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

Stock-based compensation expense Amortization of non-traded investments Gain on sale or disposition of assets()()Provisions for environmental-related matters Other postretirement benefit plan net cost()()Deferred income taxes()()Other Change in working capital accounts - net()()Change in operating lease liabilities()()Costs incurred for environmental-related matters()()Other()()Net operating cash() INVESTING ACTIVITIESCapital expenditures()()Acquisition of business, net of cash acquired ()Other()()Net investing cash()()FINANCING ACTIVITIESNet increase in short-term borrowings Payments of cash dividends()()Proceeds from stock options exercised Treasury stock purchased()()Proceeds from real estate financing transactions Other()()Net financing cash Effect of exchange rate changes on cash()()Net decrease in cash and cash equivalents()()Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period$ $ 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

()

(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

()

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 March 31, 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 months ended March 31, 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 three months of 2024 based on new information and changes in facts and circumstances. Certain amounts in the condensed consolidated financial statements for the three months ended March 31, 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 March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

million and proportionally recognized $ million in the amortization of Non-Traded Investments. In the three months ended March 31, 2023, the Company received tax credits and other tax benefits of $ million and proportionally recognized $ million in the amortization of Non-Traded Investments. The tax credits and other tax benefits received are presented in Deferred income taxes and as a change in Accrued taxes within Operating activities on the Statements of Condensed Consolidated Cash Flows.

$ $ Other accruals Other long-term liabilities Reduction of Accrued taxes 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

NOTE 4 -

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

NOTE 5 -

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

NOTE 6 -

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

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 March 31, 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 actuarial gains())()() $ $ $ $()$()

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 March 31, 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 March 31, 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 March 31, 2024. At March 31, 2024, $ million, or % of the total accrual, related directly to the Major Sites. In the aggregate unaccrued maximum of $ million at March 31, 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 March 31, 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. 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. During the first quarter of 2024 and 2023, the Company received $ million and $ million, respectively. The net proceeds from this transaction and other real estate financing transactions are recognized within the Financing Activities section of the Statements of Consolidated Cash Flows.

million and $ million at March 31, 2024 and March 31, 2023, respectively. The short-term portion of the liability recorded in Other accruals was $ million and $ million at March 31, 2024 and March 31, 2023, respectively. During the three months ended March 31, 2024 and 2023, interest of $ million and $ million, respectively, was capitalized within the long-term portion of the liability in Other long-term liabilities. 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 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. 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

NOTE 10 -

$ $ $

Treasury Stock

The Company acquires its common stock for general corporate purposes through its publicly announced share repurchase program. As of March 31, 2024, the Company had remaining authorization from its Board of Directors to purchase million shares of its common stock.

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

Other Activity

During the three months ended March 31, 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 March 31, 2024$()$ $ $()

(1) Foreign currency translation adjustments include changes in the fair value of cross currency swap contracts of $ million during the three months ended March 31, 2024. See Note 12.

(2) Pension and other postretirement benefit adjustments are net of taxes of $ million for the three months ended March 31, 2024. See Note 7.

(3) Unrealized net gains on cash flow hedges are net of taxes of $ million for the three months ended March 31, 2024. See Statements of Consolidated Comprehensive Income.

)$ $ $()

Amounts recognized in AOCI (1)

Amounts reclassified from AOCI (2), (3)

()()()Balance at March 31, 2023$()$ $ $()

(1) Foreign currency translation adjustments include changes in the fair value of cross currency swap contracts of $() million during the three months ended March 31, 2023. See Note 12.

(2) Pension and other postretirement benefit adjustments are net of taxes of $ million for the three months ended March 31, 2023. See Note 7.

(3) Unrealized net gains on cash flow hedges are net of taxes of $ million for the three months ended March 31, 2023. See Statements of Consolidated Comprehensive Income.

NOTE 12 -

June 1, 2024November 8, 2021 June 1, 2027March 28, 2023 August 8, 2024June 28, 2023 August 8, 2025December 7, 2023 August 15, 2029 $ $ 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

$ $()

material foreign currency option and forward contracts outstanding at March 31, 2024, December 31, 2023 and March 31, 2023.

NOTE 13 -

$ $ Net investment hedges Available-for-sale debt securities $ $ $ $ $ $ $ $ Liabilities:Net investment hedges$ $— $ — $ $— $ $—

The deferred compensation plan assets consist of the investment funds maintained for the 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 March 31, 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 March 31, 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 available-for-sale debt securities consist of bonds issued by a foreign government and mature in 2027. The fair value is based on pricing models that use observable data from a market with limited activity. The cost basis at March 31, 2024 was $ million.

$ $ $ 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 March 31, 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.

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 collectibility 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 sale or disposition of assets()()Other Other general expense - 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. Environmental-related accruals are not recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC. 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.

Other income - net

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

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 losses - net include the impact from foreign currency transactions, including from highly inflationary economies such as Argentina, and net realized 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 other items within the other income or other expense caption that were individually significant.

NOTE 16 -

% for the first quarter of 2024, compared to % for the first quarter of 2023. The decrease in the effective tax rate was primarily due to a more favorable impact of tax benefits related to employee share-based payments in the first quarter of 2024 compared to the same period last year. This benefit was partially offset by unfavorable audit settlements in the first quarter 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.

There were no significant changes to any of the balances of unrecognized tax benefits at December 31, 2023 during the three months ended March 31, 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 expects to pay the related assessment in 2024. The IRS is currently auditing the Company’s 2017 through 2019 income tax returns. As of March 31, 2024, the federal statute of limitations has not expired for the 2017 through 2023 tax years.

At March 31, 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 1998 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)

Average shares outstanding assuming dilution Diluted net income per share$ $ %— %

Three Months Ended March 31, 2024

Consolidated Net sales decreased by 1.4% in the first quarter of 2024 primarily due to 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) and the Performance Coatings Group in North America. Net sales in the Paint Stores Group was essentially flat in the quarter. Net sales of all consolidated foreign subsidiaries increased to $1.103 billion in the first quarter compared to $1.087 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 Asia region from the divestiture of the China architectural business. Net sales in the Latin America region was essentially flat in the quarter. Net sales of all operations other than consolidated foreign subsidiaries decreased to $4.264 billion in the first quarter compared to $4.355 billion in the same period last year.

Net sales in the Paint Stores Group increased by 0.5% in the first quarter primarily due to a modest impact from the February 2024 price increase with sales volume approximately flat year-over-year. Net sales growth in the residential repaint, commercial and protective & marine end markets was partially offset by lower Net sales in the new residential and property maintenance end markets. Net sales from stores open for more than twelve calendar months were approximately flat in the quarter. Net sales of non-paint products decreased 1.3% compared to last year's first quarter. A discussion of changes in volume versus pricing for sales of non-paint products is not pertinent due to the wide assortment of general merchandise sold.

Net sales in the Consumer Brands Group decreased by 7.1% in the first quarter primarily due to a mid-single digit percentage sales volume decline, the impact from the divestitures in the prior year, which reduced sales by approximately 2.6% in the quarter and unfavorable currency translation. Sales volume decreased in North America, but was partially offset by sales volume growth in Europe and selling price increases in Latin America and Europe, which impacted Net sales by a low-single digit percentage.

Net sales in the Performance Coatings Group decreased by 1.6% in the first quarter primarily due to a low-single digit percentage sales volume decline. Lower sales volumes in North America and Latin America were partially offset by higher sales volumes in Europe, inclusive of acquisition impact which increased sales by approximately 1.3% in the quarter, and Asia. Selling prices also unfavorably impacted Net sales by a low-single digit percentage, which was partially offset by favorable currency translation.

Income Before Income Taxes

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


	Three Months Ended March 31,
	2024				2023
			% of Net Sales				% of Net Sales
Net sales	$	5,367.3	100.0	%	$	5,442.4	100.0	%
Cost of goods sold	2,836.3		52.8	%	3,021.5		55.5	%
Gross profit	2,531.0		47.2	%	2,420.9		44.5	%
SG&A	1,799.8		33.5	%	1,693.0		31.1	%
Other general expense - net	2.0		—	%	10.5		0.2	%

Interest expense	103.0		1.9	%	109.3		2.0	%
Interest income	(6.1)		—	%	(3.5)		(0.1)	%
Other income - net	(7.7)		(0.1)	%	(3.2)		—	%
Income before income taxes	$	640.0	11.9	%	$	614.8	11.3	%

Three Months Ended March 31, 2024

Consolidated Cost of goods sold decreased $185.2 million, or 6.1%, in the first quarter of 2024 compared to the same period in 2023 due primarily to moderating raw material costs and lower sales volumes in the Consumer Brands Group (inclusive of the impact from the divestitures in the prior year) and the Performance Coatings Group. Currency translation rate changes increased Cost of goods sold by an insignificant amount in the first quarter of 2024.

Consolidated gross profit increased $110.1 million in the first quarter of 2024 compared to the same period in 2023. Consolidated gross profit as a percent of consolidated Net sales increased in the first quarter to 47.2% compared to 44.5% during the same period in 2023. Consolidated gross profit dollars increased primarily due to moderating raw material costs, partially offset by lower sales volumes in the Consumer Brands Group (inclusive of the impact from the divestitures in the prior year) and the Performance Coatings Group.

The Paint Stores Group’s gross profit in the first quarter was higher than the same period last year by $28.9 million due primarily to moderating raw material costs and a modest impact from the recently announced price increase. The Paint Stores Group’s gross profit as a percent of Net sales increased in the first quarter compared to the same period in 2023 for these same reasons. The Consumer Brands Group’s gross profit increased by $71.5 million in the first quarter compared to the same period last year due primarily to higher fixed cost absorption in the manufacturing and distribution operations within the segment, moderating raw material costs, and selling price increases, partially offset by a sales volume decrease. The Consumer Brands Group’s gross profit as a percent of Net sales increased in the first quarter compared to the same period in 2023 for these same reasons. The Performance Coatings Group’s gross profit increased $5.8 million in the first quarter compared to the same period last year due primarily to moderating raw material costs, partially offset by lower sales volume and selling prices. The Performance Coatings Group’s gross profit as a percent of Net sales increased in the first quarter compared to the same period last year for these same reasons.

Consolidated selling, general and administrative expenses (SG&A) increased $106.8 million in the first quarter versus the same period last year due primarily to higher employee-related costs and investments in long-term growth strategies including expenses to support net new store openings. As a percent of Net sales, consolidated SG&A increased 240 basis points in the first quarter compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $55.4 million in the first quarter compared to the same period last year due primarily to higher employee-related costs and investments in long-term growth initiatives, including increased spending from new store openings. The Consumer Brands Group’s SG&A increased $7.9 million in the first quarter compared to the same period last year due primarily to higher employee-related costs. The Performance Coatings Group’s SG&A decreased $0.2 million in the first quarter compared to the same period last year. The Administrative function’s SG&A increased $43.7 million in the first quarter 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 - net decreased $8.5 million in the first quarter compared to the same period last year primarily due to a decrease in provisions for environmental matters in the Administrative function. See Note 15 of Item 1 for additional information.

Interest expense decreased $6.3 million in the first quarter compared to the same period last year due primarily to a decrease in outstanding debt. See Note 6 of Item 1 for additional information on the Company’s outstanding debt.

Other income - net increased $4.5 million in the first quarter compared to the same period last year due primarily to higher returns on investments held in the Administrative function. See Note 15 of 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 March 31,
	2024			2023			% Change
Income Before Income Taxes:
Paint Stores Group	$	493.2		$	526.7		(6.4)	%
Consumer Brands Group	153.4			93.8			63.5	%
Performance Coatings Group	237.7			218.9			8.6	%
Administrative	(244.3)			(224.6)			(8.8)	%
Total	$	640.0		$	614.8		4.1	%

Income Before Income Taxes as a % of Net Sales:
Paint Stores Group	17.2		%	18.4		%
Consumer Brands Group	18.9		%	10.7		%
Performance Coatings Group	14.1		%	12.8		%
Administrative	nm			nm
Total	11.9		%	11.3		%

nm - not meaningful

Income Tax Expense

The effective tax rate was 21.1% for the first quarter of 2024 compared to 22.3% for the first quarter of 2023. The decrease in the effective tax rate for the first quarter was due primarily to a more favorable impact of tax benefits related to employee share-based payments in the first quarter of 2024 compared to the same period last year. This benefit was partially offset by unfavorable audit settlements in the first quarter of 2024. The other significant components of the Company’s effective tax rate were consistent in both comparable periods. See Note 16 of Item 1 for additional information.

Net Income Per Share

Diluted net income per share in the first quarter of 2024 increased 7.1% to $1.97 per share compared to $1.84 per share in the first quarter of 2023. Diluted net income per share included a $0.20 per share charge for acquisition-related amortization expense in both the first quarter of 2024 and 2023. Currency translation rate changes did not have a meaningful impact on diluted net income per share in the first quarter of 2024.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

Overview

The Company’s financial condition and liquidity remained strong at March 31, 2024. The Company used $58.9 million in Net operating cash during the first quarter of 2024 primarily as a result of seasonal increases in working capital requirements, partially offset by Net income. This Net operating cash usage was funded through an increase in Short-term borrowings. The Company returned cash of $728.0 million to its shareholders in the form of dividends and share repurchases during the first quarter of 2024. The Company’s EBITDA increased 2.0% to $896.2 million. See the Non-GAAP Financial Measures section below for the definition and calculation of EBITDA.

At March 31, 2024, the Company had Cash and cash equivalents of $179.9 million and total debt outstanding of $10.735 billion. Total debt, net of cash and cash equivalents, was $10.555 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 $1.628 billion to a deficit of $1.641 billion at March 31, 2024 compared to a deficit of $13.2 million at March 31, 2023. The net working capital decrease is due to an increase in current liabilities and a decrease in current assets.

Current asset balances decreased $450.4 million at March 31, 2024 compared to March 31, 2023 primarily due to a decrease in Inventories of $329.8 million driven by lower inventory levels and moderating raw material costs, a decrease of $100.1 million in Accounts receivable, net and a decrease of $49.0 million in Other current assets primarily due to a decrease in refundable income taxes and other tax receivables. These decreases were partially offset by an increase in Cash and cash equivalents of $28.5 million.

Current liability balances increased $1.178 billion at March 31, 2024 compared to March 31, 2023 primarily due to an increase in Current portion of long-term debt of $1.349 billion, an increase in Other accruals of $132.8 million, an increase in Compensation and taxes withheld of $32.2 million and an increase in the Current portion of operating lease liabilities of $23.8 million, partially offset by a decrease in Short-term borrowings of $225.0 million, a decrease in Accrued taxes of $75.1 million and a decrease in Accounts payable of $59.7 million primarily due to the timing of payments. At March 31, 2024, the Company’s current ratio was 0.78 compared to 0.83 and 1.00 at December 31, 2023 and March 31, 2023, respectively.

Property, Plant and Equipment

Net property, plant and equipment increased $172.0 million in the first three months of 2024 and $646.8 million in the twelve months since March 31, 2023. The increase in the first three months was primarily due to capital expenditures of $258.5 million, partially offset by depreciation expense of $71.1 million and currency translation and other adjustments of $15.4 million. Since March 31, 2023, the increase was primarily due to capital expenditures of $1.059 billion, partially offset by depreciation expense of $293.0 million, the sale or disposition of fixed assets of $87.5 million and currency translation and other adjustments of $31.7 million.

Capital expenditures primarily represented expenditures in the Paint Stores Group associated with the opening of new paint stores, renovation and improvements in existing stores, and expenditures associated with manufacturing capacity expansion, operational efficiencies and maintenance projects in the Consumer Brands and Performance Coatings Groups. The Administrative function incurred capital expenditures primarily related to construction activities associated with the new headquarters and research and development (R&D) center. Construction of the new headquarters and R&D center is expected to be complete in 2024 at the earliest.

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 less than 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.

During the first quarter of 2024 and 2023, the Company received $77.0 million and $66.5 million, respectively, pursuant to the transaction. The net proceeds from this transaction and other real estate financing transactions are recognized within the Financing Activities section of the Statements of Consolidated Cash Flows. The corresponding financing obligation for the new headquarters on the Consolidated Balance Sheets was $594.0 million and $274.2 million at March 31, 2024 and 2023, respectively. The short-term portion of the liability recorded in Other accruals was $43.3 million and $24.8 million at March 31, 2024 and 2023, respectively. Interest capitalized within the long-term portion of the liability was $9.4 million and $4.0 million for the three months ended March 31, 2024 and 2023, respectively. See Note 8 in Item 1 and 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.

Goodwill and Intangible Assets

Goodwill decreased $4.6 million from December 31, 2023 and increased $176.0 million from March 31, 2023. The decrease during the first three months of 2024 was primarily due to foreign currency translation fluctuations and other adjustments of $31.8 million, partially offset by purchase accounting allocations of $27.2 million. The increase over the twelve month period from March 31, 2023 was primarily due to purchase accounting allocations of $185.1 million, partially offset by foreign currency translation fluctuations and other adjustments.

Intangible assets decreased $103.0 million from December 31, 2023 and $326.0 million from March 31, 2023. The decrease during the first three months of 2024 was primarily due to amortization of $82.1 million and foreign currency translation fluctuations and other adjustments of $20.9 million. The decrease over the twelve month period from March 31, 2023 was primarily due to amortization of $323.4 million, disposition of assets of $83.4 million, trademark impairment of $30.9 million and foreign currency translation fluctuations and other adjustments, partially offset by purchase accounting allocations of $113.9 million.

See Note 5 in Item 1 and 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 $88.3 million from December 31, 2023 and $227.1 million from March 31, 2023. The increase in the first quarter was primarily due to an increase in other assets related to contracts with customers and Non-Traded Investments. The increase from March 31, 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)


	March 31,		December 31,		March 31,
	2024		2023		2023
Long-term debt (including current portion)	$	9,478.6	$	9,476.7	$	9,593.7
Short-term borrowings	1,256.3		374.2		1,481.3
Total debt outstanding	$	10,734.9	$	9,850.9	$	11,075.0

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.

The Company had unused capacity under its various credit agreements of $2.445 billion at March 31, 2024. See Note 6 in Item 1 of this report 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 March 31, 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 $16.8 million from December 31, 2023 and $73.6 million from March 31, 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 federal, state and local 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 three 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 three 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


	March 31,		December 31,		March 31,
	2024		2023		2023
Total shareholders’ equity	$	3,503.7	$	3,715.8	$	3,166.8

Shareholders’ equity decreased $212.1 million during the first three months of 2024 as a result of $559.5 million of treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $182.5 million, partially offset by Net income of $505.2 million and an increase in Other capital of $105.2 million primarily associated with stock-based compensation expense and stock option exercises.

Shareholders’ equity increased $336.9 million since March 31, 2023 as a result of Net income of $2.417 billion and an increase in Other capital of $300.8 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $1.692 billion of treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $649.7 million.

During the first three months of 2024, the Company purchased 1.7 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 March 31, 2024 to purchase 37.9 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 three months ended March 31, 2024 was a usage of $58.9 million compared to a source of $88.2 million 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 $87.9 million in the first three months of 2024 to a usage of $321.3 million compared to a usage of $233.4 million for the same period in 2023 primarily due to an increase in cash used for capital expenditures.

Net financing cash increased $191.5 million in the first three months of 2024 to a source of $289.6 million compared to a source of $98.1 million for the same period in 2023 primarily due to a net increase in Short-term borrowings and higher proceeds from stock options exercised, partially offset by an increase in treasury stock purchases.

In the twelve month period from April 1, 2023 through March 31, 2024, the Company generated net operating cash of $3.375 billion, used $1.127 billion in investing activities and used $2.233 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 March 31, 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:


	2024		2023
Net income	$	505.2	$	477.4
Interest expense	103.0		109.3
Income taxes	134.8		137.4
Depreciation	71.1		70.4
Amortization	82.1		83.7
EBITDA	$	896.2	$	878.2
Restructuring expense	—		0.9
Adjusted EBITDA	$	896.2	$	879.1

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 three months ended March 31, 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 first 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
January 1 - January 31
Share repurchase program (1)	225,000	$	306.80	225,000	39,400,000
Employee transactions (2)					N/A


February 1 - February 29
Share repurchase program (1)	1,025,000	$	315.44	1,025,000	38,375,000
Employee transactions (2)	44,260	$	312.72		N/A


March 1 - March 31
Share repurchase program (1)	450,000	$	340.23	450,000	37,925,000
Employee transactions (2)	1,948	$	337.85		N/A


Quarter Total
Share repurchase program (1)	1,700,000	$	320.86	1,700,000	37,925,000
Employee transactions (2)	46,208	$	313.78		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 March 31, 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.



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 March 31, 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

April 30, 2024	By:	/s/ Jane M. Cronin
		Jane M. Cronin
		Senior Vice President -
		Enterprise Finance

April 30, 2024	By:	/s/ Allen J. Mistysyn
		Allen J. Mistysyn
		Senior Vice President - Finance
		and Chief Financial Officer

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

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