SHERWIN WILLIAMS CO - Quarter Report: 2024 September (Form 10-Q)

Supplemental cash flow informationIncome taxes paid$ $ Interest paid$ $

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY (UNAUDITED)

(in millions, except per share data)

Common
Stock

Other
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total

Balance at December 31, 2023

()

Net income

Other comprehensive loss

()

Treasury stock purchased

()

Stock-based compensation activity

()

Other adjustments

Cash dividends -- $ per share

()

Balance at March 31, 2024

()

Net income

Other comprehensive loss

()

Treasury stock purchased

()

Stock-based compensation activity

()

Other adjustments

()

Cash dividends -- $ per share

()

Balance at June 30, 2024

()

Net income

Other comprehensive income

Treasury stock purchased

()

Stock-based compensation activity

()

Other adjustments

()

Cash dividends -- $ per share

()

Balance at September 30, 2024

()

(in millions, except per share data)

Common
Stock

Other
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total

Balance at December 31, 2022

()

Net income

Other comprehensive income

Treasury stock purchased

()

Stock-based compensation activity

()

Other adjustments

Cash dividends -- $ per share

()

Balance at March 31, 2023

()

Net income

Other comprehensive income

Treasury stock purchased

()

Stock-based compensation activity

()

Other adjustments

()

Cash dividends -- $ per share

()

Balance at June 30, 2023

()

Net income

Other comprehensive loss

()

Treasury stock purchased

()

Stock-based compensation activity

()

Other adjustments

Cash dividends -- $ per share

()

Balance at September 30, 2023

()

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(millions of dollars, unless otherwise noted)

Periods ended September 30, 2024 and 2023

NOTE 1 -

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The results of operations for the three and nine months ended September 30, 2024 are not indicative of the results to be expected for the full year as business is seasonal in nature with the majority of Net sales for the reportable segments traditionally occurring during the second and third quarters. However, periods of economic uncertainty can alter the Company’s seasonal patterns.

Since December 31, 2023, accounting estimates were revised as necessary during the first nine months of 2024 based on new information and changes in facts and circumstances.

The following represents updates to certain significant accounting policy disclosures. For further details on the Company’s significant accounting policies and related disclosures, see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

million, $ million and $ million at September 30, 2024, December 31, 2023 and September 30, 2023, respectively.

$ $ $ Tax credits and other tax benefits received

million, $ million and $ million at September 30, 2024, December 31, 2023 and September 30, 2023, respectively. $ $ Other accruals Other long-term liabilities Net deferred income tax asset

NOTE 2 -

NOTE 3 -

million, including an immaterial amount paid in the third quarter of 2024 to finalize certain representations, warranties and closing conditions.

Subsequent Event

The Company completed the acquisition of a metal packaging coatings business in October 2024. The acquisition was funded via an escrow account in September 2024 for approximately $ million in cash. The deposit is recorded in Other assets on the Consolidated Balance Sheets as of September 30, 2024 and presented in Other investing activities on the Statements of Condensed Consolidated Cash Flows for the nine months then ended. The acquired business develops, manufactures and sells coatings for the food and household product markets and will be reported within the Company’s Performance Coatings Group.

Divestitures

Closed in Prior Year

The Company completed the divestiture of a non-core domestic aerosol business within the Consumer Brands Group in the second quarter of 2023. This transaction resulted in the recognition of a $ million gain within the Administrative function and was recorded within Other general expense (income) - net in the Statements of Consolidated Income.

During the third quarter of 2023, the Company completed the divestiture of the China architectural business within the Consumer Brands Group. An immaterial working capital adjustment was finalized during the first quarter of 2024. The associated net assets were classified as held for sale at June 30, 2023 in accordance with the Property, Plant, and Equipment Topic of the ASC. Following the prescribed order of impairment testing, the Company first reviewed individual tangible and intangible assets under their applicable Topic of the ASC to determine if their carrying value was higher than their respective fair value. As a result, the Company recorded an impairment charge of $ million within the Consumer Brands Group in the second quarter of 2023 related to China architectural trademarks. The Company then compared the updated carrying value of the assets and liabilities comprising the disposal group as a whole to its respective fair value which was determined to be equal to the selling price, less costs to sell. As a result of this comparison, the Company recorded an additional impairment charge of $ million within the Administrative function in the second quarter of 2023 and classified the remaining assets as Other current assets and remaining liabilities as Other accruals at June 30, 2023. The fair value of the disposal group was classified as level 2 in the fair value hierarchy as fair value was based on a specific price and other observable inputs for similar items with no active market.

These divestitures did not meet the criteria to be reported as discontinued operations in the consolidated financial statements as the Company’s decision to divest these businesses did not represent a strategic shift that will have a major effect on the Company’s operations and financial results.

NOTE 4 -

$ $ Work in process and raw materials Inventories$ $ $

The Company primarily uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly,

NOTE 5 -

$ $ Buildings Machinery and equipment Construction in progress Property, plant and equipment, gross Less allowances for depreciation Property, plant and equipment, net$ $ $

In accordance with the Goodwill and Other Intangibles Topic of the ASC, goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter, and interim impairment tests are performed whenever an event occurs or circumstances change that indicate an impairment has more likely than not occurred. See Note 3 for information on the impairment test performed as a result of the China architectural business classification change to held for sale as of June 30, 2023.

NOTE 6 -

$ $ Short-term borrowings Total debt outstanding$ $ $

Long-Term Debt

The Company’s long-term debt primarily consists of senior notes. In August 2024, the Company repaid the principal of $ million related to the Company’s % senior notes due August 8, 2024 using commercial paper and subsequently issued $ million of % senior notes due 2028 and $ million of % senior notes due 2031 in a public offering. The net proceeds from the issuance of these notes were used to repay outstanding borrowings under the Company’s domestic commercial paper program and for general corporate purposes. The newly issued senior notes contain customary qualitative covenants as defined in their respective agreements. The Company is in compliance with these and all other covenants related to the senior notes as of September 30, 2024. During the second quarter of 2024, the Company paid the principal of $ million related to its % senior notes due June 1, 2024. For further details on the Company’s debt, see Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Short-Term Borrowings

In July 2024, the Company entered into a new $ billion revolving credit agreement maturing on July 31, 2029 (the New Credit Agreement) which replaced the $ billion credit agreement dated August 30, 2022, as amended. The New Credit Agreement may be used for general corporate purposes, including the financing of working capital requirements. Under the terms of the New Credit Agreement, the Company may request to extend the maturity date for additional periods, request an uncommitted increase up to $ million and issue letters of credit under a $ million subfacility. The

billion. $ $ Foreign facilities Total$ $ $ Weighted average interest rate:Domestic commercial paper % % %Foreign facilities % % %

For further details on the Company’s debt, including available credit facilities and related agreements, see Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

NOTE 7 -

$ $ $ $ $ Interest cost Expected return on assets()()()() Amortization of prior service cost (credit) ()()()Amortization of actuarial gains() ()()() Net periodic benefit cost (credit)$ $ $ $ $()$()Nine Months Ended September 30:Service cost$ $ $ $ $ $ Interest cost Expected return on assets()()()() Amortization of prior service cost (credit) ()()()()Amortization of actuarial (gains) losses() ()()() Net periodic benefit cost (credit)$ $ $ $ $()$()

Service cost is recorded in Cost of goods sold and Selling, general and administrative expenses. All other components are recorded in Other expense (income) - net. For further details on the Company’s pension and other postretirement benefits, see Note 9 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

NOTE 8 -

million and $ million, respectively. Estimated costs of current investigation and remediation activities of $ million and $ million are included in Other accruals at September 30, 2024 and 2023, respectively.

Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site. If the Company’s future loss contingency is ultimately determined to be at the unaccrued maximum of the estimated range of possible outcomes for every site for which costs can be reasonably estimated, the Company’s accrual for environmental-related activities would be $ million higher than the minimum accruals at September 30, 2024.

of the Company’s currently and formerly owned manufacturing sites (Major Sites) account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at September 30, 2024. At September 30, 2024, $ million, or % of the total accrual, related directly to the Major Sites. In the aggregate unaccrued maximum of $ million at September 30, 2024, $ million, or %, related to the Major Sites. The significant cost components of this liability continue to be related to remedy implementation, regulatory agency interaction, and project management and other costs. While different for each specific environmental situation, these components generally each account for approximately %, % and %, respectively, of the accrued amount and those percentages are subject to change over time. While environmental investigations and remedial actions are in different stages at these sites, additional investigations, remedial actions and monitoring will likely be required at each site.

The largest and most complex of the Major Sites is the Gibbsboro, New Jersey site (Gibbsboro) which comprises the substantial majority of the environmental-related accrual. Gibbsboro, a former manufacturing plant, and related areas, which ceased operations in 1978, has had various areas included on the National Priorities List since 1999. This location has soil, sediment, surface water and groundwater contamination related to the historic operations of the facility. Gibbsboro has been divided by the Environmental Protection Agency (EPA) into operable units (OUs) based on location and characteristics, whose investigation and remediation efforts are likely to occur over an extended period of time. To date, the Company has completed remedy construction on of the operable units. While there are administrative tasks to be completed before final agency approval, the remediation phase of the work for these OUs is effectively complete and future work for these OUs is anticipated to be limited. OUs are in various phases of investigation and remediation with the EPA that provide enough

Major Sites comprising the majority of the accrual include (1) a multi-party Superfund site that (a) has received a record of decision from the federal EPA and is currently in the remedial design phase for one OU, (b) has received a record of decision from the federal EPA for an interim remedy for another OU, and (c) has a remedial investigation ongoing for another OU, (2) a closed paint manufacturing facility that is in the operation and maintenance phase of remediation under both federal and state EPA programs, and (3) a formerly-owned site containing warehouse and office space that is in the remedial/design investigation phase under a state EPA program. Each of these Major Sites are in phases of investigation and remediation that provide sufficient information to reasonably estimate cost ranges and record environmental-related accruals.

Excluding the Major Sites discussed above, no sites are individually material to the total accrual balance. There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution, and securing applicable governmental agency approvals, all of which have the potential to contribute to the uncertainty surrounding these future events. As these events occur and to the extent that the cost estimates of the environmental remediation change, the existing reserve will be adjusted.

Management cannot presently estimate the ultimate potential loss contingencies related to these sites or other less significant sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed. Unasserted claims could have a material effect on the Company’s loss contingency as more information becomes available over time. At September 30, 2024, the Company did not have material loss contingency accruals related to unasserted claims. Management does not expect that a material portion of unrecognized loss contingencies will be recoverable through insurance, indemnification agreements or other sources. In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on Net income for the annual or interim period during which the additional costs are accrued. Moreover, management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended length of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.

Management expects these contingent environmental-related liabilities to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indeterminate amount of time to conduct investigation activities at any site, the indeterminate amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indeterminate amount of time necessary to conduct remediation activities.

Asset Retirement Obligation

The Asset Retirement and Environmental Obligations Topic of the ASC requires a liability to be recognized for the fair value of a conditional asset retirement obligation if a settlement date and fair value can be reasonably estimated. The Company recognizes a liability for any conditional asset retirement obligation when sufficient information is available to reasonably estimate a settlement date to determine the fair value of such a liability. The Company has identified certain conditional asset retirement obligations at various current and closed manufacturing, distribution and store facilities. These obligations relate primarily to asbestos abatement, hazardous waste Resource Conservation and Recovery Act (RCRA) closures, well abandonment, transformers and used oil disposals and underground storage tank closures. Using investigative, remediation and disposal methods that are currently available to the Company, the estimated costs of these obligations were accrued and are not significant. The recording of additional liabilities for future conditional asset retirement obligations may result in a material impact on net income for the annual or interim period during which the costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time over which sufficient information may become available regarding the closure or modification of any one or group of the Company’s facilities. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.

Real Estate Financing

The Company has entered into certain sale-leaseback agreements that do not qualify as asset sales and were accounted for as real estate financing transactions. Net proceeds are recognized within the Financing Activities section in the Statements of Consolidated Cash Flows. These arrangements primarily consist of the new headquarters currently under construction, for which the Company expects to receive total proceeds approximating $ million to $ million on an incremental basis until completion of construction.

$ $ $

Capitalized interest (1)

(1) Interest is capitalized within Other long-term liabilities.

The financing obligation for the new headquarters was $ million and $ million at September 30, 2024 and 2023, respectively. The short-term portion of the liability recorded in Other accruals was $ million and $ million at September 30, 2024 and 2023, respectively. See Note 11 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for more information concerning real estate financing.

NOTE 9 -

cases (Ravon Owens v. American Cyanamid, et al., Cesar Sifuentes v. American Cyanamid, et al., and Glenn Burton, Jr. v. American Cyanamid, et al.) for purposes of trial. A trial was held in May 2019 and resulted in a jury verdict for the plaintiffs in the amount of $ million each for a total of $ million against the Company and other defendants (Armstrong Containers Inc. and E.I. du Pont de Nemours). Post-trial motions resulted in a reduced damages award to plaintiff. Subsequently, the Company filed a notice of appeal with the Seventh Circuit with respect to each of the Owens, Sifuentes and Burton cases. On April 15, 2021, the Seventh Circuit reversed the judgments and held that the Company was entitled to judgment as a matter of law on all claims filed by the plaintiffs. The plaintiffs filed a petition with the Seventh Circuit on April 27, 2021, seeking a rehearing en banc and, in the alternative, a request for certification of questions to the Wisconsin Supreme Court. The plaintiffs’ petition was denied.

On May 20, 2021, as a result of the Seventh Circuit’s decision in favor of the Company in the Owens, Sifuentes and Burton cases, the Company and the other defendants filed motions for summary judgment to dismiss all claims of the approximately plaintiffs then pending in the Eastern District of Wisconsin (Maniya Allen, et al. v. American Cyanamid, et al.; Ernest Gibson v. American Cyanamid, et al.; Dijonae Trammel, et al. v. American Cyanamid, et al., and Deziree Valoe, et al. v. American Cyanamid, et al.). On March 3, 2022, the district court granted summary judgment in favor of the Company and the other defendants on all claims then pending in the district court. On September 15, 2022, the plaintiffs filed notices of appeal with the Seventh Circuit, seeking to appeal the district court’s summary judgment in favor of the Company and the other defendants. As part of the plaintiffs’ appellate reply brief to the Seventh Circuit, the plaintiffs included a motion to certify issues to the Wisconsin Supreme Court. On February 9, 2024, the Seventh Circuit declined to certify any issues to the Wisconsin Supreme Court and affirmed the district court’s summary judgment in favor of the Company and the other defendants in all claims except involving those filed by plaintiffs in the Gibson and Valoe cases, which cases were remanded to the district court for further proceedings. Following remand of the Gibson and Valoe cases, the remaining plaintiffs filed amended complaints on May 7, 2024, alleging strict liability, negligence, and public nuisance claims. The defendants filed motions to dismiss the plaintiffs’ amended complaints on June 20, 2024.

In a separate proceeding, on August 24, 2021, the plaintiff in Arrieona Beal v. Hattie and Jerry Mitchell filed an amended complaint in Milwaukee County Circuit Court, naming the Company and other alleged former lead pigment manufacturers as defendants pursuant to the risk contribution liability theory. The plaintiff previously had sued her landlords. On January 3, 2024, the Company and some of the other manufacturing defendants filed a third-party complaint against NL Industries, Inc.,

NOTE 10 -

$ $ $ Second Quarter Third Quarter Total$ $ $ $

Treasury Stock

The Company acquires its common stock for general corporate purposes through its publicly announced share repurchase program. As of September 30, 2024, the Company had remaining authorization from its Board of Directors to purchase million shares of its common stock.

$ $ $ Treasury stock purchases (in shares) Average price per share$ $ $ $

Other Activity

During the nine months ended September 30, 2024, stock options were exercised at a weighted average price per share of $. In addition, restricted stock units vested during the same period.

NOTE 11 -

)$ $ $()

Amounts recognized in AOCI (1)

()— — ()

Amounts reclassified from AOCI (2), (3)

— ()()()Balance at September 30, 2024$()$ $ $()

(1) Foreign currency translation adjustments include changes in the fair value of cross currency swap contracts of $() million, net of taxes during the nine months ended September 30, 2024. See Note 12.

(2) Pension and other postretirement benefit adjustments are net of taxes of $ million for the nine months ended September 30, 2024. See Note 7.

(3) Unrealized net gains on cash flow hedges are net of taxes of $ million for the nine months ended September 30, 2024. See Statements of Consolidated Comprehensive Income.

)$ $ $()

Amounts recognized in AOCI (1)

()— — ()

Amounts reclassified from AOCI (2), (3)

— ()()()Balance at September 30, 2023$()$ $ $()

(1) Foreign currency translation adjustments include changes in the fair value of cross currency swap contracts of $ million, net of taxes during the nine months ended September 30, 2023. See Note 12.

(2) Pension and other postretirement benefit adjustments are net of taxes of $ million for the nine months ended September 30, 2023. See Note 7.

(3) Unrealized net gains on cash flow hedges are net of taxes of $ million for the nine months ended September 30, 2023. See Statements of Consolidated Comprehensive Income.

NOTE 12 -

August 8, 2025November 8, 2021 June 1, 2027May 10, 2024 June 1, 2027May 21, 2024 June 1, 2027August 7, 2024 June 1, 2027September 26, 2024 June 1, 2027September 12, 2024 March 1, 2028December 7, 2023 August 15, 2029May 21, 2024 August 15, 2029September 24, 2024 September 1, 2031

In August 2024, the Company settled its $ million U.S. Dollar to Euro cross currency swap contract entered into on March 28, 2023. In May 2024, the Company settled its $ million U.S. Dollar to Euro cross currency swap contract entered into on February 13, 2020. At the time of both of these settlements, an immaterial loss was recognized in AOCI.

$ $ Other assets Other accruals Other long-term liabilities

)$ $()$ Tax effect () ()

(Losses) gains, net of taxes

$()$ $()$

Derivatives Not Designated as Hedging Instruments

The Company enters into foreign currency option and forward contracts with maturity dates less than twelve months primarily to hedge against value changes in foreign currency. The related gains and losses are recorded in Other expense (income) - net. See Note 15 for further details. There were material foreign currency option and forward contracts outstanding at September 30, 2024 and 2023.

NOTE 13 -

$ $— $— $ $ $— $— Liabilities:Net investment hedges$ $— $ $— $ $— $ $—

The deferred compensation plan assets consist of investment funds maintained for future payments under the Company’s executive deferred compensation plans, which are structured as rabbi trusts. The investments are marketable securities accounted for under the Debt and Equity Securities Topics of the ASC. The Level 1 investments are valued using quoted market prices multiplied by the number of shares. The deferred compensation plan assets also include partnership funds measured using net asset value (or its equivalent) as a practical expedient, which are not classified in the fair value hierarchy. As of September 30, 2024 and December 31, 2023, the fair value of the partnership funds was $ million and $ million, respectively. The cost basis of all investments within the deferred compensation plan was $ million and $ million at September 30, 2024 and December 31, 2023, respectively.

The net investment hedges represent the fair value of outstanding cross currency swap contracts. See Note 12 for further details. The fair value is based on a valuation model that uses observable inputs, including interest rate curves and the Euro foreign currency rate.

$ $ $ Non-publicly traded debt

NOTE 14 -

not to exceed one year. Many customers who purchase on account take advantage of early payment discounts offered by paying within 30 days of being invoiced. The Company estimates variable consideration for these sales on the basis of both historical information and current trends to estimate the expected amount of discounts to which customers are likely to be entitled.

The remaining revenue is governed by long-term supply agreements and related purchase orders (contracts) that specify shipping terms and aspects of the transaction price including rebates, discounts and other sales incentives, such as advertising support. Contracts are at standalone pricing. The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control of our products to the customer. Sales, value add and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

Refer to Note 18 for the Company’s disaggregation of Net sales by reportable segment. As the reportable segments are aligned by similar economic factors, trends and customers, this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Approximately % of the Company’s Net sales are in the North America region (which is comprised of the United States, Canada and the Caribbean region), slightly less than % in the EMEAI region (Europe, Middle East, Africa and India), with the remaining global regions accounting for the residual balance. No country outside of the United States is individually significant.

The Company has made payments or given credits for various incentives at the beginning of a long-term contract where future revenue is expected and before satisfaction of performance obligations. Under these circumstances, the Company recognizes a contract asset and amortizes these prepayments over the expected benefit life of the long-term contract typically on a straight-line basis.

The majority of variable consideration in the Company’s contracts include a form of volume rebate, discounts and other incentives, where the customer receives a retrospective percentage rebate based on the amount of their purchases. In these situations, the rebates are accrued as a fixed percentage of sales and recorded as a reduction of sales until paid to the customer per the terms of the contract. Forms of variable consideration such as tiered rebates, whereby a customer receives a retrospective price decrease dependent on the volume of their purchases, are calculated using a forecasted percentage to determine the most likely amount to accrue. Management creates a baseline calculation using historical sales and then utilizing forecast information, estimates the anticipated sales volume each quarter to calculate the expected reduction to sales. The remainder of the transaction price is fixed as agreed upon with the customer, limiting estimation of revenues including constraints.

$ $ $ $ Balance at September 30, 2024

The difference between the closing and opening balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the contractual performance obligation and the associated payment.

Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue per ASC 606 when the products are sold. The Company only offers an assurance type warranty on products sold, and there is no material service to the customer beyond fixing defects that existed at the time of sale and no warranties are sold separately.

Warranty liabilities are excluded from the table above. Amounts recognized during the year from deferred revenue were not material. The Company records a right of return liability within each of its operations to accrue for expected customer returns. Historical actual returns are used to estimate future returns as a percentage of current sales. Obligations for returns and refunds were not material individually or in the aggregate.

Allowance for Current Expected Credit Losses

Accounts receivable are recorded at the time of credit sales, net of an allowance for current expected credit losses. The Company records an allowance for current expected credit losses to reduce Accounts receivable to the net amount expected to be collected (estimated net realizable value).

Under ASC 326, the Company reviews the collectability of the Accounts receivable balance each reporting period and estimates the allowance for current expected credit losses based on historical bad debt experience, aging of accounts receivable, current creditworthiness of customers, current economic factors, as well as reasonable and supportable forward-looking information. Accounts receivable balances are written-off against the allowance for current expected credit losses if a final determination of uncollectibility is made. All provisions for the allowance for current expected credit losses are included in Selling, general and administrative expenses.

$ Bad debt expense Uncollectible accounts written off, net of recoveries()()Ending balance$ $

NOTE 15 -

$ $()$ Gain on divestiture of business (see Note 3) ()(Gains) losses on sale or disposition of assets() ()()Other() Other general expense (income) - net$ $ $()$

Provisions for environmental matters - net represent initial provisions for site-specific estimated costs of environmental investigation or remediation and increases or decreases to environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Provisions for environmental matters - net for the nine months ended September 30, 2024 included an immaterial amount of insurance proceeds related to environmental cleanup at a current manufacturing site. For the three months ended September 30, 2023, additional provisions were recorded based on new information which impacted the estimate of required remediation at certain Major Sites and other Company locations. See Note 8 for further details on the Company’s environmental-related activities.

(Gains) losses on sale or disposition of assets represents (gains) losses with the sale or disposal of property, plant and equipment and intangible assets previously used in the conduct of the primary business of the Company.

There were no items within the Other caption that were individually significant.

Other expense (income) - net

)$()$()$()Net expense from banking activities Foreign currency transaction related losses - net Miscellaneous periodic benefit income()()()()Other income()()()()Other expense Other expense (income) - net$ $()$()$()

Net investment gains primarily relate to the change in market value of the investments held in the deferred compensation plan and realized change in market value of bonds issued by a foreign government. See Note 13 for further details on the fair value of these investments.

Foreign currency transaction related losses - net include the impact from foreign currency transactions, including from highly inflationary economies such as Argentina, and net realized (gains) losses from foreign currency option and forward contracts. See Note 12 for further details regarding these foreign currency contracts.

Miscellaneous periodic benefit income consists of the non-service components of pension and other postretirement benefit net periodic benefit cost (credit). See Note 7 for further details.

Other income and other expense include items of revenue, gains, expenses and losses that were unrelated to the primary business purpose of the Company. There were no items within the other income or other expense caption that were individually significant.

NOTE 16 -

% and % for the third quarter and first nine months of 2024, respectively, compared to % and % for the third quarter and first nine months of 2023, respectively. The decrease in the effective tax rate for both periods was primarily due to a more favorable impact from tax benefits related to employee share-based payments. The other significant components of the Company’s effective tax rate were consistent year-over-year.

At December 31, 2023, the Company had $ million in unrecognized tax benefits, the recognition of which would have an effect of $ million on the effective tax rate. Included in the balance of unrecognized tax benefits at December 31, 2023 was $ million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months.

The Company classifies all income tax related interest and penalties as income tax expense. At December 31, 2023, the Company had accrued $ million for the potential payment of income tax interest and penalties.

In the second quarter of 2024, the Company agreed to a Notice of Proposed Adjustment by the IRS for $ million related to certain adjustments for 2017 through 2019, and is adequately reserved. There were no significant changes to any of the balances of unrecognized tax benefits at December 31, 2023 during the first nine months of 2023.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company finalized the IRS audit for the 2013 through 2016 income tax returns in 2023 and paid the related assessments in the fourth quarter of 2023 and first quarter of 2024. The Company finalized the IRS audit for the 2011 income tax return in 2023 and paid the tax assessment in the second quarter of 2024 and the interest assessment in the third quarter of 2024. The IRS is currently auditing the Company’s 2017 through 2019 income tax returns. As of September 30, 2024, the federal statute of limitations has not expired for the 2017 through 2023 tax years.

At September 30, 2024, the Company is subject to non-U.S. income tax examinations for the tax years of 2014 through 2023. In addition, the Company is subject to state and local income tax examinations for the tax years 2016 through 2023.

NOTE 17 -

$ $ $ Average shares outstanding Basic net income per share$ $ $ $ DilutedNet income$ $ $ $ Average shares outstanding assuming dilution:Average shares outstanding

Stock options and other contingently issuable shares (1)

%0.2 %

Consolidated Net sales were essentially flat in the first nine months of 2024. Sales volume growth in the Paint Stores and Performance Coatings Groups was offset by lower sales volume in the Consumer Brands Group, inclusive of the impact from the divestiture of the China architectural business and a non-core domestic aerosol business in the prior period. Net sales of all consolidated foreign subsidiaries increased to $3.370 billion in the first nine months of 2024 compared to $3.342 billion in the same period last year. The increase in Net sales for all consolidated foreign subsidiaries was due to growth in the Europe region, partially offset by lower Net sales in the Latin America and Asia regions. Net sales of all operations other than consolidated foreign subsidiaries decreased 0.2% to $14.431 billion in the first nine months of 2024 compared to $14.458 billion in the same period last year.

Net sales in the Paint Stores Group increased by 2.5% in the first nine months of 2024 primarily due to low-single digit sales volume growth and realization of higher selling prices that were implemented earlier in the year. Net sales from stores open for more than twelve calendar months increased 1.6% in the first nine months of 2024 compared to last year’s comparable period. Net sales of non-paint products increased 0.5% in the first nine months of 2024 compared to last year’s comparable period. A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general merchandise sold.

Net sales in the Consumer Brands Group decreased by 8.5% in the first nine months of 2024 primarily due to a mid-single digit percentage sales volume decline primarily due to soft DIY demand in North America and the impact from the divestiture of the China architectural business and a non-core domestic aerosol business in the prior period. In addition, Net sales were unfavorably impacted by foreign currency translation.

Net sales in the Performance Coatings Group decreased by 0.4% in the first nine months of 2024 primarily due to selling price decreases, which impacted Net sales by a low-single digit percentage and unfavorable foreign currency translation, partially offset by mid-single digit sales volume growth, inclusive of the acquisition of SIC Holding GmbH in 2023. Performance was led by Industrial Wood and Coil, but was offset by a decrease in General Industrial and Automotive Refinish.

Income Before Income Taxes

The following table presents the components of Income before income taxes as a percentage of Net sales:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
			% of Net Sales				% of Net Sales				% of Net Sales				% of Net Sales
Net sales	$	6,162.5	100.0	%	$	6,116.7	100.0	%	$	17,801.3	100.0	%	$	17,799.7	100.0	%
Cost of goods sold	3,135.0		50.9	%	3,200.5		52.3	%	9,179.4		51.6	%	9,590.3		53.9	%
Gross profit	3,027.5		49.1	%	2,916.2		47.7	%	8,621.9		48.4	%	8,209.4		46.1	%
SG&A	1,893.7		30.7	%	1,756.5		28.7	%	5,539.2		31.1	%	5,209.5		29.3	%
Other general expense (income) - net	0.7		—	%	61.9		1.0	%	(30.9)		(0.2)	%	39.9		0.2	%
Impairment	—		—	%	—		—	%	—		—	%	34.0		0.2	%
Interest expense	103.4		1.6	%	101.9		1.7	%	317.2		1.9	%	322.9		1.8	%
Interest income	(2.6)		—	%	(5.1)		(0.1)	%	(9.6)		(0.1)	%	(15.8)		(0.1)	%
Other expense (income) - net	9.5		0.2	%	(8.0)		(0.1)	%	(30.2)		(0.2)	%	(17.0)		(0.1)	%
Income before income taxes	$	1,022.8	16.6	%	$	1,009.0	16.5	%	$	2,836.2	15.9	%	$	2,635.9	14.8	%

Three Months Ended September 30, 2024

Consolidated Cost of goods sold decreased $65.5 million, or 2.0%, in the third quarter of 2024 compared to the same period in 2023 primarily due to improved efficiencies in manufacturing and distribution operations and foreign currency translation rate changes, which decreased Cost of goods sold by approximately 1%. These decreases were partially offset by a low single-digit increase in sales volume.

Consolidated gross profit increased $111.3 million in the third quarter of 2024 compared to the same period in 2023 primarily due to higher Net sales in the Paint Stores Group and improved efficiencies in manufacturing and distribution operations. Consolidated gross profit as a percent of consolidated Net sales increased in the third quarter of 2024 to 49.1% compared to 47.7% during the same period in 2023 for these same reasons.

The Paint Stores Group’s gross profit in the third quarter of 2024 was higher than the same period last year by $59.6 million due primarily to higher Net sales. The Paint Stores Group’s gross profit as a percent of Net sales was effectively flat in the third quarter of 2024 compared to the same period in 2023. The Consumer Brands Group’s gross profit increased by $55.1 million in the third quarter of 2024 compared to the same period last year due primarily to higher fixed cost absorption in the manufacturing and distribution operations within the segment, partially offset by lower Net sales. The Consumer Brands Group’s gross profit as a percent of Net sales increased in the third quarter of 2024 compared to the same period in 2023 for these same reasons. The Performance Coatings Group’s gross profit decreased $14.1 million in the third quarter of 2024 compared to the same period last year due primarily to lower sales in North America and unfavorable foreign currency related impacts. The Performance Coatings Group’s gross profit as a percent of Net sales decreased in the third quarter of 2024 compared to the same period last year for these same reasons.

Consolidated Selling, general and administrative expenses (SG&A) increased $137.2 million in the third quarter of 2024 versus the same period last year primarily due to investments in long-term growth strategies, including expenses to support net new store openings and digital technologies, and higher employee-related costs. As a percent of Net sales, consolidated SG&A increased 200 basis points in the third quarter of 2024 compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $75.0 million in the third quarter of 2024 compared to the same period last year due primarily due to investments in long-term growth initiatives, including increased spending from new store openings, and higher employee-related costs. The Consumer Brands Group’s SG&A decreased $5.4 million in the third quarter of 2024 compared to the same period last year primarily due to effective cost control in managing the operations of the business, partially offset by higher employee-related costs. The Performance Coatings Group’s SG&A decreased $0.5 million in the third quarter of 2024 compared to the same period last year primarily due to lower employee-related costs. The Administrative function’s SG&A increased $68.1 million in the third quarter of 2024 compared to the same period last year due primarily to higher employee-related costs and increased expenses related to digital technologies and systems.

Other general expense (income) - net decreased $61.2 million in the third quarter of 2024 compared to the same period last year primarily due to a decrease in provisions for environmental matters, net in the Administrative function and increased net gains on sale or disposition of assets. See Note 15 in Item 1 for further details.

Interest expense increased $1.5 million in the third quarter of 2024 compared to the same period last year primarily due to an increase in short-term borrowings. See Note 6 in Item 1 for additional information on the Company’s outstanding debt.

Other expense (income) - net was expense of $9.5 million in the third quarter of 2024 compared to income of $8.0 million in the same period last year primarily due to higher foreign currency transaction losses in the current year and an increase in miscellaneous expenses, partially offset by an increase in miscellaneous income. See Note 15 in Item 1 for further details.

Nine Months Ended September 30, 2024

Consolidated Cost of goods sold decreased $410.9 million, or 4.3%, in the first nine months of 2024 compared to the same period in 2023 due primarily to moderating raw material costs, partially offset by a low single-digit increase in sales volume.

Consolidated gross profit increased $412.5 million in the first nine months of 2024 compared to the same period in 2023 primarily due to moderating raw material costs and higher Net sales. Consolidated gross profit as a percent of consolidated Net sales increased in the first nine months of 2024 to 48.4% compared to 46.1% during the same period in 2023 for these same reasons.

The Paint Stores Group’s gross profit in the first nine months of 2024 was higher than the same period last year by $181.8 million due primarily to higher Net sales and moderating raw material costs. The Paint Stores Group’s gross profit as a percent of Net sales increased in the first nine months of 2024 compared to the same period in 2023 for these same reasons. The Consumer Brands Group’s gross profit increased by $206.2 million in the first nine months of 2024 compared to the same period last year due primarily to higher fixed cost absorption in the manufacturing and distribution operations within the segment and moderating raw material costs, partially offset by lower Net sales. The Consumer Brands Group’s gross profit as a percent of Net sales increased in the first nine months of 2024 compared to the same period last year for these same reasons. The Performance Coatings Group’s gross profit increased $11.6 million in the first nine months of 2024 compared to the same period last year primarily due to moderating raw material costs, partially offset by lower Net sales. The Performance Coatings Group’s gross profit as a percent of Net sales increased in the first nine months of 2024 compared to the same period last year for these same reasons.

Consolidated SG&A increased $329.7 million in the first nine months of 2024 versus the same period last year primarily due to investments in long-term growth strategies, including expenses to support net new store openings and digital technologies, and higher employee-related costs. As a percent of Net sales, consolidated SG&A increased 180 basis points in the first nine months of 2024 compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $166.9 million in the first nine months of 2024 compared to the same period last year primarily due to investments in long-term growth initiatives, including increased spending from new store openings, costs to support higher sales and higher employee-related costs. The Consumer Brands Group’s SG&A increased $1.0 million in the first nine months of 2024 compared to the same period last year due to higher employee-related costs, partially offset by effective cost control in managing the operations of the business. The Performance Coatings Group’s SG&A increased $15.7 million in the first nine months of 2024 compared to the same period last year due primarily to investments in long-term initiatives. The Administrative function’s SG&A increased $146.1 million in the first nine months of 2024 compared to the same period last year due primarily to higher employee-related costs and increased expenses related to digital technologies and systems.

Other general expense (income) - net was income of $30.9 million in the third quarter of 2024 compared to expense of $39.9 million in the same period last year primarily due to a decrease in provisions for environmental matters, net in the Administrative function, increased net gains on sale or disposition of assets and a decrease in miscellaneous expenses. This activity was partially offset by the gain recognized in the prior period related to the divestiture of a business. See Note 15 in Item 1 for further details.

For information on impairment recognized in prior periods as a result of the divestiture of the China architectural business, see Notes 3 and 5 in Item 1 and Note 3 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Interest expense decreased $5.7 million in the first nine months of 2024 compared to the same period last year primarily due to a decrease in long-term debt outstanding during the first nine months of 2024 compared to the same period last year, partially offset by higher interest expense on short-term borrowings. See Note 6 in Item 1 for additional information on the Company’s outstanding debt.

Other expense (income) - net was income of $30.2 million in the first nine months of 2024 compared to income of $17.0 million in the same period last year. The increase is primarily due to lower foreign currency transaction related losses in the current year compared to the prior period and an increase in miscellaneous income, partially offset by a decrease in investment gains. See Note 15 in Item 1 for further details.

The following table presents Income before income taxes by segment and as a percentage of Net sales by segment:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024			2023			% Change		2024			2023			% Change
Income Before Income Taxes:
Paint Stores Group	$	895.9		$	917.5		(2.4)	%	$	2,296.2		$	2,293.5		0.1	%
Consumer Brands Group	165.5			101.6			62.9	%	523.3			305.7			71.2	%
Performance Coatings Group	259.7			279.7			(7.2)	%	798.9			771.3			3.6	%
Administrative	(298.3)			(289.8)			(2.9)	%	(782.2)			(734.6)			(6.5)	%
Total	$	1,022.8		$	1,009.0		1.4	%	$	2,836.2		$	2,635.9		7.6	%

Income Before Income Taxes as a % of Net Sales:
Paint Stores Group	24.5		%	25.9		%			22.6		%	23.2		%
Consumer Brands Group	20.9		%	11.9		%			21.4		%	11.4		%
Performance Coatings Group	15.1		%	16.2		%			15.3		%	14.8		%
Administrative	nm			nm					nm			nm
Total	16.6		%	16.5		%			15.9		%	14.8		%

nm - not meaningful

Income Tax Expense

The effective tax rate was 21.2% for the third quarter of 2024 compared to 24.5% for the third quarter of 2023, and 22.4% for the first nine months of 2024 compared to 22.9% for the first nine months of 2023. The decrease in the effective tax rate for both periods was primarily due to a more favorable impact of tax benefits related to employee share-based payments. The other significant components of the Company’s effective tax rate were consistent year-over-year in both periods. See Note 16 in Item 1 for further details.

Net Income Per Share

Diluted net income per share in the third quarter of 2024 increased 7.8% to $3.18 per share compared to $2.95 per share in the third quarter of 2023. Diluted net income per share included a $0.19 per share charge for acquisition-related amortization expense in both the third quarter of 2024 and 2023. In the third quarter of 2023, diluted net income per share also included a charge of $0.06 per share related to activities associated with the Company’s restructuring plan. Foreign currency translation rate changes decreased diluted net income per share by $0.04 in the third quarter of 2024.

Diluted net income per share for the first nine months of 2024 increased 10.2% to $8.65 per share compared to $7.85 per share in the first nine months of 2023. Diluted net income per share included a $0.59 and $0.60 per share charge for acquisition-related amortization expense for the first nine months of 2024 and 2023, respectively. In the first nine months of 2023, diluted net income per share included a net charge of $0.09 per share related to activities associated with the Company’s restructuring plan. Foreign currency translation rate changes decreased diluted net income per share by $0.06 in the first nine months of 2024.

For information on the Company’s restructuring plan, see Note 4 in Item 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

Overview

The Company’s financial condition and liquidity remained strong at September 30, 2024. The Company generated $2.219 billion in Net operating cash during the first nine months of 2024. The Company returned cash of $1.972 billion to its shareholders in the form of dividends and share repurchases during the first nine months of 2024. The Company’s EBITDA increased 5.5% to $3.616 billion for the first nine months of 2024. Refer to the Non-GAAP Financial Measures section below for the definition and calculation of EBITDA.

At September 30, 2024, the Company had Cash and cash equivalents of $238.2 million and total debt outstanding of $10.140 billion. Total debt, net of Cash and cash equivalents, was $9.902 billion. The Company continues to maintain sufficient short-term borrowing capacity at reasonable rates, and the Company has sufficient cash on hand and total available borrowing capacity to fund its current operating requirements.

Net Working Capital

Net working capital, defined as Total current assets less Total current liabilities, decreased $819.4 million to a deficit of $1.244 billion at September 30, 2024 compared to a deficit of $424.4 million at September 30, 2023. The net working capital decrease is due to an increase in current liabilities and a decrease in current assets.

Current asset balances decreased $224.5 million at September 30, 2024 compared to September 30, 2023 primarily due to a decrease in Cash and cash equivalents of $265.2 million primarily due to the timing of the SIC Holding acquisition in October 2023 and a decrease of $14.9 million in Other current assets, partially offset by an increase of $32.5 million in Accounts receivable, net and an increase in Inventories of $23.1 million.

Current liability balances increased $594.9 million at September 30, 2024 compared to September 30, 2023 primarily due to an increase in Short-term borrowings of $576.9 million, an increase in Other accruals of $140.3 million, primarily related to environmental liabilities, liabilities from contracts with customers, commitments related to Non-Traded Investments and miscellaneous other current liabilities, an increase in Accounts payable of $112.9 million and an increase in the Current portion of operating lease liabilities of $21.7 million, partially offset by a decrease in Accrued taxes of $165.3 million, a decrease in the Current portion of long-term debt of $49.3 million and a decrease of $42.3 million in compensation and taxes withheld. At September 30, 2024 and 2023, the Company’s current ratio was 0.83 and 0.94, respectively, compared to 0.83 at December 31, 2023.

Property, Plant and Equipment

Net property, plant and equipment increased $507.9 million in the first nine months of 2024 and $764.1 million in the twelve months since September 30, 2023. The increase in the first nine months was primarily due to capital expenditures of $730.6 million, partially offset by depreciation expense of $217.3 million and foreign currency translation and other adjustments of $5.4 million. Since September 30, 2023, the increase was primarily due to capital expenditures of $1.080 billion and foreign currency translation and other adjustments of $5.6 million, partially offset by depreciation expense of $291.6 million and the sale or disposition of fixed assets of $29.9 million.

Capital expenditures primarily represented expenditures related to construction activities associated with the new headquarters and research and development (R&D) center in the Administrative function. Construction of the new headquarters and R&D center is expected to be complete in 2025. In addition, capital expenditures were related to manufacturing capacity expansion, operational efficiencies and maintenance projects in the Consumer Brands and Performance Coatings Groups and the opening of new paint stores and renovation and improvements in existing stores in the Paint Stores Group.

In 2024, the Company expects to spend approximately the same as 2023 for capital expenditures, which it will fund primarily through the generation of operating cash. Core capital expenditures are targeted to be approximately 2% of Net sales in 2024 and are expected to be for investments in various productivity improvement and maintenance projects at existing manufacturing, distribution and R&D facilities and new store openings. Additionally, the Company will continue to construct its new headquarters and R&D center. Refer to “Real Estate Financing” below for further information on the financing transaction for the new headquarters.

Real Estate Financing

In December 2022, the Company closed a transaction to sell and subsequently lease back its partially-constructed new headquarters. As part of the terms of the transaction, the Company is contractually obligated for completing the construction of the building and related improvements at the new headquarters. This transaction did not meet the criteria for recognition as an

asset sale under U.S. generally accepted accounting principles (US GAAP) and as such, was accounted for as a real estate financing transaction. The Company expects to receive total proceeds approximating $800 million to $850 million on an incremental basis until completion of construction. The initial lease term includes the construction period and extends for 30 years thereafter, and the Company has the right and option to extend the lease term. The lease payment amounts during the construction period are dependent upon the timing and amount of total reimbursement of construction and other costs received by the Company. The amount of the lease payments during the initial 30 year lease term will be calculated upon completion of the construction period and receipt of total reimbursement of construction and other costs. Once determinable, this is expected to result in a significant increase in the Company’s long-term contractual obligations.

See Note 8 in Item 1 and Notes 8 and 11 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for more information concerning real estate financing.

Goodwill and Intangible Assets

Goodwill increased $31.0 million from December 31, 2023 and increased $244.7 million from September 30, 2023. The increase during the first nine months of 2024 was primarily due to purchase accounting allocations of $27.1 million and foreign currency translation fluctuations of $3.9 million. The increase over the twelve month period from September 30, 2023 was primarily due to purchase accounting allocations of $181.3 million and foreign currency translation fluctuations and other adjustments of $63.4 million.

Intangible assets decreased $223.6 million from December 31, 2023 and $167.1 million from September 30, 2023. The decrease during the first nine months of 2024 was primarily due to amortization of $244.8 million and foreign currency translation fluctuations and other adjustments of $0.4 million, partially offset by capitalized software of $21.6 million. The decrease over the twelve month period from September 30, 2023 was primarily due to amortization of $319.6 million and trademark impairment of $24.0 million, partially offset by purchase accounting allocations of $110.7 million, capitalized software of $21.6 million, and foreign currency translation fluctuations and other adjustments of $44.2 million.

See Note 5 in Item 1 for further details concerning the Company’s Goodwill and Intangible assets and Note 3 in Item 1 for information on the impairment test performed as a result of the China architectural business divestiture in in the third quarter of 2023. In addition, see Note 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for more information concerning the Company’s Goodwill and Intangible assets.

Other Assets

Other assets increased $234.6 million from December 31, 2023 and $331.3 million from September 30, 2023. The increase in the first nine months of 2024 and from September 30, 2023 was primarily due to an increase in Non-Traded Investments and other assets related to contracts with customers, deposits, including the deposit related to the acquisition that closed in October 2024 (see Note 3 in Item 1), and assets related to cloud computing arrangements. See Note 1 in Item 1 for further details on the Company’s Non-Traded Investments.

Debt (including Short-term borrowings)


	September 30,		December 31,		September 30,
	2024		2023		2023
Long-term debt (including current portion)	$	9,224.2	$	9,476.7	$	9,597.4
Short-term borrowings	915.5		374.2		338.6
Total debt outstanding	$	10,139.7	$	9,850.9	$	9,936.0

The Company’s long-term debt primarily consists of senior notes as disclosed in Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. See Note 6 in Item 1 for additional information concerning debt.

Defined Benefit Pension and Other Postretirement Benefit Plans

Long-term liabilities for defined benefit pension and other postretirement benefit plans did not change significantly from December 31, 2023. The changes from September 30, 2023 are primarily due to changes in actuarial assumptions. See Note 9 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for more information concerning the Company’s liabilities for defined benefit pension and other postretirement benefit plans.

Deferred Income Taxes

Deferred income taxes decreased $51.4 million from December 31, 2023 and $16.7 million from September 30, 2023 primarily due to amortization of acquisition-related intangible assets.

Environmental-Related Liabilities

The operations of the Company, like those of other companies in the same industry, are subject to various domestic and foreign environmental laws and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that the Company conducts its operations in compliance with applicable environmental laws, regulations and requirements and has implemented various programs designed to help protect the environment and promote continued compliance.

Depreciation of capital expenditures and other expenses related to ongoing environmental compliance measures were included in the normal operating expenses of conducting business. The Company’s capital expenditures, depreciation and other expenses related to ongoing environmental compliance measures were not material to the Company’s financial condition, liquidity, cash flow or results of operations during the first nine months of 2024. Management does not expect that such capital expenditures, depreciation and other expenses will be material to the Company’s financial condition, liquidity, cash flow or results of operations in 2024. See Notes 8 and 15 in Item 1 for further information on environmental-related long-term liabilities.

Contractual Obligations, Commercial Commitments and Warranties

There have been no significant changes to the Company’s contractual obligations and commercial commitments in the first nine months of 2024 as summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Litigation

See Note 9 in Item 1 for information concerning litigation.

Shareholders’ Equity


	September 30,		December 31,		September 30,
	2024		2023		2023
Total shareholders’ equity	$	4,156.1	$	3,715.8	$	3,780.0

Shareholders’ equity increased $440.3 million during the first nine months of 2024 primarily as a result of Net income of $2.201 billion and an increase in Other capital of $277.8 million mainly associated with stock-based compensation expense and stock option exercises. These increases were partially offset by $1.444 billion of treasury stock activity mainly attributable to treasury stock repurchases, cash dividends paid on common stock of $543.6 million and a decrease in AOCI of $51.9 million mainly due to foreign currency translation adjustments.

Shareholders’ equity increased $376.1 million since September 30, 2023 primarily as a result of Net income of $2.558 billion and an increase in Other capital of $367.5 million mainly associated with stock-based compensation expense and stock option exercises. These increases were partially offset by $1.931 billion of treasury stock activity mainly attributable to treasury stock repurchases, cash dividends paid on common stock of $698.9 million and an increase in AOCI of $80.2 million mainly due to foreign currency translation adjustments.

During the first nine months of 2024, the Company purchased 4.4 million shares of its common stock for treasury purposes through open market purchases. The Company acquires its common stock for general corporate purposes, and depending on its cash position and market conditions, it may acquire additional shares in the future. The Company had remaining authorization at September 30, 2024 to purchase 35.3 million shares of its common stock.

In February 2024, the Company’s Board of Directors increased the quarterly cash dividend from $0.605 per share to $0.715 per share. This quarterly dividend was approved in all subsequent quarters and will result in an annual dividend for 2024 of $2.86 per share, or a 31% payout of 2023 diluted net income per share.

Cash Flow

Net operating cash for the nine months ended September 30, 2024 was a source of $2.219 billion compared to a source of $2.603 billion for the same period in 2023. The decrease in Net operating cash was primarily due to higher cash requirements for working capital, partially offset by higher Net income.

Net investing cash usage increased $401.8 million in the first nine months of 2024 to a usage of $910.8 million compared to a usage of $509.0 million for the same period in 2023 primarily due to an increase in cash used for capital expenditures, cash on deposit for a pending acquisition in the current year and reduced proceeds from the sale of assets, partially offset by proceeds from the divestiture of a business in the prior period.

Net financing cash usage decreased $438.8 million in the first nine months of 2024 to a usage of $1.346 billion compared to a usage of $1.785 billion for the same period in 2023 primarily due to an increase in short-term borrowings, proceeds from long-term debt in the current year and higher proceeds from stock options exercised, partially offset by an increase in payments of long-term debt, treasury stock purchases and cash dividends.

In the twelve month period from October 1, 2023 through September 30, 2024, the Company generated net operating cash of $3.137 billion, used $1.441 billion in investing activities and used $1.986 billion in financing activities.

Market Risk

The Company is exposed to market risk associated with interest rate, foreign currency and commodity fluctuations. The Company occasionally utilizes derivative instruments as part of its overall financial risk management policy, but does not use derivative instruments for speculative or trading purposes. In 2024 and 2023, the Company entered into foreign currency forward contracts with maturity dates of less than twelve months primarily to hedge against value changes in foreign currency. The Company also has cross currency swap contracts to hedge its net investment in European operations. See Notes 12 and 15 in Item 1 for additional information related to the Company’s use of derivative instruments.

The Company believes it may be exposed to continuing market risk from foreign currency exchange rate and commodity price fluctuations. However, the Company does not expect that foreign currency exchange rate and commodity price fluctuations or hedging contract losses will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Financial Covenant

Certain borrowings contain a consolidated leverage covenant. The covenant states that the Company’s consolidated leverage ratio is not to exceed 3.75 to 1.00, however, the Company may elect to temporarily increase the leverage ratio to 4.25 to 1.00 for a period of four consecutive fiscal quarters immediately following the consummation of a qualifying acquisition, as defined in the New Credit Agreement dated July 31, 2024. The leverage ratio is defined as the ratio of total indebtedness (the sum of Short-term borrowings, Current portion of long-term debt and Long-term debt) at the reporting date to consolidated “Earnings Before Interest, Taxes, Depreciation, and Amortization” (EBITDA), as defined in the credit agreement, for the 12-month period ended on the same date. Refer to the “Non-GAAP Financial Measures” section below for a reconciliation of EBITDA to Net income. At September 30, 2024, the Company was in compliance with the covenant and expects to remain in compliance. The Company’s notes, debentures and revolving credit agreements contain various default and cross-default provisions. In the event of default under any one of these arrangements, acceleration of the maturity of any one or more of these borrowings may result. See Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Note 6 in Item 1 for additional information concerning the Company’s debt and related covenants.

Non-GAAP Financial Measures

Management utilizes certain financial measures that are not in accordance with US GAAP to analyze and manage the performance of the business. The required disclosures for these non-GAAP measures are shown below. The Company provides such non-GAAP information in reporting its financial results to give investors additional data to evaluate the Company’s operations. Management does not, nor does it suggest investors should, consider such non-GAAP measures in isolation from, or in substitution for, financial information prepared in accordance with US GAAP.

EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP financial measure defined as Net income before income taxes, Interest expense, depreciation and amortization. Adjusted EBITDA is a non-GAAP financial measure defined as EBITDA that excludes certain adjustments that management believes enhances investors’ understanding of the Company’s operating performance. Management considers EBITDA and Adjusted EBITDA useful in understanding the operating performance of the Company. The reader is cautioned that the Company’s EBITDA and Adjusted EBITDA should not be compared to other entities unknowingly. Further, EBITDA and Adjusted EBITDA should not be considered alternatives to Net income or Net operating cash as an indicator of operating performance or as a measure of liquidity. The reader should refer to the determination of Net income and Net operating cash in accordance with US GAAP disclosed in the Statements of Consolidated Income and Statements of Condensed Consolidated Cash Flows in Item 1.

The following table summarizes EBITDA and Adjusted EBITDA as calculated by management for the periods indicated below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	806.2	$	761.5	$	2,201.3	$	2,032.6
Interest expense	103.4		101.9		317.2		322.9
Income taxes	216.6		247.5		634.9		603.3
Depreciation	74.4		71.9		217.3		218.0
Amortization	81.2		83.5		244.8		250.2
EBITDA	$	1,281.8	$	1,266.3	$	3,615.5	$	3,427.0
Restructuring expense	—		—		—		9.6
Impairment of assets related to China divestiture	—		—		—		34.0
Gain on divestiture of domestic aerosol business	—		—		—		(20.1)



Adjusted EBITDA	$	1,281.8	$	1,266.3	$	3,615.5	$	3,450.5

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect amounts reported in the accompanying condensed consolidated financial statements. These determinations were made based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

A comprehensive discussion of the Company’s critical accounting policies, management estimates and significant accounting policies followed in the preparation of the condensed consolidated financial statements is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes in critical accounting policies, management estimates or accounting policies since the year ended December 31, 2023.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of federal securities laws. These forward-looking statements are based upon management’s current expectations, predictions, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and the costs and potential liability for environmental-related matters and the lead pigment and lead-based paint litigation. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “believe,” “expect,” “estimate,” “project,” “plan,” “goal,” “target,” “potential,” “intend,” “aspire,” “strive,” “may,” “will,” “should,” “could,” “would,” “seek,” or “anticipate” or the negative thereof or comparable terminology.

Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from such statements and from our historical results, performance and experience. These risks, uncertainties and other factors include such things as:

•general business conditions, including the strength of retail and manufacturing economies and growth in the coatings industry;

•changes in general domestic and international economic conditions, including due to changes in inflation rates, interest rates, tax rates, unemployment rates, labor costs, healthcare costs, recessionary conditions, geopolitical conditions, government policies, laws and regulations;

•weakening of global credit markets and our ability to generate cash to service our indebtedness;

•fluctuations in foreign currency exchange rates, including as a result of inflation, central bank monetary policies, currency controls and other exchange restrictions;

•any disruption in the availability of, or increases in the price of, raw material and energy supplies;

•disruptions in the supply chain, including those related to industry capacity constraints, raw material availability, transportation and logistics delays and constraints, political instability or civil unrest;

•catastrophic events, adverse weather conditions and natural disasters, including those that may be related to climate change or otherwise;

•losses of or changes in our relationships with customers and suppliers;

•competitive factors, including pricing pressures and product innovation and quality;

•our ability to successfully integrate past and future acquisitions into our existing operations, as well as the performance of the businesses acquired;

•risks and uncertainties associated with our expansion into and our operations in Asia, Europe, South America and other foreign markets, including general economic conditions, policy changes affecting international trade, political instability, inflation rates, recessions, sanctions, foreign currency exchange rates and controls, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest, armed conflicts and wars (including the ongoing conflict between Russia and Ukraine and the Israel-Hamas war) and other economic and political factors;

•cybersecurity incidents and other disruptions to our information technology systems, and our reliance on information technology systems;

•our ability to attract, retain, develop and progress a qualified global workforce;

•our ability to execute on our business strategies related to sustainability matters, and achieve related expectations, including as a result of evolving regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs and the availability of requisite financing, and changes in carbon markets;

•damage to our business, reputation, image or brands due to negative publicity;

•our ability to protect or enforce our material trademarks and other intellectual property rights;

•our ability to comply with numerous and evolving U.S. and non-U.S. laws, rules, and regulations and the effectiveness of our compliance efforts;

•adverse changes to our tax positions in U.S. and non-U.S. jurisdictions, including as a result of new or revised tax laws or interpretations;

•increasingly stringent domestic and foreign governmental regulations, including those affecting health, safety and the environment;

•inherent uncertainties involved in assessing our potential liability for environmental-related activities;

•other changes in governmental policies, laws and regulations, including changes in tariff policies, accounting policies and standards; and

•the nature, cost, quantity and outcome of pending and future litigation and other claims, including the lead pigment and lead-based paint litigation, and the effect of any legislation and administrative regulations relating thereto.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk associated with interest rates, foreign currency and commodity fluctuations. The Company occasionally utilizes derivative instruments as part of its overall financial risk management policy, but does not use derivative instruments for speculative or trading purposes. The Company enters into option and forward currency exchange contracts and commodity swaps to hedge against value changes in foreign currency and commodities. The Company believes it may experience continuing losses from foreign currency translation and commodity price fluctuations. However, the Company does not expect foreign currency translation, transaction, commodity price fluctuations or hedging contract losses to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. There were no material changes in the Company’s exposure to market risk since the disclosure included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Item 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Senior Vice President - Finance and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, our President and Chief Executive Officer and our Senior Vice President - Finance and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and accumulated and communicated to our management including our President and Chief Executive Officer and our Senior Vice President - Finance and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the periods covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Securities and Exchange Commission regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. Pursuant to these regulations, the Company uses a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required.

For information regarding certain environmental-related matters and other legal proceedings, see the information included under the captions titled “Other Long-Term Liabilities” and “Litigation” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 8 and 9 of the “Notes to Condensed Consolidated Financial Statements.” The information contained in Note 9 to the Condensed Consolidated Financial Statements is incorporated herein by reference.

Item 1A. Risk Factors.

We face a number of risks that could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition. A discussion of our risk factors can be found in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. During the nine months ended September 30, 2024, there were no material changes to our previously disclosed risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

A summary of the Company’s third quarter activity is as follows:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan	Maximum Number of Shares That May Yet Be Purchased Under the Plan
July 1 - July 31
Share repurchase program (1)	150,000	$	349.11	150,000	36,375,000
Employee transactions (2)	1,423	$	340.66	—	N/A


August 1 - August 31
Share repurchase program (1)	550,000	$	354.88	550,000	35,825,000
Employee transactions (2)	988	$	351.25	—	N/A


September 1 - September 30
Share repurchase program (1)	550,000	$	365.72	550,000	35,275,000
Employee transactions (2)	645	$	374.97	—	N/A


Quarter Total
Share repurchase program (1)	1,250,000	$	358.96	1,250,000	35,275,000
Employee transactions (2)	3,056	$	351.33	—	N/A

(1)Shares were purchased through the Company’s publicly announced share repurchase program. There is no expiration date specified for the program.

(2)Shares were delivered to satisfy the exercise price and/or tax withholding obligations by employees who exercised stock options or had restricted stock units vest.

Item 5. Other Information.

Trading Arrangements

During the quarter ended September 30, 2024, none of the Company’s directors or “officers,” as defined in Rule 16a-1(f) of the Exchange Act, , modified, or a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

Item 6. Exhibits.



4.1			Credit Agreement, dated as of July 31, 2024, by and among the Company, Sherwin-Williams Canada Inc. and Sherwin-Williams Luxembourg S.à r.l., as borrowers, the lenders party thereto, the issuing lenders party thereto and Citibank, N.A., as administrative agent, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 31, 2024, and incorporated herein by reference.

4.2			Third Supplemental Indenture, dated as of August 9, 2024, by and between the Company and U.S. Bank Trust Company, National Association, as Trustee (including Form of Note), filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 9, 2024, and incorporated herein by reference.

4.3			Fourth Supplemental Indenture, dated as of August 9, 2024, by and between the Company and U.S. Bank Trust Company, National Association, as Trustee (including Form of Note), filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated August 9, 2024, and incorporated herein by reference.

31(a)			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).

31(b)			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith).

32(a)			Section 1350 Certification of Chief Executive Officer (furnished herewith).

32(b)			Section 1350 Certification of Chief Financial Officer (furnished herewith).

101.INS			Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH			Inline XBRL Taxonomy Extension Schema Document

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104			The cover page from this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, formatted in Inline XBRL and contained in Exhibit 101.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE SHERWIN-WILLIAMS COMPANY

October 22, 2024	By:	/s/ Jane M. Cronin
		Jane M. Cronin
		Senior Vice President -
		Enterprise Finance

October 22, 2024	By:	/s/ Allen J. Mistysyn
		Allen J. Mistysyn
		Senior Vice President - Finance
		and Chief Financial Officer

SHERWIN WILLIAMS CO - Quarter Report: 2024 September (Form 10-Q)

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