SHERWIN WILLIAMS CO - Quarter Report: 2024 June (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

()

(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

()

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 June 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 six months ended June 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 six months of 2024 based on new information and changes in facts and circumstances. Certain amounts in the condensed consolidated financial statements for the three and six months ended June 30, 2023 have been reclassified to conform to the 2024 presentation.

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 June 30, 2024, December 31, 2023 and June 30, 2023, respectively.

$ $ $ Tax credits and other tax benefits received

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

NOTE 2 -

NOTE 3 -

million in cash. The purchase price is subject to certain closing conditions which are expected to be finalized in 2024. The Company expects to finalize the purchase price allocation for the acquisition within the allowable measurement period. SIC Holding is reported within the Company’s Performance Coatings Group and the results of operations for the acquisition have been included in the consolidated financial statements since the acquisition date. Pro forma results of operations have not been presented as the impact on the Company’s consolidated financial results is not material.

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 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. As of June 30, 2023, the pending divestiture was determined to not meet the criteria of a discontinued operation as it did not represent a strategic shift for the Company, but the business did meet the criteria to be classified as held for sale in accordance with the Property, Plant, and Equipment Topic of the ASC. As such, the assets and liabilities of the China architectural business as of June 30, 2023 were measured at the lower of carrying value or fair value less cost to sell. 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 using the royalty savings valuation method. 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 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.

Intangible assets Valuation adjustment()Total assets$ Total liabilities$

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, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs are subject to the final year-end LIFO inventory valuation. In addition, interim inventory levels include management’s estimates of annual inventory losses due to shrinkage and other factors. For further information on the Company’s inventory valuation, see Note 5 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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$ $ $

million related to its % Senior Notes due June 1, 2024.

Short-Term Borrowings

The Company’s available capacity under its committed credit agreements is reduced for amounts outstanding under its domestic commercial paper program, various credit agreements and letters of credit. At June 30, 2024, the Company had unused capacity under its various credit agreements of $ 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) losses ()()() Net periodic benefit cost (credit)$ $ $ $ $()$()Six Months Ended June 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 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 June 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 June 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 June 30, 2024. At June 30, 2024, $ million, or % of the total accrual, related directly to the Major Sites. In the aggregate unaccrued maximum of $ million at June 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 June 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 June 30, 2024 and June 30, 2023, respectively. The short-term portion of the liability recorded in Other accruals was $ million and $ million at June 30, 2024 and June 30, 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 three 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 three 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., and cross-claims against the landlord defendants. On January 10, 2024, one of the landlord defendants filed a counterclaim and

NOTE 10 -

$ $ $ Second Quarter Total$ $ $ $

million shares of its common stock. $ $ $ Treasury stock purchases (shares) Average price per share$ $ $ $

Other Activity

During the six months ended June 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 June 30, 2024$()$ $ $()

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

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

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

Foreign
Currency
Translation
Adjustments

Pension and
Other
Postretirement
Benefits
Adjustments

Unrealized
Net Gains on
Cash Flow
Hedges

Total

Balance at December 31, 2022

()

Amounts recognized in AOCI (1)

Amounts reclassified from AOCI (2), (3)

()

Balance at June 30, 2023

()

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

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

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

NOTE 12 -

August 8, 2024June 28, 2023 August 8, 2025May 21, 2024 June 1, 2027November 8, 2021 June 1, 2027May 10, 2024 June 1, 2027May 21, 2024 August 15, 2029December 7, 2023 August 15, 2029

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 settlement, an immaterial loss was recognized in AOCI.

$ $ Other assets Other accruals Other long-term liabilities

The changes in fair value of the cross currency swap contracts are recognized in the foreign currency translation adjustments component of AOCI.

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

Gains (losses), 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 income - net. See Note 15. There were material foreign currency option and forward contracts outstanding at June 30, 2024 and June 30, 2023.

NOTE 13 -

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

The deferred compensation plan assets consist of the 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 June 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 June 30, 2024 and December 31, 2023, respectively.

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

The fair value of the Company’s publicly traded debt is based on quoted market prices. The fair value of the Company’s non-publicly traded debt is estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The Company’s publicly traded debt and non-traded debt are classified as Level 1 and Level 2, respectively, in the fair value hierarchy.

$ $ $ 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 Company’s 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 net 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 June 30, 2024

The difference between the opening and closing 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.

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

NOTE 15 -

)$ $()$ Gain on divestiture of business (see Note 3) () ()Gain on sale or disposition of assets()()()()Other Other general 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 three and six months ended June 30, 2024 included an immaterial amount of insurance proceeds related to environmental cleanup at a current manufacturing site. See Note 8 for further details on the Company’s environmental-related activities.

The Gain on sale or disposition of assets represents gains associated 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.

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

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

Foreign currency transaction related (gains) 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 additional information 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.

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 second quarter and first six months of 2024, respectively, compared to % and % for the second quarter and first six months of 2023, respectively. The increase in the effective tax rate for the second quarter was primarily due to a favorable adjustment in the second quarter of 2023 related to the divestiture of the China architectural business and a less favorable impact from tax benefits related to employee share-based payments. For the first six months, the increase in the effective tax rate was primarily related to a favorable adjustment related to the divestiture of the China architectural business in the second quarter of 2023, partially offset by a more favorable impact from tax benefits related to employee share-based payments during the first six months of 2024. 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 six months ended June 30, 2024.

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. The Company expects to pay the remaining portion related to interest in 2024. The IRS is currently auditing the Company’s 2017 through 2019 income tax returns. As of June 30, 2024, the federal statute of limitations has not expired for the 2017 through 2023 tax years.

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)

%0.1 %

Consolidated Net sales decreased by 0.4% in the first six months of 2024 primarily due to higher sales volume in the Paint Stores and Performance Coatings Groups, partially offset by lower sales volumes 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 year. Net sales of all consolidated foreign subsidiaries increased to $2.246 billion in the first six months of 2024 compared to $2.237 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 0.6% to $9.393 billion in the first six months of 2024 compared to $9.446 billion in the same period last year.

Net sales in the Paint Stores Group increased by 2.1% in the first six 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 1.3% in the first six months of 2024 compared to last year’s comparable period. Net sales of non-paint products increased 0.1% in the first six months of 2024 compared to last year's first six months. 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 9.0% in the first six months of 2024 primarily due to a mid-single digit percentage sales volume decline, the impact from divestitures in the prior year and unfavorable currency translation.

Net sales in the Performance Coatings Group decreased by 0.5% in the first six months of 2024 primarily due to selling price decreases, which impacted Net sales by a low-single digit percentage and unfavorable currency translation, partially offset by low single-digit sales volume growth, inclusive of an acquisition in the prior year. Performance was led by Industrial Wood and Coil, but was offset by a decrease in General Industrial and Packaging.

Income Before Income Taxes

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
			% of Net Sales				% of Net Sales				% of Net Sales				% of Net Sales
Net sales	$	6,271.5	100.0	%	$	6,240.6	100.0	%	$	11,638.8	100.0	%	$	11,683.0	100.0	%
Cost of goods sold	3,208.1		51.2	%	3,368.3		54.0	%	6,044.4		51.9	%	6,389.8		54.7	%
Gross profit	3,063.4		48.8	%	2,872.3		46.0	%	5,594.4		48.1	%	5,293.2		45.3	%
SG&A	1,845.7		29.4	%	1,760.0		28.2	%	3,645.5		31.3	%	3,453.0		29.6	%
Other general income - net	(33.6)		(0.5)	%	(32.5)		(0.5)	%	(31.6)		(0.3)	%	(22.0)		(0.2)	%
Impairment	—		—	%	34.0		0.5	%	—		—	%	34.0		0.3	%
Interest expense	110.8		1.8	%	111.7		1.8	%	213.8		1.8	%	221.0		1.9	%
Interest income	(0.9)		—	%	(7.2)		(0.1)	%	(7.0)		(0.1)	%	(10.7)		(0.1)	%
Other income - net	(32.0)		(0.6)	%	(5.8)		(0.1)	%	(39.7)		(0.2)	%	(9.0)		(0.1)	%
Income before income taxes	$	1,173.4	18.7	%	$	1,012.1	16.2	%	$	1,813.4	15.6	%	$	1,626.9	13.9	%

Three Months Ended June 30, 2024

Consolidated Cost of goods sold decreased $160.2 million, or 4.8%, in the second quarter 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. Currency translation rate changes decreased Cost of goods sold by approximately 0.7% in the second quarter of 2024.

Consolidated gross profit increased $191.1 million in the second quarter of 2024 compared to the same period in 2023. Consolidated gross profit as a percent of consolidated Net sales increased in the second quarter of 2024 to 48.8% compared to 46.0% during the same period in 2023. Consolidated gross profit dollars increased primarily due to moderating raw material costs and higher Net sales.

The Paint Stores Group’s gross profit in the second quarter of 2024 was higher than the same period last year by $93.3 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 second quarter of 2024 compared to the same period in 2023 for these same reasons. The Consumer Brands Group’s gross profit increased by $79.6 million in the second 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 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 second quarter of 2024 compared to the same period in 2023 for these same reasons. The Performance Coatings Group’s gross profit increased $19.9 million in the second quarter of 2024 compared to the same period last year due primarily to moderating raw material costs and higher Net sales. The Performance Coatings Group’s gross profit as a percent of Net sales increased in the second quarter of 2024 compared to the same period last year for these same reasons.

Consolidated Selling, general and administrative expenses (SG&A) increased $85.7 million in the second quarter of 2024 versus the same period last year due primarily 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 120 basis points in the second quarter of 2024 compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $36.5 million in the second quarter of 2024 compared to the same period last year due primarily 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 $1.5 million in the second quarter of 2024 compared to the same period last year due primarily to the divestiture of the China architectural business, partially offset by higher employee-related costs. The Performance Coatings Group’s SG&A increased $16.4 million in the second quarter of 2024 compared to the same period last year due to higher employee-related costs. The Administrative function’s SG&A increased $34.3 million in the second 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 income - net increased $1.1 million in the second 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, an increase in the gain on sale or disposition of assets and a decrease in miscellaneous expenses. This activity was partially offset by the gain recognized in the prior year related to the divestiture of a business. See Note 15 in Item 1 for additional information.

For information on impairment as a result of the China architectural business classification change to held for sale as of June 30, 2023, 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 $0.9 million in the second quarter of 2024 compared to the same period last year due primarily to a decrease in outstanding debt. See Note 6 in Item 1 for additional information on the Company’s outstanding debt.

Other income - net increased $26.2 million in the second quarter of 2024 compared to the same period last year due primarily to foreign currency transaction related gains in the current year compared to losses in the prior year, partially offset by a decrease in investment gains. See Note 15 in Item 1 for additional information.

Six Months Ended June 30, 2024

Consolidated Cost of goods sold decreased $345.4 million, or 5.4%, in the first six 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. Currency translation rate changes decreased Cost of goods sold by approximately 0.4% in the first six months of 2024.

Consolidated gross profit increased $301.2 million in the first six months of 2024 compared to the same period in 2023. Consolidated gross profit as a percent of consolidated Net sales increased in the first six months of 2024 to 48.1% compared to 45.3% during the same period in 2023. Consolidated gross profit dollars increased primarily due to moderating raw material costs, partially offset by lower Net sales.

The Paint Stores Group’s gross profit in the first six months of 2024 was higher than the same period last year by $122.2 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 six months of 2024 compared to the same period in 2023 for these same reasons. The Consumer Brands Group’s gross profit increased by $151.1 million in the first six 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 six months of 2024 compared to the same period last year for these same reasons. The Performance Coatings Group’s gross profit increased $25.7 million in the first six months of 2024 compared to the same period last year due primarily 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 six months of 2024 compared to the same period last year for these same reasons.

Consolidated SG&A increased $192.5 million in the first six months of 2024 versus the same period last year due primarily 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 170 basis points in the first six months of 2024 compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $91.9 million in the first six months of 2024 compared to the same period last year due primarily 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 increased $6.4 million in the first six months of 2024 compared to the same period last year due to higher employee-related costs, partially offset by other effective cost control measures. The Performance Coatings Group’s SG&A increased $16.2 million in the first six months of 2024 compared to the same period last year due primarily to higher employee-related costs and investments in long-term initiatives. The Administrative function’s SG&A increased $78.0 million in the first six 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 income - net increased $9.6 million in the first six months of 2024 compared to the same period last year primarily due to a decrease in provisions for environmental matters, net in the Administrative function, an increase in the gain on sale or disposition of assets and a decrease in miscellaneous expenses. This activity was partially offset by the gain recognized in the prior year related to the divestiture of a business. See Note 15 in Item 1 for additional information.

Interest expense decreased $7.2 million in the first six months of 2024 compared to the same period last year due primarily to a decrease in outstanding debt. See Note 6 in Item 1 for additional information on the Company’s outstanding debt.

Other income - net increased $30.7 million in the first six months of 2024 compared to the same period last year due primarily to lower foreign currency transaction related losses in the current year compared to the prior year, partially offset by a decrease in investment gains. See Note 15 in Item 1 for additional information.

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2024			2023			% Change		2024			2023			% Change
Income Before Income Taxes:
Paint Stores Group	$	907.1		$	849.3		6.8	%	$	1,400.3		$	1,376.0		1.8	%
Consumer Brands Group	204.4			110.3			85.3	%	357.8			204.1			75.3	%
Performance Coatings Group	301.5			272.7			10.6	%	539.2			491.6			9.7	%
Administrative	(239.6)			(220.2)			(8.8)	%	(483.9)			(444.8)			(8.8)	%
Total	$	1,173.4		$	1,012.1		15.9	%	$	1,813.4		$	1,626.9		11.5	%

Income Before Income Taxes as a % of Net Sales:
Paint Stores Group	25.1		%	24.3		%			21.6		%	21.6		%
Consumer Brands Group	24.2		%	11.7		%			21.6		%	11.2		%
Performance Coatings Group	16.7		%	15.2		%			15.5		%	14.0		%
Administrative	nm			nm					nm			nm
Total	18.7		%	16.2		%			15.6		%	13.9		%

nm - not meaningful

Income Tax Expense

The effective tax rate was 24.2% for the second quarter of 2024 compared to 21.6% for the second quarter of 2023, and 23.1% for the first six months of 2024 compared to 21.9% for the first six months of 2023. The increase in the effective tax rate for the second quarter was due primarily to a less favorable impact of tax benefits related to employee share-based payments and a favorable adjustment in the second quarter of 2023 related to the divestiture of the China architectural business. For the first six months, the increase in the effective tax rate was primarily related to the divestiture of the China architectural business in the second quarter of 2023, and partially offset by a more favorable impact of tax benefits related to employee share-based payments during the first six months. The other significant components of the Company’s effective tax rate were consistent in both comparable periods. See Note 16 in Item 1 for additional information.

Net Income Per Share

Diluted net income per share in the second quarter of 2024 increased 14.0% to $3.50 per share compared to $3.07 per share in the second quarter of 2023. Diluted net income per share included a $0.20 per share charge for acquisition-related amortization expense in both the second quarter of 2024 and 2023. In the second quarter of 2023, diluted net income per share also included a net charge of $0.02 per share related to activities associated with the Company’s restructuring plan. Currency translation rate changes decreased diluted net income per share by $0.02 in the second quarter of 2024.

Diluted net income per share for the first six months of 2024 increased 11.6% to $5.47 per share compared to $4.90 per share in the first six months of 2023. Diluted net income per share included a $0.39 and $0.42 per share charge for acquisition-related amortization expense for the first six months of 2024 and 2023, respectively. In the first six months of 2023, diluted net income per share also included a net charge of $0.02 per share related to activities associated with the Company’s restructuring plan. Currency translation rate changes decreased diluted net income per share by $0.02 in the first six 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 June 30, 2024. The Company generated $1.144 billion in Net operating cash during the first six months of 2024. The Company returned cash of $1.341 billion to its shareholders in the form of dividends and share repurchases during the first six months of 2024. The Company’s EBITDA increased 8.0% to $2.334 billion. See the Non-GAAP Financial Measures section below for the definition and calculation of EBITDA.

At June 30, 2024, the Company had Cash and cash equivalents of $200.0 million and Total debt outstanding of $10.339 billion. Total debt, net of Cash and cash equivalents, was $10.139 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 needs.

Net Working Capital

Net working capital, defined as Total current assets less Total current liabilities, decreased $1.428 billion to a deficit of $1.416 billion at June 30, 2024 compared to a surplus of $11.5 million at June 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 $300.0 million at June 30, 2024 compared to June 30, 2023 primarily due to a decrease in Inventories of $149.9 million driven by lower inventory levels and moderating raw material costs, a decrease of $71.0 million in Other current assets, a decrease of $69.7 million in Accounts receivable, net and a decrease in Cash and cash equivalents of $9.4 million. The decrease in Other current assets primarily relates to the assets classified as held for sale as of June 30, 2023 which were subsequently sold (see Note 3 in Item 1).

Current liability balances increased $1.128 billion at June 30, 2024 compared to June 30, 2023 primarily due to an increase in Short-term borrowings of $552.1 million, an increase in the Current portion of long-term debt of $350.2 million, an increase in Other accruals of $152.1 million, primarily related to environmental liabilities, liabilities from contracts with customers and miscellaneous other current liabilities, an increase in Accrued taxes of $39.1 million and an increase in the Current portion of operating lease liabilities of $21.7 million. At June 30, 2024, the Company’s current ratio was 0.81 compared to 0.83 and 1.00 at December 31, 2023 and June 30, 2023, respectively.

Property, Plant and Equipment

Net property, plant and equipment increased $299.8 million in the first six months of 2024 and $694.1 million in the twelve months since June 30, 2023. The increase in the first six months was primarily due to capital expenditures of $498.6 million, partially offset by depreciation expense of $142.9 million and currency translation and other adjustments of $55.9 million. Since June 30, 2023, the increase was primarily due to capital expenditures of $1.093 billion, partially offset by depreciation expense of $289.1 million, the sale or disposition of fixed assets of $54.9 million and currency translation and other adjustments of $55.1 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 2024 at the earliest. 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 decreased $19.1 million from December 31, 2023 and increased $160.4 million from June 30, 2023. The decrease during the first six months of 2024 was primarily due to foreign currency translation fluctuations and other adjustments of $46.3 million, partially offset by purchase accounting allocations of $27.2 million. The increase over the twelve month period from June 30, 2023 was primarily due to purchase accounting allocations of $181.4 million, partially offset by foreign currency translation fluctuations and other adjustments of $21.0 million.

Intangible assets decreased $187.7 million from December 31, 2023 and $241.6 million from June 30, 2023. The decrease during the first six months of 2024 was primarily due to amortization of $163.6 million and foreign currency translation fluctuations and other adjustments of $39.0 million, partially offset by capitalized software of $14.9 million. The decrease over the twelve month period from June 30, 2023 was primarily due to amortization of $321.9 million, trademark impairment of $24.0 million and foreign currency translation fluctuations and other adjustments of $21.2 million, partially offset by purchase accounting allocations of $110.6 million and capitalized software of $14.9 million.

See Note 5 in Item 1 for more information 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 classification change to held for sale as of June 30, 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 $145.5 million from December 31, 2023 and $233.4 million from June 30, 2023. The increase in the first six months of 2024 and from June 30, 2023 was primarily due to an increase in Non-Traded Investments and other assets related to contracts with customers and deposits and other receivables. See Note 1 in Item 1 for additional information on the Company’s Non-Traded Investments.

Debt (including Short-term borrowings)


	June 30,		December 31,		June 30,
	2024		2023		2023
Long-term debt (including current portion)	$	8,980.5	$	9,476.7	$	9,595.2
Short-term borrowings	1,358.3		374.2		806.2
Total debt outstanding	$	10,338.8	$	9,850.9	$	10,401.4

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.

The Company had unused capacity under its various credit agreements of $2.343 billion at June 30, 2024. See Note 6 in Item 1 for additional information.

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 June 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 $41.1 million from December 31, 2023 and $68.9 million from June 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 six 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 six 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


	June 30,		December 31,		June 30,
	2024		2023		2023
Total shareholders’ equity	$	3,751.8	$	3,715.8	$	3,631.1

Shareholders’ equity increased $36.0 million during the first six months of 2024 as a result of Net income of $1.395 billion and an increase in Other capital of $148.4 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $994.1 million of treasury stock activity primarily attributable to treasury stock repurchases, cash dividends paid on common stock of $361.1 million and a decrease in AOCI of $152.6 million primarily due to foreign currency translation adjustments.

Shareholders’ equity increased $120.7 million since June 30, 2023 as a result of Net income of $2.513 billion and an increase in Other capital of $297.4 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $1.893 billion of treasury stock activity primarily attributable to treasury stock repurchases, cash dividends paid on common stock of $672.0 million and a decrease in AOCI of $125.6 million primarily due to foreign currency translation adjustments.

During the first six months of 2024, the Company purchased 3.1 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 June 30, 2024 to purchase 36.5 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. If approved in all subsequent quarters, this quarterly dividend 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 six months ended June 30, 2024 was a source of $1.144 billion compared to a source of $1.295 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 $164.2 million in the first six months of 2024 to a usage of $582.1 million compared to a usage of $417.9 million for the same period in 2023 primarily due to an increase in cash used for capital expenditures, reduced proceeds from the sale of assets and the proceeds from the divestiture of a business in the prior year.

Net financing cash usage decreased $241.8 million in the first six months of 2024 to a usage of $627.8 million compared to a usage of $869.6 million for the same period in 2023 primarily due to a net increase in Short-term borrowings, higher proceeds from stock options exercised and real estate financing transactions, partially offset by an increase in payments of long-term debt, treasury stock purchases and cash dividends.

In the twelve month period from July 1, 2023 through June 30, 2024, the Company generated net operating cash of $3.371 billion, used $1.204 billion in investing activities and used $2.183 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 credit agreement dated August 30, 2022. 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 June 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 for more information concerning the Company’s debt and related covenant.

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	889.9	$	793.7	$	1,395.1	$	1,271.1
Interest expense	110.8		111.7		213.8		221.0
Income taxes	283.5		218.4		418.3		355.8
Depreciation	71.8		75.7		142.9		146.1
Amortization	81.5		83.0		163.6		166.7
EBITDA	$	1,437.5	$	1,282.5	$	2,333.7	$	2,160.7
Restructuring expense	—		8.7		—		9.6
Impairment of assets related to China divestiture	—		34.0		—		34.0
Gain on divestiture of domestic aerosol business	—		(20.1)		—		(20.1)



Adjusted EBITDA	$	1,437.5	$	1,305.1	$	2,333.7	$	2,184.2

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 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 six months ended June 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 second 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
April 1 - April 30
Share repurchase program (1)	800,000	$	307.34	800,000	37,125,000
Employee transactions (2)	172	$	310.45	—	N/A


May 1 - May 31
Share repurchase program (1)	600,000	$	314.24	600,000	36,525,000
Employee transactions (2)	178	$	319.32	—	N/A


June 1 - June 30
Share repurchase program (1)	—	$	—	—	36,525,000
Employee transactions (2)	186	$	297.61	—	N/A


Quarter Total
Share repurchase program (1)	1,400,000	$	310.29	1,400,000	36,525,000
Employee transactions (2)	536	$	308.94	—	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 June 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			Amendment No. 9 to the Amended and Restated Credit Agreement, dated as of May 1, 2024, by and among the Company, Goldman Sachs Bank USA, as administrative agent, Goldman Sachs Mortgage Company, as issuing bank, and the lenders party thereto (filed herewith).

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 June 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

July 23, 2024	By:	/s/ Jane M. Cronin
		Jane M. Cronin
		Senior Vice President -
		Enterprise Finance

July 23, 2024	By:	/s/ Allen J. Mistysyn
		Allen J. Mistysyn
		Senior Vice President - Finance
		and Chief Financial Officer

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

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