on stock-based compensation.
Financing Activities Net cash used for financing activities was $854 million, primarily due to $353 million for the repurchase and retirement of our common stock (including 0.2 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2023), $257 million for the payment of cash dividends, $200 million for the repayment of the 364-day term loan, $49 million for dividends paid to noncontrolling interest and $29 million for employee withholding taxes paid on stock-based compensation.
We believe that our present cash balance and cash flows from operations, and borrowing availability under our 2022 Credit Agreement, are sufficient to fund our near-term working capital and other investment needs.
Refer to Note K to the consolidated financial statements for additional information. We believe that our present cash balance and cash flows from operations, and borrowing availability under our revolving credit agreement, are sufficient to fund our near-term working capital and other investment needs.
Depreciation and amortization expense for 2022 totaled $145 million, compared with $151 million for 2021. For 2023, depreciation and amortization expense, excluding any potential future acquisitions, is expected to be approximately $150 million.
For 2024, capital expenditures, excluding any potential future acquisitions, are expected to be approximately $200 million. Depreciation and amortization expense for 2023 totaled $149 million, compared with $145 million for 2022. For 2024, depreciation and amortization expense, excluding any potential future acquisitions, is expected to be approximately $160 million.
Refer to Note N to the consolidated financial statements for defined-benefit pension plan obligations. 29 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
At December 31, 2022, we had $2.0 billion remaining under the 2022 authorization. Consistent with past practice and as part of our long-term capital allocation strategy, we anticipate using approximately $500 million of cash for share repurchases (including shares which will be purchased to offset any dilution from restricted stock units granted as part of our compensation programs) in 2023.
Consistent with past practice and as part of our long-term capital allocation strategy, outside of any potential acquisitions, we anticipate using approximately $600 million of cash for share repurchases (including shares which will be purchased to offset any dilution from restricted stock units granted as part of our compensation programs) in 2024.
BUSINESS SEGMENT RESULTS DISCUSSION Changes in operating profit in the following Business Segment and Geographic Area Results discussion exclude general corporate expense, net, and compares each respective period to the same period of the immediately preceding year. 23 Plumbing Products Sales Net sales in the Plumbing Products segment increased two percent in 2022 due primarily to favorable net selling prices, which increased sales by seven percent, and higher international plumbing sales volume which increased sales by two percent.
BUSINESS SEGMENT RESULTS DISCUSSION Changes in operating profit in the following Business Segment and Geographic Area Results discussion exclude general corporate expense, net, and compares each respective period to the same period of the immediately preceding year. 23 Plumbing Products Sales Net sales in the Plumbing Products segment decreased eight percent in 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 8, 2022. 18 SALES AND OPERATIONS Net Sales Below is a summary of our net sales, in millions, for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Change Net sales, as reported $ 8,680 $ 8,375 $ 305 Acquisitions (11) — (11) Divestitures — (32) 32 Net sales, excluding acquisitions and divestitures 8,669 8,343 326 Currency translation 211 — 211 Net sales, excluding acquisitions, divestitures and the effect of currency translation $ 8,880 $ 8,343 $ 537 Net sales for 2022 were $8.7 billion, which increased four percent compared to 2021.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 9, 2023. 19 SALES AND OPERATIONS Net Sales Below is a summary of our net sales, in millions, for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Change Net sales, as reported $ 7,967 $ 8,680 $ (713) Acquisitions (28) — (28) Net sales, excluding acquisitions 7,939 8,680 (741) Currency translation 8 — 8 Net sales, excluding acquisitions and the effect of currency translation $ 7,947 $ 8,680 $ (733) Our net sales for 2023 were $7,967 million, which decreased eight percent compared to 2022.
We will continue to review all of our businesses to determine which businesses, if any, may not align with our long-term growth strategy.
In addition, we actively manage our portfolio of companies by divesting those businesses that do not align with our long-term growth strategy. We will continue to review all of our businesses to determine which businesses, if any, may not align with our long-term growth strategy.
Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.
We had cash and cash investments of approximately $634 million and $452 million at December 31, 2023 and 2022, respectively. Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.
Year Ended December 31, Percent Change 2022 2021 2022 vs. 2021 Net Sales: Plumbing Products $ 5,252 $ 5,135 2 % Decorative Architectural Products 3,428 3,240 6 % Total $ 8,680 $ 8,375 4 % North America $ 6,978 $ 6,624 5 % International, principally Europe 1,702 1,751 (3) % Total $ 8,680 $ 8,375 4 % Year Ended December 31, Percent Change 2022 2021 2022 vs. 2021 Operating Profit (A): Plumbing Products $ 819 $ 929 (12) % Decorative Architectural Products 565 581 (3) % Total $ 1,384 $ 1,510 (8) % North America $ 1,116 $ 1,214 (8) % International, principally Europe 268 296 (9) % Total 1,384 1,510 (8) % General corporate expense, net (87) (105) (17) % Total operating profit $ 1,297 $ 1,405 (8) % (A) Before general corporate expense, net; refer to Note Q to the consolidated financial statements for additional information.
Year Ended December 31, Percent Change 2023 2022 2023 vs. 2022 Net Sales: Plumbing Products $ 4,842 $ 5,252 (8) % Decorative Architectural Products 3,125 3,428 (9) % Total $ 7,967 $ 8,680 (8) % North America $ 6,384 $ 6,978 (9) % International, particularly Europe 1,583 1,702 (7) % Total $ 7,967 $ 8,680 (8) % Year Ended December 31, Percent Change 2023 2022 2023 vs. 2022 Operating Profit (A): Plumbing Products $ 861 $ 819 5 % Decorative Architectural Products 578 565 2 % Total $ 1,439 $ 1,384 4 % North America $ 1,210 $ 1,116 8 % International, particularly Europe 229 268 (15) % Total 1,439 1,384 4 % General corporate expense, net (91) (87) 5 % Total operating profit $ 1,348 $ 1,297 4 % (A) Before general corporate expense, net; refer to Note P to the consolidated financial statements for additional information.
If the carrying amount of an other indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized to the extent that an other indefinite-lived intangible asset's recorded carrying value exceeds its fair value, not to exceed the carrying amount of the other indefinite-lived intangible asset.
If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent that a reporting unit's recorded carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
These amounts were partially offset by: • Higher net selling prices. 19 Selling, General and Administrative Expenses Below is a summary of our selling, general and administrative expenses, in millions, and selling, general and administrative expenses as a percentage of net sales for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (Favorable) / Unfavorable Selling, general and administrative expenses $ 1,390 $ 1,413 $ (23) Selling, general and administrative expenses as percentage of net sales 16.0 % 16.9 % (90) bps Selling, general, and administrative expenses as a percentage of net sales in 2022 was positively impacted by: • Higher net sales resulting from favorable net selling prices. • Lower variable compensation.
These amounts were partially offset by: • Lower sales volume. • Unfavorable sales mix. 20 Selling, General and Administrative Expenses Below is a summary of our selling, general and administrative expenses, in millions, and selling, general and administrative expenses as a percentage of net sales for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Favorable / (Unfavorable) Selling, general and administrative expenses $ (1,473) $ (1,390) $ (83) Selling, general and administrative expenses as a percentage of net sales (18.5) % (16.0) % (250) bps Our 2023 selling, general and administrative expenses as a percentage of net sales was negatively impacted by: • Increased employee-related costs. • Increased marketing costs. • Lower net sales resulting from lower volumes.
The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were $29 million and $43 million at December 31, 2022 and 2021, respectively.
The amounts confirmed as valid under the program and included in accounts payable were $53 million and $50 million at December 31, 2023 and 2022, respectively. Of the amounts confirmed as valid under the program, the amounts owed to participating financial institutions were $28 million and $29 million at December 31, 2023 and 2022, respectively.
A 10 percent decrease in the estimated fair value of our other indefinite-lived intangibles assets would not have resulted in an impairment for any of our other indefinite-lived intangible assets. Refer to Note H for additional information.
As of December 31, 2023, the impaired other indefinite-lived intangible asset had a remaining net carrying value of $28 million. A 10 percent decrease in the estimated fair value of our other indefinite-lived intangibles assets would have resulted in a $2 million impairment for another one of our other indefinite-lived intangible assets. Refer to Note H for additional information.
Upon entry into the 2022 Credit Agreement, our credit agreement dated March 13, 2019, as amended, with an aggregate commitment of $1.0 billion, was terminated. Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders.
Credit Agreement On April 26, 2022, we entered into a revolving credit agreement (the “2022 Credit Agreement”) with an aggregate commitment of $1.0 billion and a maturity date of April 26, 2027. 25 Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders.
In the fourth quarter of 2022, we recognized a $7 million non-cash impairment charge related to a registered trademark within our Decorative Architectural Products segment due to competitive market conditions and increased cost of capital in our lighting business. As of December 31, 2022, the impaired other indefinite-lived intangible asset had a remaining net carrying value of $43 million.
If the carrying amount of an other indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized to the extent that an other indefinite-lived intangible asset's recorded carrying value exceeds its fair value, not to exceed the carrying amount of the other indefinite-lived intangible asset. 30 In the fourth quarter of 2023, we recognized a $15 million non-cash impairment charge related to a registered trademark within our Decorative Architectural Products segment due to competitive market conditions and increased cost of capital in our lighting business.
A 10 percent decrease in the estimated fair value of our other reporting units would not have resulted in any additional goodwill impairment. We review our other indefinite-lived intangible assets for impairment annually, in the fourth quarter, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit.
We review our other indefinite-lived intangible assets for impairment annually in the fourth quarter, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit. Potential impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value.
However, due to the changing market conditions and its impact on our customers and suppliers, we are unable to fully estimate the extent of the impact it may have on our future financial condition. Capital Expenditures We continue to invest in our manufacturing and distribution operations to increase our productivity, improve customer service and support product innovation.
However, due to the changing market conditions and its impact on our customers and suppliers, we are unable to fully estimate the extent of the impact that the changing market conditions may have on our future financial condition.
However, we believe that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. These include the disclosure of net sales, operating profit and operating profit margins adjusted for certain items.
Consolidated Results of Operations We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, we believe that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods.
Refer to Note S for additional information. Recently Adopted and Issued Accounting Pronouncements Refer to Note A to the consolidated financial statements for discussion of recently adopted and issued accounting pronouncements, which is incorporated herein by reference. 31
As a result, we recognized a $29 million state income tax benefit, net of federal expense, in the fourth quarter of 2023. Refer to Note R for additional information. Recently Adopted and Issued Accounting Pronouncements Refer to Note A to the consolidated financial statements for discussion of recently adopted and issued accounting pronouncements, which is incorporated herein by reference. 31
We review our hedging program, derivative positions and overall risk management on a regular basis.
We review our hedging program, derivative positions and overall risk management on a regular basis. We currently do not have any derivative instruments for which we have designated hedge accounting.
Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP. We discuss our consolidated results as well as our Business Segment and Geographic Area results of operations for the year ended December 31, 2022 versus December 31, 2021.
We discuss our consolidated results as well as our Business Segment and Geographic Area results of operations for the year ended December 31, 2023 versus December 31, 2022.
As of the date of this report, $69 million was borrowed and outstanding at a weighted average interest rate of 5.800%. 364-day Term Loan On April 26, 2022, we entered into a 364-day $500 million senior unsecured delayed draw term loan due April 26, 2023 with a syndicate of lenders.
The loans contained no financial covenants and the entire balance was repaid as of December 31, 2023. 364-day Term Loan On April 26, 2022, we entered into a 364-day $500 million senior unsecured delayed draw term loan (the "term loan") due April 26, 2023 with a syndicate of lenders.
These uses of cash were partially offset by $500 million in proceeds from the 364-day term loan. 28 Investing Activities Net cash used for investing activities was $230 million, primarily driven by $224 million of capital expenditures.
These uses of cash were partially offset by $38 million of proceeds from the exercise of stock options. Investing Activities Net cash used for investing activities was $383 million, primarily driven by $243 million of capital expenditures and $136 million for the acquisition of Sauna360.
Corporate Development Strategy We expect to maintain a balanced growth strategy pursuing organic growth by maximizing the full potential of our existing businesses and, as appropriate, complementing our existing business with strategic acquisitions. In addition, we actively manage our portfolio of companies by divesting those businesses that do not align with our long-term growth strategy.
We repaid $300 million during 2022 and the remaining $200 million upon the maturity of the term loan on April 26, 2023. Corporate Development Strategy We expect to maintain a balanced growth strategy pursuing organic growth by maximizing the full potential of our existing businesses and, as appropriate, complementing our existing business with strategic acquisitions.
While still elevated, we have recently seen some reduction of certain costs, and we aim to offset the potential unfavorable impact of our costs and lower demand for our products with productivity improvement, pricing, and other initiatives. Consolidated Results of Operations We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP").
We have been experiencing, and may continue to experience, elevated commodity and other input costs, as well as employee-related cost inflation. While still elevated, we have recently seen some reduction of certain costs, and we aim to offset the potential unfavorable impact of our costs and lower demand for our products with productivity improvement, pricing, and other initiatives.
These amounts were partially offset by favorable net selling prices and higher sales volume of plumbing products.
These amounts were partially offset by higher net selling prices, which increased sales by two percent.
These amounts were partially offset by the divestiture of our Hüppe business which decreased sales by two percent and unfavorable sales mix which decreased sales by two percent. 24 Operating Results International operating profit in 2022 was negatively impacted by increased commodity and transportation costs, unfavorable foreign currency translation, wage inflation, and unfavorable sales mix.
Lower sales volume decreased sales by 11 percent and unfavorable sales mix decreased sales by one percent. These amounts were partially offset by higher net selling prices which increased sales by five percent. 24 Operating Results International operating profit in 2023 was negatively impacted by lower sales volume, unfavorable sales mix and unfavorable foreign currency translation.
Other Liquidity and Capital Resource Activities As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms.
As part of our capital allocation strategy, the Board of Directors declared a quarterly dividend of $0.29 per share in the first quarter of 2024 with the intention to increase the annual dividend 2 percent to $1.16 per share. 26 Other Liquidity and Capital Resource Activities As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms.
This included 0.6 million shares to offset the dilutive impact of restricted stock units granted in 2022. Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2021.
Share Repurchases Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise. We repurchased and retired 6.2 million shares of our common stock in 2023 for approximately $356 million, inclusive of excise tax of $3 million.
These amounts were partially offset by favorable net selling prices and, to a lesser extent, lower variable compensation. Decorative Architectural Products Sales Net sales in the Decorative Architectural Products segment increased six percent in 2022, primarily due to favorable net selling prices across the segment. These amounts were partially offset by lower sales volume across the segment.
Decorative Architectural Products Sales Net sales in the Decorative Architectural Products segment decreased nine percent in 2023, primarily due to lower sales volume, partially offset by higher net selling prices.
Capital expenditures for 2022 were $224 million, compared with $128 million for 2021. The increase in capital expenditures in 2022 was primarily due to capacity expansion plans in our Plumbing Products and Decorative Architectural Products segments. For 2023, capital expenditures, excluding any potential future acquisitions, are expected to be approximately $250 million.
Capital Expenditures We continue to invest in our manufacturing and distribution operations to increase our productivity, improve customer service and support product innovation. Capital expenditures for 2023 were $243 million, compared with $224 million for 2022. The increase in capital expenditures in 2023 was primarily due to capacity expansion plans in our Plumbing Products and Decorative Architectural Products segments.
Other, net Below is a summary of our other, net, in millions, for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Favorable / (Unfavorable) Other, net $ 4 $ (439) $ 443 Other, net, for 2022 included: • $24 million of income from the revaluation of contingent consideration related to a prior acquisition.
These amounts were partially offset by: • Lower sales volume. • Increased employee-related costs. • Unfavorable sales mix. • Increased marketing costs. • Unfavorable foreign currency translation. 21 OTHER INCOME (EXPENSE), NET Interest Expense Below is a summary of our interest expense, in millions, for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Favorable / (Unfavorable) Interest expense $ (106) $ (108) $ 2 Other, net Below is a summary of our other, net, in millions, for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Favorable / (Unfavorable) Other, net $ (4) $ 4 $ (8) Other, net, for 2022 included $24 million of income from the revaluation of contingent consideration related to the acquisition of Kraus USA Inc.
Operating Profit Below is a summary of our operating profit, in millions, and operating profit margins for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Change Operating profit, as reported $ 1,297 $ 1,405 $ (108) Rationalization charges 32 4 28 Impairment charges for goodwill and other intangible assets 26 45 (19) Operating profit, excluding rationalization charges and impairment charges $ 1,355 $ 1,454 $ (99) Operating profit margin, as reported 14.9 % 16.8 % (190) bps Operating profit margin, excluding rationalization charges and impairment charges 15.6 % 17.4 % (180) bps Operating profit in 2022 was negatively impacted by: • Increased commodity and transportation costs. • Higher costs due to production inefficiencies and related under absorption, as well as higher excess and obsolete inventory charges resulting from business rationalization activities. • Lower sales volume. • Unfavorable foreign currency translation. • Increased marketing costs. • Unfavorable sales mix.
Operating Profit Below is a summary of our operating profit, in millions, and operating profit margins for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Change Operating profit, as reported $ 1,348 $ 1,297 $ 51 Rationalization charges 13 32 (19) Impairment charges for goodwill and other intangible assets 15 26 (11) Insurance settlement (40) — (40) Operating profit, excluding rationalization charges, impairment charges and insurance settlement $ 1,336 $ 1,355 $ (19) Operating profit margin, as reported 16.9 % 14.9 % 200 bps Operating profit margin, excluding rationalization charges, impairment charges and insurance settlement 16.8 % 15.6 % 120 bps Our 2023 operating profit was positively impacted by: • Higher net selling prices. • Cost savings initiatives. • Lower transportation costs. • Receipt of an insurance settlement payment. • Lower excess and obsolete inventory charges. • Lower goodwill and other intangible assets impairment charges in our lighting business.
Excluding acquisitions, divestitures and the effect of currency translation, net sales increased six percent. Net sales for 2022 increased primarily due to: • Higher net selling prices across the entire company which increased sales by nine percent.
Excluding acquisitions and the effect of currency translation, net sales decreased eight percent. Our net sales for 2023 decreased primarily due to: • Lower sales volume across the entire company which decreased sales by 11 percent. • Unfavorable sales mix of plumbing products which decreased sales by one percent.
Operating Results Operating profit in the Plumbing Products segment in 2022 was negatively impacted by increased commodity and transportation costs, higher costs due to production inefficiencies and related under absorption, higher excess and obsolete inventory charges resulting from business rationalization activities, unfavorable foreign currency translation, increased marketing costs and unfavorable sales mix.
Operating Results Operating profit in the Plumbing Products segment in 2023 was positively impacted by higher net selling prices, lower transportation and commodity costs, cost savings initiatives, and lower excess and obsolete inventory charges. These amounts were partially offset by lower sales volume, increased employee-related costs, unfavorable sales mix, unfavorable foreign currency translation and increased marketing costs.
We account for all payments made under the program as a reduction to our cash flows from operations and reported within our (decrease) increase in accounts payable and accrued liabilities, net, line within our consolidated statements of cash flows.
All payments made under the program are recorded as a decrease in accounts payable and accrued liabilities, net, in our consolidated statements of cash flows. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the program.
Gross Profit and Gross Margin Below is a summary of our gross profit, in millions, and gross margin for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Favorable / (Unfavorable) Gross profit $ 2,713 $ 2,863 $ (150) Gross margin 31.3 % 34.2 % (290) bps The 2022 gross profit margin was negatively impacted by: • Increased commodity and transportation costs. • Higher costs due to production inefficiencies and related under absorption, as well as higher excess and obsolete inventory charges resulting from business rationalization activities. • Lower sales volume. • Unfavorable sales mix.
Gross Profit and Gross Margin Below is a summary of our gross profit, in millions, and gross margin for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Favorable / (Unfavorable) Gross profit $ 2,836 $ 2,713 $ 123 Gross margin 35.6 % 31.3 % 430 bps Our 2023 gross profit margin was positively impacted by: • Higher net selling prices. • Cost savings initiatives. • Lower transportation costs. • Receipt of an insurance settlement payment. • Lower excess and obsolete inventory charges.
Our current ratio was 1.6 to 1 and 1.8 to 1 at December 31, 2022 and 2021, respectively. The decrease in our current ratio is primarily due to the 364-day $500 million term loan that we entered into on April 26, 2022.
Our current ratio was 1.7 to 1 and 1.6 to 1 at December 31, 2023 and 2022, respectively. The increase in our current ratio is primarily due to the repayment of the 364-day term loan during 2023. Our total debt as a percent of total capitalization was 97 percent and 109 percent at December 31, 2023 and 2022, respectively.
Contractual Obligations The following table provides payment obligations related to current contracts at December 31, 2022, in millions: Payments Due by Period 2023 2024-2025 2026-2027 Beyond 2027 Other Total Debt (A) $ 205 $ 6 $ 304 $ 2,644 $ — $ 3,159 Interest (A) 101 194 192 738 — 1,225 Operating leases 50 89 68 174 — 381 Currently payable income taxes 48 — — — — 48 Purchase commitments (B) 438 64 35 — — 537 Uncertain tax positions, including interest and penalties (C) — — — — 92 92 Total $ 842 $ 353 $ 599 $ 3,556 $ 92 $ 5,442 ______________________________ (A) We assume that all debt would be held to maturity.
We have not paid a material amount related to these indemnifications, and we evaluate the probability that amounts may be incurred and record an estimated liability when probable and reasonably estimable. 28 Contractual Obligations The following table provides payment obligations related to current contracts at December 31, 2023, in millions: Payments Due by Period 2024 2025-2026 2027-2028 Beyond 2028 Other Total Debt (A) $ 3 $ 5 $ 904 $ 2,042 $ — $ 2,954 Interest (A) 98 193 178 656 — 1,125 Operating leases 57 101 65 167 — 390 Currently payable income taxes 32 — — — — 32 Purchase commitments (B) 327 81 4 — — 412 Uncertain tax positions, including interest and penalties (C) — — — — 93 93 Total $ 517 $ 379 $ 1,152 $ 2,866 $ 93 $ 5,006 ______________________________ (A) We assume that all debt would be held to maturity.
In 2022, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 10.25 percent to 12.75 percent for our reporting units. 30 If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent that a reporting unit's recorded carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
In 2023, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 11.50 percent to 13.50 percent for our reporting units.
We were in compliance with all covenants and no borrowings were outstanding under our 2022 Credit Agreement at December 31, 2022.
We were in compliance with all covenants and no borrowings were outstanding under our 2022 Credit Agreement as of December 31, 2023. Short-term Borrowings On May 9, 2023, our Hansgrohe SE subsidiary entered into €70 million ($77 million) of short-term borrowings to support working capital needs.
These amounts were partially offset by: • Increased marketing costs.
These amounts were partially offset by higher net selling prices and lower transportation and commodity costs.
These amounts were partially offset by favorable net selling prices, and to a lesser extent, lower variable compensation and lower goodwill and other intangible assets impairment charges in our lighting business. International, Principally Europe Sales International net sales decreased three percent in 2022. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased eight percent.
These amounts were partially offset by lower sales volume, increased employee-related costs, unfavorable sales mix and increased marketing costs. International, Particularly Europe Sales International net sales decreased seven percent in 2023. In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased six percent.
These amounts were partially offset by unfavorable foreign currency translation which decreased sales by four percent, lower North America plumbing sales volume which decreased sales by two percent, and the divestiture of Hüppe which decreased sales by one percent.
These amounts were partially offset by higher net selling prices, which increased sales by four percent and the acquisition of Sauna360 which increased sales by one percent.
These amounts were partially offset by favorable net selling prices and lower goodwill and other intangible assets impairment charges in our lighting business. Geographic Area Results Discussion North America Sales North America net sales increased five percent in 2022. Favorable net selling prices across all of our product categories increased sales by 10 percent.
These amounts were partially offset by lower sales volume, increased commodity costs and increased employee-related costs. GEOGRAPHIC AREA RESULTS DISCUSSION North America Sales North America net sales decreased nine percent in 2023. Lower sales volume decreased sales by 11 percent and unfavorable sales mix decreased sales by one percent.
These amounts were partially offset by: • Lower sales volume which decreased sales by three percent. • Unfavorable foreign currency translation which decreased sales by two percent.
These amounts were partially offset by: • Higher net selling prices across the entire company which increased sales by three percent.
Operating Results Operating profit in the Decorative Architectural Products segment in 2022 was negatively impacted by increased commodity and transportation costs, lower sales volume, higher costs due to production inefficiencies and related under absorption, higher excess and obsolete inventory charges resulting from business rationalization activities, and increased marketing costs.
Operating Results Operating profit in the Decorative Architectural Products segment in 2023 was positively impacted by higher net selling prices, cost savings initiatives, receipt of an insurance settlement payment, lower transportation costs, lower excess and obsolete inventory charges, and lower goodwill and other intangible assets impairment charges in our lighting business.
Removed
We have been experiencing, and may continue to experience, elevated commodity and other input costs, elevated transportation costs and supply chain disruptions, particularly disruptions related to our ability to source products, components and raw materials. We have also been experiencing, and may continue to experience, employee-related cost inflation and constraints in hiring qualified employees.
Added
These include the disclosure of net sales, operating profit and operating profit margins adjusted for certain items. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.
Removed
These amounts were partially offset by: • Higher net selling prices. • Lower variable compensation. • Lower goodwill and other intangible assets impairment charges in our lighting business. 20 OTHER INCOME (EXPENSE), NET Interest Expense Below is a summary of our interest expense, in millions, for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Favorable / (Unfavorable) Interest expense $ (108) $ (278) $ 170 The decrease in interest expense is primarily due to the absence of the $168 million loss on debt extinguishment, which was recorded as additional interest expense in connection with the early retirement of debt in the first quarter of 2021.
Added
INCOME TAXES Below is a summary of our income tax expense, in millions, and our effective tax rate for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Favorable / (Unfavorable) Income tax expense $ (278) $ (288) $ 10 Effective tax rate (22) % (24) % 2 % Our 2023 income tax expense included a $29 million state income tax benefit, net of federal expense, from the recognition of certain state deferred tax assets due to a legal restructuring of certain U.S. businesses that will occur in early 2024.
Removed
This amount was partially offset by: • $10 million of net periodic pension and post-retirement benefit expense. • $6 million of losses related to equity method investments.
Added
In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased seven percent in 2023. Lower sales volume decreased sales by 11 percent and unfavorable sales mix decreased sales by one percent.
Removed
Other, net, for 2021 included: • $430 million of net periodic pension and post-retirement benefit expense, which includes $399 million of net settlement loss related to the termination of our qualified domestic defined-benefit pension plans. • $18 million loss related to the divestiture of our Hüppe GmbH ("Hüppe") business. • $16 million expense from the revaluation of contingent consideration related to a prior acquisition.
Added
Operating Results North America operating profit in 2023 was positively impacted by higher net selling prices, cost savings initiatives, lower transportation costs, receipt of an insurance settlement payment, lower excess and obsolete inventory charges, and lower goodwill and other intangible assets impairment charges in our lighting business.
Removed
These amounts were partially offset by: • $14 million gain recognized on the redemption of the preferred stock of ACProducts Holding, Inc. and $6 million of related dividend income. • $11 million of earnings related to equity method investments. 21 INCOME TAXES Below is a summary of our income tax expense, in millions, and our effective tax rate for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (Favorable) / Unfavorable Income tax expense $ 288 $ 210 $ 78 Effective tax rate 24 % 31 % (7) % Our 2021 income tax expense included $16 million due to the elimination of disproportionate tax effects from accumulated other comprehensive income related to our debt retirement and pension plan termination and $18 million due to losses providing no tax benefit in certain jurisdictions from our pension plan termination and a business divestiture.
Added
Maintaining high levels of liquidity and focusing on cash generation are among our financial strategies. Our capital allocation strategy includes reinvesting in our business, maintaining an investment grade credit rating, maintaining a relevant dividend and deploying excess free cash flow to share repurchases or acquisitions.
Removed
These amounts were partially offset by lower sales volume, which decreased sales by five percent. Operating Results North America operating profit in 2022 was negatively impacted by increased commodity and transportation costs, lower sales volume, higher costs due to production inefficiencies and related under absorption, higher excess and obsolete inventory charges resulting from business rationalization activities, and increased marketing costs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAt December 31, 2022, we performed sensitivity analyses to assess the potential loss in the fair values of market risk sensitive instruments resulting from a hypothetical change of 10 percent in foreign currency exchange rates, a 10 percent decline in the market value of our long-term investments, or a 100 basis point change in interest rates.
Biggest changeAt December 31, 2023, we performed sensitivity analyses to assess the potential loss in the fair values of market risk sensitive instruments resulting from a hypothetical change of 10 percent in foreign currency exchange rates, a 10 percent decline in the market value of our long-term investments, or a 100 basis point change in interest rates.

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