What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-17 compared with 2021-02-19 · 316 added, 302 removed, 1342 unchanged (32% of the section changed)

4 unchanged sentences

Report of Management on the Consolidated Financial Statements 42

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements (PCAOB ID:

Statements of Consolidated Income 46

18 unchanged sentences

Our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP , an independent registered public accounting firm, and their report on the effectiveness of our internal control over financial reporting is included on page 41 of this report.

Chairman and Chief Executive Officer

Chairman, President and Chief Executive Officer

Senior Vice President - Finance and Chief Financial Officer

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

On Internal Control Over Financial Reporting

To the Shareholders and Board of Directors and Shareholders of The Sherwin-Williams Company

To the Shareholders and Board of Directors of The Sherwin-Williams Company

Opinion on Internal Control over Financial Reporting

33 unchanged sentences

We believe that the consolidated financial statements, accompanying notes and related financial information included in this report fairly reflect the form and substance of all material financial transactions and fairly present, in all material respects, the consolidated financial position, results of operations and cash flows as of and for the periods presented.

Chairman and Chief Executive Officer

Chairman, President and Chief Executive Officer

Senior Vice President - Finance and Chief Financial Officer

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

On the Consolidated Financial Statements

To the Shareholders and the Board of Directors of The Sherwin-Williams Company

39 unchanged sentences

STATEMENTS OF CONSOLIDATED INCOME

(millions of dollars, except per share data) Year Ended December 31,

(in millions, except per share data) Year Ended December 31,

2021 2020 2019

10 unchanged sentences

Interest and net investment income ( 4.9 ) ( 3.6 ) ( 25.9 )

California litigation expense — ( 34.7 ) 136.3

Other expense - net 5.3 16.7 20.1

Other (income) expense - net ( 19.5 ) 5.3 ( 18.0 )

Income before income taxes 2,248.6 2,519.2 1,981.8

10 unchanged sentences

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(millions of dollars)

(in millions)

Year Ended December 31,

1 unchanged sentence

Net income $ 1,864.4 $ 2,030.4 $ 1,541.3

Other comprehensive loss, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments (1)

1 unchanged sentence

Pension and other postretirement benefit adjustments:

Amounts recognized in Other comprehensive loss (2)

( 19.4 ) ( 5.1 ) ( 13.5 )

Amounts reclassified from Other comprehensive loss (3)

Amounts recognized in Other comprehensive income (loss) (2)

48.7 ( 19.4 ) ( 5.1 )

Amounts reclassified from Other comprehensive income (loss) (3)

55.0 ( 18.0 ) 17.2

Unrealized net gains on cash flow hedges:

Amounts reclassified from Other comprehensive loss (4)

Amounts reclassified from Other comprehensive income (loss) (4)

( 4.5 ) ( 6.7 ) ( 8.7 )

Other comprehensive loss, net of tax ( 38.8 ) ( 41.3 ) ( 242.7 )

Other comprehensive income (loss), net of tax 19.9 ( 38.8 ) ( 41.3 )

Comprehensive income $ 1,884.3 $ 1,991.6 $ 1,500.0

(1) The years ended December 31, 2020 and 2019 include unrealized losses of $( 54.0 ) million, net of taxes, and unrealized gains of $ 1.1 million, net of taxes, respectively, related to net investment hedges.

(1) The years ended December 31, 2021, 2020 and 2019 include unrealized gains (losses), net of taxes, of $ 37.1 million, $( 54.0 ) million and $ 1.1 million, respectively, related to net investment hedges.

(2) Net of taxes of $( 12.6 ) million, $ 3.4 million and $ 1.3 million in 2021, 2020 and 2019, respectively.

4 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(millions of dollars, except per share data) December 31,

(in millions) December 31,

2021 2020 2019

9 unchanged sentences

Operating lease right-of-use assets 1,820.6 1,761.1 1,685.6

Deferred pension assets 53.1 43.0 270.7

Other assets 789.0 694.3 604.4

7 unchanged sentences

Current portion of long-term debt 260.6 25.1 429.8

California litigation accrual 12.0 12.0 136.3

Current portion of operating lease liabilities 409.7 387.3 371.6

20 unchanged sentences

STATEMENTS OF CONSOLIDATED CASH FLOWS

(millions of dollars) Year Ended December 31,

(in millions) Year Ended December 31,

2021 2020 2019

5 unchanged sentences

Amortization of intangible assets 309.5 313.4 312.8

Loss on extinguishment of debt 21.3 14.8

Loss on divestiture of business 111.9 — —

(Gain) loss on extinguishment of debt ( 1.4 ) 21.3 14.8

Impairment of trademarks — 2.3 122.1

8 unchanged sentences

Change in working capital accounts:

Decrease (increase) in accounts receivable 10.3 ( 73.2 ) 18.4

Decrease (increase) in inventories 84.4 ( 75.5 ) ( 119.5 )

(Increase) decrease in accounts receivable ( 287.8 ) 10.3 ( 73.2 )

(Increase) decrease in inventories ( 228.1 ) 84.4 ( 75.5 )

Increase in accounts payable 346.1 227.2 36.2

Increase in accrued taxes 99.2 5.1 2.7

Increase in accrued compensation and taxes withheld 197.7 49.6 4.6

Decrease (increase) in refundable income taxes 40.6 ( 47.8 ) 20.1

(Decrease) increase in California litigation accrual ( 12.0 ) ( 59.6 ) 136.3

(Decrease) increase in accrued taxes ( 32.7 ) 99.2 5.1

(Decrease) increase in accrued compensation and taxes withheld ( 10.9 ) 197.7 49.6

(Increase) decrease in refundable income taxes ( 38.5 ) 40.6 ( 47.8 )

Other ( 46.8 ) ( 62.0 ) ( 40.8 )

6 unchanged sentences

Acquisitions of businesses, net of cash acquired ( 210.9 ) — ( 77.3 )

Proceeds from divestiture of business 122.5 — —

Proceeds from sale of assets 14.8 60.7 6.9

Increase in other investments ( 79.3 ) ( 63.3 ) ( 39.0 )

Other ( 30.8 ) ( 79.3 ) ( 63.3 )

Net investing cash ( 476.4 ) ( 322.4 ) ( 462.6 )

Financing Activities

Net decrease in short-term borrowings ( 204.6 ) ( 122.8 ) ( 300.9 )

Net increase (decrease) in short-term borrowings 763.9 ( 204.6 ) ( 122.8 )

Proceeds from long-term debt 994.8 999.0 1,332.8

5 unchanged sentences

Proceeds from treasury stock issued 11.7 182.4

Proceeds from real estate financing transactions 7.2 225.3

Other ( 23.4 ) ( 30.6 ) ( 122.0 )

1 unchanged sentence

Effect of exchange rate changes on cash 4.9 ( 1.3 ) ( 6.0 )

Net increase (decrease) in cash and cash equivalents 64.8 6.3 ( 48.7 )

Net (decrease) increase in cash and cash equivalents ( 60.9 ) 64.8 6.3

Cash and cash equivalents at beginning of year 226.6 161.8 155.5

5 unchanged sentences

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

(millions of dollars, except per share data) Common

(in millions, except per share data) Common

Capital Retained

6 unchanged sentences

Adjustment to initially adopt ASU 2016-02 ( 8.4 ) ( 8.4 )

Adjustment to initially adopt ASU 2018-02 8.3 ( 8.3 ) —

Treasury stock purchased ( 778.8 ) ( 778.8 )

Treasury stock transferred from defined benefit pension plan ( 131.8 ) ( 131.8 )

Stock-based compensation activity 1.0 254.5 ( 25.2 ) 230.3

6 unchanged sentences

Adjustment to initially adopt ASU 2016-13 ( 3.0 ) ( 3.0 )

Adjustment to initially adopt ASU 2018-02 8.3 ( 8.3 ) —

Treasury stock purchased ( 2,446.3 ) ( 2,446.3 )

Treasury stock transferred from defined benefit pension plan ( 131.8 ) ( 131.8 )

Treasury stock issued 61.6 120.8 182.4

Treasury stock retired ( 30.6 ) ( 8,061.6 ) 8,092.2 —

Stock-based compensation activity 1.1 276.4 ( 26.7 ) 250.8

4 unchanged sentences

Net income 1,864.4 1,864.4

Other comprehensive loss ( 38.8 ) ( 38.8 )

Adjustment to initially adopt ASU 2016-13 ( 3.0 ) ( 3.0 )

Other comprehensive income 19.9 19.9

Treasury stock purchased ( 2,752.3 ) ( 2,752.3 )

Treasury stock issued 9.3 2.4 11.7

Treasury stock retired ( 30.6 ) ( 8,061.6 ) 8,092.2 —

Stock-based compensation activity 0.9 290.9 ( 23.5 ) 268.3

30 unchanged sentences

All provisions for allowances for doubtful accounts are included in Selling, general and administrative expenses.

See Notes 2 and 17 for further details.

See Note 17 for further details.

Property, Plant and Equipment

Property, plant and equipment (including leasehold improvements) is stated on the basis of cost.

Depreciation is provided by the straight-line method.

Depreciation is charged to expense using the straight-line method over the assets’ estimated useful lives which range from 5 to 25 years for buildings and 3 to 15 years for machinery and equipment.

Depreciation and amortization are included in the appropriate Cost of goods sold or Selling, general and administrative expenses caption on the Statements of Consolidated Income.

The major classes of assets and ranges of annual depreciation rates are:

Buildings 4.0 % – 20.0 %

Machinery and equipment 10.0 % – 20.0 %

Furniture and fixtures 6.7 % – 33.3 %

Automobiles and trucks 10.0 % – 33.3 %

Goodwill and Intangible Assets

Goodwill represents the cost in excess of fair value of net assets acquired in business combinations accounted for by the purchase method.

Intangible assets include indefinite-lived trademarks, customer relationships and intellectual property.

Intangible assets include trademarks, customer relationships and intellectual property.

In accordance with the Goodwill and Other Intangibles Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), goodwill and indefinite-lived trademarks are not amortized, but instead are tested for impairment on an annual basis, as well as whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred.

2 unchanged sentences

Impairment of Long-Lived Assets

In accordance with the Property, Plant and Equipment Topic of the ASC, management evaluates the recoverability and remaining lives of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.

In accordance with the Property, Plant and Equipment Topic of the ASC, management evaluates the recoverability and remaining lives of long-lived assets (including right-of-use assets) whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.

See Note 5 for further details.

20 unchanged sentences

Under the proportional amortization method, the initial cost of the investments is amortized to income tax expense in proportion to the tax credits and other tax benefits received.

The carrying amounts of the investments, included in Other assets, were $ 198.2 million, $ 176.2 million and $ 181.2 million at December 31, 2020, 2019 and 2018, respectively.

The liabilities recorded on the balance sheets for estimated future capital contributions to the investments were $ 216.3 million, $ 174.4 million and $ 183.0 million at December 31, 2020, 2019 and 2018, respectively.

The carrying value of the investments are recorded in Other assets.

The liabilities for the estimated future capital contributions are recorded in Other accruals and Other long-term liabilities.

The following table summarizes the balances related to the investments at December 31, 2021, 2020 and 2019, respectively.

2021 2020 2019

Other assets $ 355.8 $ 198.2 $ 176.2

Other accruals 61.8 89.0 87.3

Other long-term liabilities 289.7 127.3 87.1

Standby Letters of Credit

12 unchanged sentences

Settlements ( 35.6 ) ( 37.1 ) ( 47.3 )

Divestiture and other adjustments ( 68.2 )

Balance at December 31 $ 35.2 $ 43.3 $ 42.3

Warranty accruals acquired in connection with the Valspar acquisition include warranties for certain products under extended furniture protection plans.

The decrease in the accrual for product warranty claims in the year ended December 31, 2018 was primarily due to the divestiture of the furniture protection plan business in the third quarter of 2018.

Defined Benefit Pension and Other Postretirement Benefit Plans

7 unchanged sentences

See Notes 9 and 18 for further details.

The Company accounts for the Employee Stock Purchase and Savings Plan, its employee stock ownership plan (ESOP), in accordance with the Employee Stock Ownership Plans Subtopic of the Compensation – Stock Ownership Topic of the ASC.

The Company accounts for its employee stock ownership plan (ESOP), in accordance with the Employee Stock Ownership Plans Subtopic of the Compensation – Stock Ownership Topic of the ASC.

The Company recognized compensation expense for amounts contributed to the ESOP.

41 unchanged sentences

Adopted in 2021

Effective January 1, 2020, the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (ASC 326).

This ASU replaced the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

In addition, new disclosures are required.

The Company adopted ASU 2016-13 using the modified retrospective transition method.

The adoption of ASU 2016-13 did not result in a material cumulative-effect adjustment to the opening balance of retained earnings at January 1, 2020 and did not have a material impact on the Company’s results of operations, financial condition or liquidity.

See Note 17 for additional information.

Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

The amendments also improve consistent application of and simplify U.S.

Effective January 1, 2021, the Company adopted Accounting Standards Update (ASU) 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

It also improves consistent application of and simplifies U.S.

GAAP for other areas of ASC 740 by clarifying and amending existing guidance.

The standards update is effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted.

The adoption of ASU 2019-12 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

The amendments are being applied prospectively.

The adoption of ASU 2019-12 did not have a material impact on the Company’s financial position, results of operations or cash flows.

Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Liabilities from Contracts with Customers.” This ASU requires an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

The ASU is effective for fiscal years and interim periods beginning after December 15, 2022, with early adoption permitted.

The Company is evaluating the impact of adopting this ASU.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.” This ASU requires disclosures for material government assistance transactions during annual reporting periods.

The disclosures include information about the nature of the transaction, the related accounting policies used to account for the government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions.

The ASU is effective for the Company as of January 1, 2022 and will not affect the Company’s financial position, results of operations or cash flows as the standard only impacts annual financial statement footnote disclosures.

NOTE 3 – ACQUISITIONS AND DIVESTITURES

During the third quarter of 2021, the Company signed an agreement to acquire the European industrial coatings business of Sika AG (Sika).

Sika’s European industrial coatings business engineers, manufactures and sells corrosion protection coating systems and fire protection coating systems.

The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2022.

The acquired business will be reported within the Company’s Performance Coatings Group.

During the fourth quarter of 2021, the Company completed the acquisition of Specialty Polymers, Inc.

(Specialty Polymers), a leading manufacturer and developer of water-based polymers used in architectural and industrial coatings and other applications.

The acquisition added to the Company’s existing internal resin manufacturing capabilities.

Specialty Polymers will be reported within the Company’s Performance Coatings Group.

During the first quarter of 2021, the Company completed the acquisition of a domestic coatings company.

The acquisition expanded the Performance Coatings Group’s platform for growth and portfolio of brands and technologies.

The aggregate purchase price for acquisitions closed in 2021 was approximately $ 227.0 million, including amounts withheld as security for certain representations, warranties and obligations of the sellers.

The purchase price for each acquisition was preliminarily allocated to identifiable assets and liabilities based on information available at the date of acquisition and may change as the Company completes its analysis of net assets acquired, primarily the valuation of intangible assets.

As of December 31, 2021, $ 155.6 million of goodwill and $ 11.3 million of intangible assets were recognized from these transactions.

The preliminary purchase price allocation for each acquisition is expected to be finalized within the allowable measurement period.

The results of operations for the acquisitions have been included in the consolidated financial statements since the respective acquisition dates.

Pro forma results of operations have not been presented as the impact on the Company’s consolidated financial results is not material.

On March 31, 2021, the Company divested Wattyl, an Australian and New Zealand manufacturer and seller of architectural and protective paint and coatings with annual revenue of approximately $ 200 million.

The divestiture will enable the Company to focus its resources on global opportunities which better align with our long-term strategies.

In connection with this transaction, the Company recognized a pre-tax loss of $ 111.9 million within Other general (income) expense - net (see Note 15).

The Wattyl divestiture does not meet the criteria to be reported as discontinued operations in our consolidated financial statements as the Company’s decision to divest this business did not represent a strategic shift that will have a major effect on the Company’s operations and financial results.

During 2019, the Company completed the acquisition of a domestic packaging company and two European coatings companies for an aggregate purchase price of $ 84.4 million, including amounts withheld as security for certain representations, warranties and obligations of the sellers.

3 unchanged sentences

Pro forma results of operations have not been presented as the impact on the Company’s consolidated financial results was not material.

On February 17, 2021, the Company signed a definitive agreement to divest Wattyl, an Australian and New Zealand manufacturer and seller of architectural and protective paint and coatings with annual revenue of approximately $ 200 million and 750 employees.

The divestiture will allow the Company to focus its resources on global opportunities which align with our long-term strategies.

The transaction is expected to close during the first quarter of 2021, subject to customary closing conditions.

In connection with the sale, we expect to incur a loss in the first quarter of 2021 that is not material.

NOTE 4 – INVENTORIES

10 unchanged sentences

Excess of FIFO over LIFO $ 593.0 $ 312.1 $ 339.8

During 2021, certain inventories accounted for on the LIFO method were reduced, resulting in the liquidation of certain quantities carried at costs prevailing in prior years.

The 2021 liquidation increased net income by $ 25.8 million.

The Company recorded a reserve for obsolescence of $ 118.6 million, $ 125.8 million and $ 115.4 million at December 31, 2021, 2020 and 2019, respectively, to reduce Inventories to their estimated net realizable value.

NOTE 5 – GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS

NOTE 5 – LONG-LIVED ASSETS, INCLUDING GOODWILL AND INTANGIBLE ASSETS

Included in Property, plant and equipment, net were the following:

8 unchanged sentences

In accordance with the Property, Plant and Equipment Topic of the ASC, whenever events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable or the useful life may have changed, impairment tests are to be performed.

Subsequent to the adoption of ASU 2016-02, right-of-use assets recognized in the consolidated balance sheet are considered to be long-lived assets.

Undiscounted cash flows were used to calculate the recoverable value of long-lived assets to determine if such assets were not recoverable.

If the carrying value of the assets was deemed to not be recoverable, the impairment to be recognized is the amount by which the carrying value of the assets exceeds the estimated fair value of the assets as determined in accordance with the Fair Value Topic of the ASC.

Undiscounted cash flows are used to calculate the recoverable value of long-lived assets to determine if such assets are not recoverable.

If the carrying value of the assets is deemed to not be recoverable, the impairment to be recognized is the amount by which the carrying value of the assets exceeds the estimated fair value of the assets as determined in accordance with the Fair Value Topic of the ASC.

No material impairments of long-lived assets were recorded in 2021, 2020 or 2019.

During 2021, the Company acquired two companies which resulted in the recognition of goodwill of $ 155.6 million and finite-lived intangibles of $ 11.3 million.

During 2019, the Company acquired three companies which resulted in the recognition of goodwill of $ 14.2 million and finite-lived intangibles of $ 34.9 million.

See Note 3 for additional information related to the acquisitions.

In accordance with the Goodwill and Other Intangibles Topic of the ASC, goodwill and indefinite-lived intangible assets are tested for impairment annually, and interim impairment tests are performed whenever an event occurs or circumstances change that indicate an impairment has more likely than not occurred.

In addition, during 2021, the Company divested its Wattyl business in Australia and New Zealand.

See Note 3 for additional information related to the acquisitions and divestiture.

In accordance with the Goodwill and Other Intangibles Topic of the ASC, goodwill and indefinite-lived intangible assets are tested for impairment annually at the reporting unit level, and interim impairment tests are performed whenever an event occurs or circumstances change that indicate an impairment has more likely than not occurred.

October 1 has been established for the annual impairment review.

1 unchanged sentence

An optional qualitative assessment may alleviate the need to perform the quantitative goodwill impairment test when impairment is unlikely.

The annual impairment review performed as of October 1, 2021 did not result in any trademark or goodwill impairment.

The annual impairment review performed as of October 1, 2020 resulted in trademark impairment of $ 2.3 million in the Performance Coatings Group related to lower than anticipated sales of an acquired brand and no goodwill impairment.

4 unchanged sentences

In the Performance Coatings Group, $ 75.6 million related to trademarks in North America directly associated with strategic decisions made to rebrand industrial products to the Sherwin-Williams® brand name, $ 25.7 million related to trademarks in the Asia Pacific region as a direct result of recent performance that reduced the long-term forecasted net sales and $ 15.7 million related to other recently acquired trademarks in various regions.The annual impairment review did not result in any goodwill impairment.

The annual impairment reviews performed as of October 1, 2018 did no t result in any goodwill or trademark impairment.

A summary of changes in the Company’s carrying value of goodwill by Reportable Segment is as follows:

4 unchanged sentences

$ 2,256.6 $ 1,753.8 $ 2,946.3 $ 6,956.7

Acquisition adjustments ( 273.9 ) ( 413.3 ) 900.8 213.6

Acquisitions 14.2 14.2

Currency and other adjustments 0.1 33.8 33.9

1 unchanged sentence

2,256.6 1,753.9 2,994.3 7,004.8

Acquisitions 14.2 14.2

Currency and other adjustments 0.7 43.6 44.3

1 unchanged sentence

2,256.6 1,754.6 3,037.9 7,049.1

Acquisitions 155.6 155.6

Currency and other adjustments ( 45.7 ) ( 24.4 ) ( 70.1 )

1 unchanged sentence

$ 2,256.6 $ 1,708.9 $ 3,169.1 $ 7,134.6

(1) Net of accumulated impairment losses of $ 19.4 ($ 10.5 million in The Americas Group, $ 8.1 million in the Consumer Brands Group and $ 0.8 million in the Performance Coatings Group).

(1) Net of accumulated impairment losses of $ 19.4 million ($ 10.5 million in The Americas Group, $ 8.1 million in the Consumer Brands Group and $ 0.8 million in the Performance Coatings Group).

A summary of the Company’s carrying value of intangible assets is as follows:

13 unchanged sentences

Net value $ 31.6 $ 2,535.3 $ 1,506.8 $ 52.4 $ 4,126.1 $ 608.4 $ 4,734.5

(1) Trademarks with indefinite lives as of December 31, 2020 is net of accumulated impairment losses of $ 124.4 million.

Trademarks with indefinite lives as of December 31, 2019 is net of accumulated impairment losses of $ 122.1 million.

There were no material accumulated impairment losses as of December 31, 2018.

(1) Trademarks are net of accumulated impairment losses of $ 124.4 million as of December 31, 2021 and 2020, and $ 122.1 million as of December 31, 2019.

Amortization of finite-lived intangible assets is estimated as follows for the next five years:

16 unchanged sentences

2.30 % Senior Notes

2030 496.2 495.8 —

3.30 % Senior Notes

2050 493.9 493.7 —

2.20 % Senior Notes

14 unchanged sentences

2025 249.6 249.5 249.4

7.375 % Debentures

4.40 % Senior Notes

2045 240.0 239.6 239.2

0.92 % Fixed Rate Loan

7.375 % Debentures

2027 119.2 119.1 119.1

3 unchanged sentences

Through 2026 2.0 2.3 2.9

Floating Rate Loan 2021 251.9 257.4

4.20 % Senior Notes

2022 — 405.7 411.3

0.92 % Fixed Rate Loan

2021 — 24.4 22.4

Floating Rate Loan 2021 — — 251.9

2.25 % Senior Notes

2020 — — 428.6

8,851.5 8,292.0 8,480.5

Less amounts due within one year 260.6 25.1 429.8

9 unchanged sentences

The Company was in compliance with all covenants for all years presented.

In November 2021, the Company issued $ 500.0 million of 2.20 % Senior Notes due March 2032 and $ 500.0 million of 2.90 % Senior Notes due March 2052 in a public offering.

The net proceeds from the issuance of these notes were used to repay outstanding borrowings under the Company’s domestic commercial paper program.

In October 2021, the Company exercised its optional redemption rights to redeem the entire outstanding $ 400.0 million aggregate principal amount of its 4.20 % Senior Notes due 2022 and its 4.20 % Notes due 2022 initially issued by The Valspar Corporation (collectively, the 4.20 % Senior Notes) after exercising its optional redemption rights.

The 4.20 % Senior Notes were redeemed at a redemption price equal to 100 % of the principal amount, plus accrued interest, and resulted in a gain of $ 1.4 million recorded in Other (income) expense - net .

In March 2020, the Company issued $ 500.0 million of 2.30 % Senior Notes due May 2030 and $ 500.0 million of 3.30 % Senior Notes due May 2050 in a public offering.

The net proceeds from the issuance of these notes were used to repurchase a portion of the 2.75 % Senior Notes due 2022 and redeem the 2.25 % Senior Notes due May 2020.

The repurchase of the 2.75 % Senior Notes due 2022 during the first quarter of 2020 resulted in a loss of $ 21.3 million recorded in Other expense - net.

The repurchase of the 2.75 % Senior Notes due 2022 during the first quarter of 2020 resulted in a loss of $ 21.3 million recorded in Other (income) expense - net.

In August 2019, the Company issued $ 800.0 million of 2.95 % Senior Notes due 2029 and $ 550.0 million of 3.80 % Senior Notes due 2049 in a public offering.

The net proceeds from the issuance of these are being used for general corporate purposes.

The net proceeds from the issuance of these notes were used for general corporate purposes.

In August 2019, the Company repurchased $ 1.010 billion of its 2.25 % Senior Notes due 2020 and $ 490.0 million of its 2.75 % Senior Notes due 2022.

These repurchases resulted in a loss of $ 14.8 million recorded in Other expense - net .

These repurchases resulted in a loss of $ 14.8 million recorded in Other (income) expense - net .

In June 2019, the Company repurchased $ 60.9 million of its 2.25 % Senior Notes due May 2020.

1 unchanged sentence

Short-Term Borrowings

On July 19, 2018, the Company and three of its wholly-owned subsidiaries, Sherwin-Williams Canada, Inc., Sherwin-Williams Luxembourg S.à r.l and Sherwin-Williams UK Holding Limited (all together with the Company, the Borrowers), entered into a new five-year $ 2.000 billion credit agreement.

This credit agreement may be used for general corporate purposes, including the financing of working capital requirements, and replaced a credit agreement dated July 16, 2015, as amended, which was terminated.

This credit agreement allows the Company to extend the maturity of the facility with two one-year extension options and the Borrowers to increase the aggregate amount of the facility to $ 2.750 billion, both of which are subject to the discretion of each lender.

In addition, the Borrowers may request letters of credit in an amount of up to $ 250.0 million.

On October 8, 2019, the Company amended this credit agreement to, among other things, extend the maturity date to October 8, 2024.

At December 31, 2020, 2019 and 2018, there were no short-term borrowings under this credit agreement.

On May 6, 2016, the Company entered into a five-year credit agreement, subsequently amended on multiple dates to extend the maturity of the agreement.

This credit agreement gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit up to an aggregate availability of $ 875.0 million at December 31, 2020.

In September 2017, the Company entered into an additional five-year letter of credit agreement, subsequently amended on multiple dates to extend the maturity of the agreement, with an aggregate availability of $ 625.0 million at December 31, 2020.

Both of these credit agreements are being used for general corporate purposes.

On June 29, 2021, the Company and two of its wholly-owned subsidiaries, Sherwin-Williams Canada Inc.

(SW Canada) and Sherwin-Williams Luxembourg S.à r.l.

(SW Luxembourg, together with the Company and SW Canada, the Borrowers), entered into a new five-year $ 2.000 billion credit agreement (New Credit Agreement).

The New Credit Agreement may be used for general corporate purposes, including the financing of working capital requirements.

The New Credit agreement replaced the $ 2.000 billion credit agreement dated July 19, 2018, as amended, which was terminated effective June 29, 2021.

The New Credit Agreement will mature on June 29, 2026 and provides that the Company may request to extend the maturity date of the facility for two additional one-year periods.

In addition, the New Credit Agreement provides that the Borrowers may increase the aggregate amount of the facility to $ 2.750 billion, subject to the discretion of each lender to participate in the increase, and the Borrowers may request letters of credit in an amount of up to $ 250.0 million.

At December 31, 2021, 2020 and 2019, there were no short-term borrowings under these credit agreements.

On August 2, 2021, the Company entered into an amended and restated $ 625.0 million credit agreement (August 2021 Credit Agreement), which amends and restates the five-year credit agreement entered into in September 2017.

The August 2021 Credit Agreement was subsequently amended on multiple dates to extend the maturity of commitments available for borrowing or letters of credit under the agreement.

On May 9, 2016, the Company entered into a five-year credit agreement (May 2016 Credit Agreement), subsequently amended on multiple dates to extend the maturity of commitments available for borrowing or letters of credit under the agreement.

The May 2016 credit agreement gives the Company the right to borrow and obtain letters of credit up to an aggregate availability of $ 875.0 million.

These credit agreements are being used for general corporate purposes.

At December 31, 2021, 2020 and 2019, there were no borrowings outstanding under these credit agreements.

There were no borrowings outstanding under the Company’s domestic commercial paper program at December 31, 2020.

Borrowings outstanding under the Company’s domestic commercial paper program at December 31, 2019 and 2018 were $ 191.9 million and $ 291.4 million, respectively with a weighted average interest rate of 2.1 % and 3.0 %, respectively.

Borrowings outstanding under various foreign programs were $ 0.1 million, $ 12.8 million and $ 37.0 million at December 31, 2020, 2019 and 2018, respectively with a weighted average interest rate of 0.2 %, 4.3 % and 9.3 %, respectively.

The Company’s available capacity under its committed credit agreements is reduced for amounts outstanding under its domestic commercial paper program and letters of credit.

At December 31, 2021, the Company had unused capacity under its various credit agreements of $ 2.725 billion.

The table below summarizes the Company’s short-term borrowings:

2021 2020 2019

Domestic commercial paper $ 739.9 $ — $ 191.9

Foreign facilities 23.6 0.1 12.8

Total $ 763.5 $ 0.1 $ 204.7

Weighted average interest rate:

Domestic 0.3 % — % 2.1 %

Foreign 9.5 % 0.2 % 4.3 %

NOTE 7 – PENSION, HEALTH CARE AND OTHER POSTRETIREMENT BENEFITS

6 unchanged sentences

There were 29,016 , 27,782 and 27,030 active employees entitled to receive benefits under these plans at December 31, 2021, 2020 and 2019, respectively.

The cost of these benefits for active employees, which includes claims incurred and claims incurred but not reported, amounted to $ 298.8 million, $ 301.6 million and $ 298.8 million for 2020, 2019 and 2018, respectively.

The cost of these benefits for active employees, which includes claims incurred but not reported, amounted to $ 336.0 million, $ 298.8 million and $ 301.6 million for 2021, 2020 and 2019, respectively.

Defined Contribution Pension Plans

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The Company settled the liabilities of the Terminated Plan through a combination of (i) lump sum payments to eligible participants who elected to receive them and (ii) the purchase of annuity contracts for participants who either did not elect lump sums or were already receiving benefit payments.

The lump sum payments were paid in December 2018 and resulted in a settlement charge of $ 37.6 million in 2018.

The lump sum payments were paid in December 2018.

During the first quarter of 2019, the Company purchased annuity contracts to settle the remaining liabilities of the Terminated Plan.

The annuity contract purchase resulted in a settlement charge of $ 32.4 million in the first quarter of 2019.

The remaining surplus of the Terminated Plan is being used, as prescribed in the applicable regulations, to fund Company contributions to the Qualified Replacement Plan.

The remainin g surplus of the Terminated Plan is being used, as prescribed in the applicable regulations, to fund Company contributions to the Qualified Replacement Plan.

During 2019, the Company transferred the remaining surplus of $ 242.2 million to a suspense account held within a trust for the Qualified Replacement Plan.

5 unchanged sentences

The plan was funded in accordance with all applicable regulations at December 31, 2021.

At December 31, 2019, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $ 103.0 million, fair value of plan assets of $ 125.9 million and excess plan assets of $ 22.9 million.

At December 31, 2018, the domestic defined benefit pension plans were overfunded, with a projected benefit obligation of $ 524.7 million, fair value of plan assets of $ 777.0 million and excess plan assets of $ 252.3 million.

The Company has thirty-one foreign defined benefit pension plans.

At December 31, 2020, twenty-six of the Company’s foreign defined benefit pension plans were unfunded or underfunded, with combined accumulated benefit obligations, projected benefit obligations, fair values of net assets and deficiencies of plan assets of $ 231.5 million, $ 259.9 million, $ 149.6 million and $ 110.3 million, respectively.

The Company has thirty-three foreign defined benefit pension plans.

At December 31, 2021, twenty-seven of the Company’s foreign defined benefit pension plans were unfunded or underfunded, with combined accumulated benefit obligations, projected benefit obligations, fair values of net assets and deficiencies of plan assets of $ 95.2 million, $ 108.5 million, $ 29.5 million and $ 79.0 million, respectively.

The Company expects to make the following benefit payments for all domestic and foreign defined benefit pension plans:

6 unchanged sentences

The Company expects to contribute $ 5.8 million to the foreign plans in 2022.

The estimated net actuarial losses and prior service costs for the defined benefit pension plans that are expected to be amortized from AOCI into the net pension costs in 2021 are $ 1.5 million and $ 1.0 million, respectively.

The estimated net actuarial losses and prior service credits for the defined benefit pension plans that are expected to be amortized from AOCI into the net pension costs in 2022 are $ 0.3 million and $( 0.2 ) million, respectively.

The following table summarizes the components of the net pension costs and AOCI related to the defined benefit pension plans:

Defined Benefit Pension Plans Foreign

Defined Benefit Pension Plan Foreign

Defined Benefit Pension Plans

6 unchanged sentences

Amortization of actuarial losses 1.5 1.0 1.0

Ongoing pension cost (credit) 2.7 4.4 ( 10.0 ) 4.7 6.0 8.4

Settlement costs (credits) 32.4 37.6 0.2 0.3 ( 0.4 )

Curtailment cost 0.8

Ongoing pension cost 1.6 2.7 4.4 4.9 4.7 6.0

Settlement costs 32.4 0.3 0.2 0.3

Net pension cost 1.6 2.7 36.8 5.2 4.9 6.3

1 unchanged sentence

obligation recognized in AOCI (before taxes):

Net actuarial losses (gains) arising during the year ( 4.5 ) ( 22.0 ) 29.9 7.0 13.2 ( 5.1 )

Net actuarial (gains) losses arising during the year ( 10.5 ) ( 4.5 ) ( 22.0 ) ( 44.9 ) 7.0 13.2

Prior service cost (credit) arising during the year 1.4 0.2 3.1 ( 1.0 ) ( 0.5 )

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Amortization of prior service cost ( 1.1 ) ( 1.4 ) ( 1.4 ) 0.1

(Loss) gain recognized for settlement ( 32.4 ) ( 37.6 ) ( 0.2 ) ( 0.3 ) 0.4

Prior service cost recognized for curtailment ( 0.8 )

Loss recognized for settlement ( 32.4 ) ( 0.3 ) ( 0.2 ) ( 0.3 )

Gain arising from curtailment ( 0.7 )

Exchange rate gain (loss) recognized during the year

1.7 1.0 ( 2.0 )

Exchange rate (loss) gain recognized during the year ( 0.6 ) 1.7 1.0

Total recognized in AOCI ( 10.2 ) ( 5.7 ) ( 52.7 ) ( 48.2 ) 7.0 12.2

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Service cost is recorded in Cost of goods sold and Selling, general and administrative expense.

All other components of Net pension costs are recorded in Other expense - net.

All other components of Net pension costs are recorded in Other (income) expense - net.

The Company employs a total return investment approach for the domestic and foreign defined benefit pension plan assets.

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In determining the expected long-term rate of return on defined benefit pension plan assets, management considers the historical rates of return, the nature of investments and an expectation of future investment strategies.

The target allocations for plan assets are 35 % – 65 % equity securities and 35 % – 55 % fixed income securities.

The target allocations for plan assets are 35 % – 65 % equity securities, 35 % – 55 % fixed income securities and 0 % – 10 % other (including alternative investments and cash).

The following tables summarize the fair value of the defined benefit pension plan assets at December 31, 2021, 2020 and 2019.

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(Level 2) Significant

Unobservable Inputs

Investments at fair value:

2 unchanged sentences

Fixed income investments (2)

182.3 24.3 158.0

Other assets (3)

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Therefore, these investments are not classified in the fair value hierarchy.

As of December 31, 2018 there were 300,000 shares of the Company’s common stock with a market value of $ 118.0 million included as equity investments in the domestic defined benefit pension plan assets.

There were no shares of the Company’s common stock included as equity investments in the domestic defined benefit pension plan assets at December 31, 2020 and December 31, 2019 due to the wind-up of the Terminated Plan.

The following table summarizes the obligations, plan assets and assumptions used for the defined benefit pension plans, which are all measured as of December 31:

Defined Benefit Pension Plans Foreign

Defined Benefit Pension Plan Foreign

Defined Benefit Pension Plans

7 unchanged sentences

Interest cost 2.7 3.2 4.8 5.7 6.9 9.4

Actuarial losses (gains) 11.0 4.4 ( 13.6 ) 25.3 36.2 ( 21.0 )

Actuarial (gains) losses ( 2.8 ) 11.0 4.4 ( 26.0 ) 25.3 36.2

Contributions and other 1.4 0.2 3.1 ( 4.6 ) ( 0.1 ) 0.7

45 unchanged sentences

Interest cost 4.9 7.6 11.2

Actuarial loss (gain) 19.7 12.8 ( 9.0 )

Actuarial (gain) loss ( 4.1 ) 19.7 12.8

Plan amendments ( 2.2 ) 1.0

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Net actuarial losses $ ( 54.0 ) $ ( 62.8 ) $ ( 45.1 )

Prior service (cost) credits ( 0.9 ) 1.1 6.1

Prior service credit (cost) 1.6 ( 0.9 ) 1.1

$ ( 52.4 ) $ ( 63.7 ) $ ( 44.0 )

17 unchanged sentences

Amortization of actuarial losses 4.7 2.0 0.5

Amortization of prior service credit ( 1.1 ) ( 5.0 ) ( 6.6 )

Amortization of prior service cost (credit) 0.3 ( 1.1 ) ( 5.0 )

Net periodic benefit cost 11.3 10.0 8.2

1 unchanged sentence

AOCI (before taxes):

Net actuarial loss (gain) arising during the year 19.7 12.8 ( 9.0 )

Prior service cost (credit) arising during the year 0.9 ( 0.1 )

Net actuarial (gain) loss arising during the year ( 4.1 ) 19.7 12.8

Prior service (credit) cost arising during the year ( 2.2 ) 0.9

Amortization of actuarial losses ( 4.7 ) ( 2.0 ) ( 0.5 )

2 unchanged sentences

Total recognized in net periodic benefit cost and AOCI $ — $ 29.7 $ 25.5

The estimated net actuarial losses and prior service costs for other postretirement benefits that are expected to be amortized from AOCI into net periodic benefit cost in 2021 are $ 4.7 million and $ 0.3 million, respectively.

The estimated net actuarial losses and prior service credits for other postretirement benefits that are expected to be amortized from AOCI into net periodic benefit cost in 2022 are $ 4.2 million and $( 0.4 ) million, respectively.

The assumed health care cost trend rate and prescription drug cost increases used to determine the net periodic benefit cost for postretirement health care benefits for 2022 both decrease in each successive year until reaching 4.5 % in 2029.

16 unchanged sentences

Therefore, the Company’s estimated incremental borrowing rate based on information available at the time of lease inception is used to discount lease payments to present value.

Effective January 1, 2019, the Company adopted ASC 842 using the modified retrospective transition method, electing to not restate prior periods.

As a result, the required comparative period disclosures for the period ended December 31, 2018, are reported in accordance with the previous accounting standard, ASC 840.

Additional lease information is summarized below:

5 unchanged sentences

Operating cash outflows from operating leases $ 461.4 $ 446.1 $ 430.9

$ 446.1 $ 430.9

Leased assets obtained in exchange for new operating lease liabilities $ 505.2 $ 469.9 $ 346.4

$ 469.9 $ 346.4

Weighted average remaining lease term (2)

6.0 years 6.0 years

Weighted average remaining lease term 5.8 years 6.0 years 6.0 years

Weighted average discount rate

(1) Operating lease cost for the period ended December 31, 2018, includes short-term lease cost in accordance with ASC 840 disclosure requirements.

(2) Disclosure was not required for periods reported under ASC 840.

3.0 % 3.4 % 3.9 %

The following table reconciles the undiscounted cash flows for each of the next five years and thereafter to the operating lease liabilities recognized on the balance sheet as of December 31, 2021.

5 unchanged sentences

Present value of operating lease liabilities $ 1,880.4

During 2018, the Company completed transactions to sell and subsequently leaseback certain real estate properties and received proceeds totaling $ 225.3 million.

The transactions were accounted for as financing transactions primarily due to the Company’s continuing involvement resulting from the length of the lease term in comparison to the remaining economic life of the real estate properties.

The financing transactions have related future obligations of $ 198.9 at December 31, 2020.

NOTE 9 – OTHER LONG-TERM LIABILITIES

75 unchanged sentences

Due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to the Company arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition.

An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made due to the aforementioned uncertainties.

An estimate of the potential impact on the Company’s results of operations, cash flow, liquidity or financial condition cannot be made due to the aforementioned uncertainties.

Public Nuisance Claim Litigation .

11 unchanged sentences

The Santa Clara County, California proceeding was initiated in March 2000 in the Superior Court of the State of California, County of Santa Clara.

On July 17, 2019, after nearly twenty years of litigation, the Company and two other defendants—ConAgra Grocery Products Company and NL Industries, Inc.—reached an agreement in principle with the plaintiffs to resolve the litigation.

The agreement provides that, in full and final satisfaction of any and all claims of the plaintiffs, the Company and the other two defendants collectively shall pay a total of $ 305.0 million, with the Company and the other two defendants each paying approximately $ 101.7 million as follows:

After nearly twenty years of litigation, the Company and two other defendants (ConAgra Grocery Products Company and NL Industries, Inc.) reached an agreement in principle with the plaintiffs to resolve the litigation on July 17, 2019.

The agreement provides that, in full and final satisfaction of any and all claims of the plaintiffs, the defendants collectively shall pay a total of $ 305.0 million, with the defendants each paying approximately $ 101.7 million as follows:

(i) an initial payment of $ 25.0 million within sixty days after the entry of a dismissal order and judgment;

2 unchanged sentences

Should NL Industries fail to make any of its payments required under the agreement, the Company has agreed to backstop and pay on behalf of NL Industries a maximum amount of $ 15.0 million.

On July 24, 2019, the trial court approved the agreement, discharged the receiver, and granted a judgment of dismissal with prejudice in favor of the Company and the other two defendants.

On July 24, 2019, the trial court approved the agreement, discharged the receiver, and granted a judgment of dismissal with prejudice in favor of the defendants.

At December 31, 2021 and 2020, the Company had accruals for this agreement reported on the balance sheet of $ 52.7 million and $ 64.7 million, respectively, with $ 12.0 million included in Current liabilities and the remaining $ 40.7 million and $ 52.7 million, respectively, included in Other long-term liabilities.

1 unchanged sentence

Two proceedings in Pennsylvania were initiated in October 2018.

The County of Montgomery, Pennsylvania filed a Complaint against the Company and several other former lead-based paint and lead pigment manufacturers in the Court of Common Pleas of Montgomery County, Pennsylvania.

The County of Lehigh, Pennsylvania also filed a Complaint against the Company and several other former lead-based paint and lead pigment manufacturers in the Court of Common Pleas of Lehigh County, Pennsylvania.

The Company removed both actions to the United States District Court for the Eastern District of Pennsylvania on November 28, 2018.

Following the plaintiffs’ efforts to remand both cases, which the defendants opposed, both cases were ordered to be remanded to state court on July 21, 2020.

The Pennsylvania counties of Montgomery and Lehigh filed complaints against the Company and several other former lead-based paint and lead pigment manufacturers in the Courts of Common Pleas of Montgomery County, Pennsylvania and Lehigh County, Pennsylvania, respectively.

In both actions, the counties request declaratory relief establishing the existence of a public nuisance and the defendants’ contribution to it, the abatement of an ongoing public nuisance arising from the presence of lead-based paint in housing throughout the applicable county, an injunction against future illicit conduct, and the costs of litigation and attorneys’ fees.

In both actions, the defendants filed preliminary objections on December 21, 2020, seeking to dismiss the complaints with prejudice.

The briefing associated with the preliminary objections is scheduled to be concluded on February 23, 2021, with oral argument for the Lehigh County, Pennsylvania action scheduled for March 3, 2021.

In October 2018, the Company filed a Complaint in the United States District Court for the Eastern District of Pennsylvania against the Pennsylvania Counties of Delaware, Erie and York seeking injunctive and declaratory relief to prevent the violation of the Company’s rights under the First Amendment and Due Process Clause of the U.S.

Constitution.

The Company voluntarily dismissed defendant Erie County on November 9, 2018 and defendant York County on November 21, 2018.

Defendant Delaware County filed a motion to dismiss the Complaint, which the federal trial court granted on October 4, 2019.

The Company appealed the federal trial court’s dismissal on November 1, 2019 to the United States Court of Appeals for the Third Circuit.

On July 31, 2020, the Third Circuit affirmed the federal trial court’s dismissal of the Complaint.

The Company filed a petition for writ of certiorari to the United States Supreme Court on December 28, 2020.

After the defendants removed the actions to federal court and the actions were remanded to state court, the defendants filed preliminary objections on December 21, 2020, seeking to dismiss the complaints with prejudice.

The briefing associated with the preliminary objections concluded on February 23, 2021.

In the Lehigh County action, the trial court denied the defendants’ preliminary objections on August 6, 2021.

Defendants filed a motion to amend the order to allow an interlocutory appeal or, in the alternative, for reconsideration.

The trial court denied the defendants’ motion on September 13, 2021.

On September 27, 2021, the Company answered the complaint, asserted new matter and affirmative defenses, alleged counterclaims against Lehigh County, and filed a third-party complaint against certain County officials, other owners of pre-1980 housing, and lead abatement contractors who have been cited for violating state or local laws.

On October 13, 2021, the defendants filed with the Superior Court, one of Pennsylvania’s intermediate appellate courts, a petition for permission to appeal the trial court’s order denying the defendants’ preliminary objections.

On November 17, 2021, the Superior Court transferred the appeal to the Commonwealth Court, another one of Pennsylvania’s intermediate appellate courts.

Lehigh County filed its answer to defendants’ petition for permission to appeal on January 7, 2022.

All deadlines and discovery in the Lehigh County action will be held in abeyance pending the appellate court proceedings.

In the Montgomery County action, the trial court denied the defendants’ preliminary objections on October 15, 2021.

The defendants filed a motion to amend the order overruling their preliminary objections to allow an interlocutory appeal, which the trial court granted on November 9, 2021.

On December 3, 2021, the defendants filed a petition for permission to appeal with the Commonwealth Court.

On January 18, 2022, Montgomery County filed its answer to defendants’ petition for permission to appeal.

All deadlines and discovery in the Montgomery County action will be held in abeyance pending the appellate court proceedings.

Litigation seeking damages from alleged personal injury.

5 unchanged sentences

Lead Industries Association, et al., initiated an action in Wisconsin state court against the Company, other alleged former lead pigment manufacturers and the Lead Industries Association in September 1999.

The claims against the Company and the other defendants included strict liability, negligence, negligent misrepresentation and omissions, fraudulent misrepresentation and omissions, concert of action, civil conspiracy and enterprise liability.

Implicit within these claims is the theory of “risk contribution” liability (Wisconsin’s theory which is similar to market share liability, except that

liability can be joint and several) due to the plaintiff’s inability to identify the manufacturer of any product that allegedly injured the plaintiff.

The claims against

the defendants included strict liability, negligence, negligent misrepresentation and omissions, fraudulent misrepresentation and omissions, concert of action, civil conspiracy and enterprise liability.

Implicit within these claims is the theory of “risk contribution” liability (Wisconsin’s theory is similar to market share liability, except that liability can be joint and several) due to the plaintiff’s inability to identify the manufacturer of any product that allegedly injured the plaintiff.

The case ultimately proceeded to trial and, on November 5, 2007, the jury returned a defense verdict, finding that the plaintiff had ingested white lead carbonate, but was not brain damaged or injured as a result.

The plaintiff appealed and, on December 16, 2010, the Wisconsin Court of Appeals affirmed the final judgment in favor of the Company and other defendants.

The plaintiff appealed, and on December 16, 2010, the Wisconsin Court of Appeals affirmed the final judgment in favor of the defendants.

Wisconsin is the only jurisdiction to date to apply a theory of liability with respect to alleged personal injury (i.e., risk contribution/market share liability) that does not require the plaintiff to identify the manufacturer of the product that allegedly injured the plaintiff in the lead pigment and lead-based paint litigation.

4 unchanged sentences

American Cyanamid, et al., was appealed by the plaintiff to the United States Court of Appeals for the Seventh Circuit.

On July 24, 2014, the United States Court of Appeals for the Seventh Circuit reversed the judgment and remanded the case back to the District Court for further proceedings.

On January 16, 2015, the defendants filed a petition for certiorari in the United States Supreme Court seeking that Court’s review of the Seventh Circuit’s decision, and on May 18, 2015, the United States Supreme Court denied the defendants’ petition.

On July 24, 2014, the Seventh Circuit reversed the judgment and remanded the case back to the district court for further proceedings.

On January 16, 2015, the defendants filed a petition for certiorari in the United States Supreme Court seeking review of the Seventh Circuit’s decision, and on May 18, 2015, the United States Supreme Court denied the defendants’ petition.

The case is currently pending in the district court.

3 unchanged sentences

American Cyanamid, et al.) for purposes of trial.

A trial commenced on May 6, 2019 and ended on May 31, 2019, with a jury verdict for the three plaintiffs in the amount of $ 2.0 million each for a total of $ 6.0 million against the Company and two other defendants (Armstrong Containers Inc.

A trial was held in May 2019 and resulted in a jury verdict for the three plaintiffs in the amount of $ 2.0 million each for a total of $ 6.0 million against the Company and two other defendants (Armstrong Containers Inc.

du Pont de Nemours).

The Company filed a motion for judgment in its favor based on public policy factors under Wisconsin law.

On September 20, 2019, the trial court denied the motion and entered judgment in favor of the plaintiffs.

On October 18, 2019, the Company filed post-trial motions for judgment as a matter of law and for a new trial.

On February 27, 2020, the trial court denied the Company’s post-trial motion for judgment as a matter of law.

On April 10, 2020, the trial court granted the Company’s post-trial motion for a new trial to the extent that the damages award to plaintiff Glenn Burton, Jr.

shall be remitted to $ 800,000 , and denied the motion in all other respects.

The Company filed a notice of appeal with the United States Court of Appeals for the Seventh Circuit on May 8, 2020 and its opening brief on July 17, 2020.

The plaintiffs filed their opposition brief on October 7, 2020.

The Company filed its reply brief on November 12, 2020.

Oral argument regarding the briefs occurred on December 9, 2020, and the parties are awaiting the Seventh Circuit’s decision.

After post-trial motions resulted in the damages award to plaintiff Glenn Burton, Jr.

being reduced to $ 800,000 , the Company filed a notice of appeal with the United States Court of Appeals for the Seventh Circuit.

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 three 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 by the Seventh Circuit on May 12, 2021.

In Maniya Allen, et al.

4 unchanged sentences

The district court previously issued an order scheduling trial in the four cases to commence on June 15, 2020, but the trial date was continued due to the COVID-19 pandemic, and no new trial date has been scheduled.

On May 20, 2021, the Company and the three other defendants filed motions for summary judgment to dismiss the claims of all plaintiffs currently pending in the district court as a result of the Seventh Circuit’s decision in favor of the Company in the Owens, Sifuentes and Burton cases.

The plaintiffs filed their briefs in opposition to the defendants’ motions for summary judgment on November 22, 2021.

The defendants filed replies in support of their motions for summary judgment on December 22, 2021.

The parties are awaiting the district court’s decision.

On August 24, 2021, the plaintiff in Arrieona Beal v.

Armstrong Containers, Inc., et al.

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 defendants answered the plaintiff’s complaint on December 17, 2021.

The Company intends to vigorously defend this litigation.

Other lead-based paint and lead pigment litigation.

2 unchanged sentences

pending in the Circuit Court of Cook County, Illinois, parents seek to recover the cost of their children’s blood lead testing against the Company and three other defendants that made (or whose alleged corporate predecessors made) white lead pigments.

The Circuit Court has certified a statewide class and a Chicago subclass of parents or legal guardians of children who lived in high-risk zip codes identified by the Illinois Department of Health and who were screened for lead toxicity between August 1995 and February 2008.

Excluded from the class are those parents or guardians who have incurred no expense, liability or obligation to pay for the cost of their children’s blood lead testing.

In 2017, the Company and other defendants moved for summary judgment on the grounds that the three named plaintiffs have not paid and have no obligation or liability to pay for their children’s blood lead testing because Medicaid paid for the children of two plaintiffs and private insurance paid for the third plaintiff without any evidence of a co-pay or deductible.

The circuit court had certified a statewide class and a Chicago subclass of parents or legal guardians of children who lived in high-risk zip codes identified by the Illinois Department of Health and who were screened for lead toxicity between August 1995 and February 2008.

Excluded from the class were those parents or guardians who have incurred no expense, liability or obligation to pay for the cost of their children’s blood lead testing.

In 2017, the defendants moved for summary judgment on the grounds that the three named plaintiffs have not paid and have no obligation or liability to pay for their children’s blood lead testing because Medicaid paid for the children of two plaintiffs and private insurance paid for the third plaintiff without any evidence

of a co-pay or deductible.

The circuit court granted the motion, but on September 7, 2018, the appellate court reversed with respect to the two plaintiffs for whom Medicaid paid for their children’s testing.

Defendants filed a petition with the Supreme Court of Illinois for discretionary review.

By order entered January 31, 2019, that court allowed defendants’ petition for leave to appeal.

On May 21, 2020, the Supreme Court of Illinois reversed the Appellate Court’s judgment, affirmed the Circuit Court’s summary judgment dismissing the claims of the two plaintiffs for whom Medicaid paid for their children’s testing, and remanded the case for further proceedings consistent with the Supreme Court’s decision.

Defendants appealed to the Supreme Court of Illinois, and on May 21, 2020, the Supreme Court reversed the appellate court’s judgment, affirmed the circuit court’s summary judgment dismissing the claims of the two plaintiffs for whom Medicaid paid for their children’s testing, and remanded the case for further proceedings consistent with the Supreme Court’s decision.

On August 19, 2020, the defendants filed their renewed motion for class decertification and entry of final judgment with the circuit court.

The parties filed their respective briefs on the renewed motion, and oral argument occurred on February 4, 2021.

The parties are awaiting the Circuit Court’s decision.

The parties filed their respective briefs on the motion, and oral argument occurred on February 4, 2021.

On March 8, 2021, the Illinois Department of Healthcare and Family Services filed a petition to intervene and a proposed amended complaint, which would eliminate the class and all prior claims by individual plaintiffs and would propose a subrogation claim by the State agency to recover its expenditures for blood lead testing.

Defendants opposed the petition to intervene, and briefing on the petition concluded.

A hearing on the petition to intervene occurred on August 10, 2021.

On October 8, 2021, the circuit court entered an order granting the defendants’ motion for decertification of the class, denying the petition to intervene by the Illinois Department of Healthcare and Family Services, and noting that an entry of final judgment in the defendants’ favor was now appropriate.

On October 19, 2021, the circuit court entered final judgment in favor of the defendants.

On November 5, 2021, the Illinois Department of Healthcare and Family Services filed a Notice of Appeal with the Appellate Court of Illinois, First District.

Insurance coverage litigation.

The Company and its liability insurers, including certain underwriters at Lloyd’s of London, initiated legal proceedings against each other to determine, among other things, whether the costs and liabilities associated with the abatement of lead pigment are covered under certain insurance policies issued to the Company.

The insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed.

The Company’s action, filed on March 3, 2006 in the Common Pleas Court, Cuyahoga County, Ohio, previously was stayed and inactive.

1 unchanged sentence

On June 28, 2019, the Company and its liability insurers each filed separate motions for summary judgment seeking various forms of relief.

Oral argument regarding those motions occurred on October 24, 2019.

The trial court entered an order on December 4, 2020, granting the liability insurers’ motion for summary judgment, denying the Company’s motion, and entering final judgment in favor of the liability insurers.

The Company filed a notice of appeal to the Court of Appeals of Cuyahoga County, Ohio, Eighth Appellate District on December 21, 2020, and the liability insurers filed a notice of cross-appeal on December 30, 2020.

The liability insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed.

The trial court entered an order on December 4, 2020, granting the insurers’ motion for summary judgment, denying the Company’s motion, and entering final judgment in favor of the insurers.

The trial court sided with the Company on all of the issues presented, except one.

On December 21, 2020, the Company filed a notice of appeal to the Court of Appeals of Cuyahoga County, Ohio, Eighth Appellate District, and the insurers filed cross-appeals.

Briefing on the issues concluded, and oral argument occurred on August 25, 2021.

The insurers then filed on January 13, 2022, a motion for leave to file a supplemental brief to address the Eighth Appellate District’s recent decision in Cincinnati Ins.

Discount Drug Mart, Inc.

The Company filed a response to the insurers’ motion on January 19, 2022.

The parties are awaiting the appellate court’s decision.

An ultimate loss in the insurance coverage litigation would mean that insurance proceeds could be unavailable under the policies at issue to mitigate any ultimate abatement related costs and liabilities.

6 unchanged sentences

On February 21, 2020, the Company filed a motion to dismiss.

On April 7, 2020, the plaintiffs filed a brief in opposition.

The Company filed a reply brief on April 20, 2020.

An initial hearing on the motion to dismiss occurred on January 29, 2021.

The hearing is scheduled to continue on April 20-21, 2021.

Briefing concluded, and a hearing on the motion to dismiss occurred.

The trial court entered an order on August 26, 2021, granting and denying the Company’s motion in part.

On September 15, 2021, the Company filed a petition for leave to appeal the trial court’s ruling regarding the refusal to dismiss plaintiffs’ statutory penalty claims.

On October 21, 2021, the Appellate Division of the Superior Court of New Jersey denied the petition.

The Company also answered the plaintiffs’ complaint on September 21, 2021.

NOTE 11 – CAPITAL STOCK

During the first quarter of 2021, the Company’s Board of Directors approved and declared a three -for-one stock split to shareholders of record at the close of business on March 23, 2021 (the Stock Split).

The Stock Split was effected on March 31, 2021.

All share and per share information herein has been retroactively adjusted to reflect the Stock Split.

At December 31, 2021, there were 900,000,000 shares of common stock and 90,000,000 shares of serial preferred stock authorized for issuance.

8 unchanged sentences

Balance at January 1, 2019 75,765,108 279,350,286

Shares tendered as payment for option rights exercised 1,159 ( 1,159 )

Shares issued for exercise of option rights 2,705,634

Shares tendered in connection with vesting of restricted stock units 52,144 ( 52,144 )

Net shares issued for vesting of restricted stock units 149,821

Treasury stock purchased 1,525,000 ( 1,525,000 )

Balance at December 31, 2018 25,255,036 93,116,762

Shares tendered as payment for option rights exercised 11,514 ( 11,514 )

Shares issued for exercise of option rights 901,878

Shares issued for vesting of restricted stock units 480,396

Shares tendered in connection with vesting of restricted stock units 165,285 ( 165,285 )

Net shares issued for vesting of restricted stock units 160,132

Treasury stock purchased 5,025,000 ( 5,025,000 )

2 unchanged sentences

Balance at December 31, 2019 81,866,907 276,434,517

Shares tendered as payment for option rights exercised 3,380 ( 3,380 )

Shares issued for exercise of option rights 2,873,646

Shares tendered as payment for option rights exercised 10,140 ( 10,140 )

Shares issued for vesting of restricted stock units 386,685

Shares tendered in connection with vesting of restricted stock units 133,077 ( 133,077 )

Net shares issued for vesting of restricted stock units 128,895

Treasury stock purchased 11,700,000 ( 11,700,000 )

3 unchanged sentences

Balance at December 31, 2020 1,138,692 268,676,631

Shares issued for exercise of option rights 2,365,168

Shares tendered as payment for option rights exercised 4,324 ( 4,324 )

Shares issued for vesting of restricted stock units 276,948

Shares tendered in connection with vesting of restricted stock units 95,618 ( 95,618 )

Treasury stock purchased 10,075,000 ( 10,075,000 )

Balance at December 31, 2021 11,313,634 261,143,805

(1) During the year ended December 31, 2019, 900,000 shares were transferred from the Company’s terminated domestic defined benefit pension plan surplus assets in connection with the plan’s termination as described in Note 7.

1 unchanged sentence

During the year ended December 31, 2020, the Company received proceeds of $ 182.4 million in conjunction with the issuance of 825,000 treasury shares to fund Company contributions to the domestic defined contribution plan.

Common Stock Split

On February 3, 2021, the Board of Directors approved and declared a three -for-one stock split in the form of a stock dividend.

Each shareholder of record at the close of business on March 23, 2021 will receive two additional common shares for each then-held common share, to be distributed after close of trading on March 31, 2021.

NOTE 12 – ESOP

14 unchanged sentences

At December 31, 2021, no appreciation rights, performance shares or performance units had been granted under the 2006 Employee Plan.

Shares available for future grants under the 2006 Employee Plan were 9,923,164 at December 31, 2021.

The 2006 Stock Plan for Nonemployee Directors (Nonemployee Director Plan) authorizes the Board of Directors, or a committee of the Board of Directors, to issue or transfer up to an aggregate of 600,000 shares of common stock, plus any shares relating to awards that expire, are forfeited or canceled.

1 unchanged sentence

At December 31, 2021, no option rights or appreciation rights had been granted under the Nonemployee Director Plan.

In connection with the acquisition of Valspar in 2017, the Company assumed certain outstanding RSUs of Valspar granted under the Amended and Restated 2015 Omnibus Equity Plan.

Upon close of the acquisition, the Valspar RSUs were converted into RSUs relating to common stock of the Company.

The converted RSUs vested in 2020, and there were no outstanding awards at December 31, 2020.

Shares available for future grants under the Nonemployee Director Plan were 229,123 at December 31, 2021.

The cost of the Company’s stock-based compensation is recorded in accordance with the Stock Compensation Topic of the ASC.

20 unchanged sentences

Unrecognized compensation expense with respect to option rights granted to eligible employees amounted to $ 79.5 million at December 31, 2021.

The unrecognized compensation expense is being amortized on a straight-line basis over the three-year vesting period, net of estimated forfeitures based on historical activity, and is expected to be recognized over a weighted-average period of 1.10 .

The weighted-average per share grant date fair value of options granted during 2021, 2020 and 2019 was $ 68.63 , $ 46.56 and $ 38.80 , respectively.

26 unchanged sentences

The weighted-average remaining term for options exercisable at the end of 2021, 2020 and 2019 was 5.12 , 5.06 and 4.95 years, respectively.

Shares reserved for future grants of option rights, restricted stock and RSUs were 3,501,511 , 4,217,446 and 5,135,822 at December 31, 2020, 2019 and 2018, respectively.

Grants of RSUs, which generally require three years of continuous employment from the date of grant before vesting and receiving the stock without restriction, have been awarded to certain officers and key employees under the 2006 Employee Plan.

14 unchanged sentences

The components of AOCI, including the reclassification adjustments for items that were reclassified from AOCI to net income, are shown below.

Foreign Currency Translation Adjustments Pension and Other Postretirement Benefits Adjustments Unrealized Net Gains on Available-for-Sale Securities Unrealized Net Gains on Cash Flow Hedges Total

Foreign Currency Translation Adjustments Pension and Other Postretirement Benefits Adjustments Unrealized Net Gains on Cash Flow Hedges Total

Balance at January 1, 2019 $ ( 607.6 ) $ ( 67.1 ) $ 44.8 $ ( 629.9 )

Adjustment to initially adopt ASU 2016-01

Reclassifications from AOCI to Retained earnings for adoption of ASU 2018-02

( 19.3 ) 11.0 ( 8.3 )

2 unchanged sentences

Balance at December 31, 2019 ( 657.4 ) ( 69.2 ) 47.1 ( 679.5 )

Reclassifications from AOCI to Retained earnings for adoption of ASU 2018-02

( 19.3 ) 11.0 ( 8.3 )

Amounts recognized in AOCI ( 14.1 ) ( 19.4 ) ( 33.5 )

7 unchanged sentences

Dollar to Euro cross currency swap contracts to hedge the Company’s net investment in its European operations.

The contracts, which were designated as net investment hedges, have a notional value of $ 500.0 million and $ 244.0 million, respectively, and mature on June 1, 2024 and November 15, 2021, respectively.

The contracts, which were designated as net investment hedges, have a notional value of $ 500.0 million and $ 244.0 million, respectively, with maturity dates of June 1, 2024 and November 15, 2021, respectively.

During the term of the $ 500.0 million contract, the Company will pay fixed-rate interest in Euros and receive fixed-rate interest in U.S.

1 unchanged sentence

Dollar denominated fixed-rate debt to Euro denominated fixed-rate debt.

During the term of the $ 244.0 million contract, the Company will pay floating-rate interest in Euros and receive floating-rate interest in U.S.

During the term of the $ 244.0 million contract, the Company paid floating-rate interest in Euros and received floating-rate interest in U.S.

Prior to the maturity of the $ 244.0 million floating-rate contract in November 2021, the Company entered into a new $ 244.0 million U.S.

Dollar to Euro cross currency swap contract with a maturity date of June 1, 2027 to effectively amend and extend the original contract.

During the term of this $ 244.0 million fixed-rate contract, which is designated as a net investment hedge, the Company will pay fixed-rate interest in Euros and receive fixed-rate interest in U.S.

Dollars, thereby effectively converting a portion of the Company’s U.S.

Dollar denominated fixed-rate debt to Euro denominated fixed-rate debt.

On May 9, 2019, the Company entered into a U.S.

7 unchanged sentences

At the time of the settlement, an unrealized gain of $ 11.8 million, net of tax, was recognized in AOCI.

As of December 31, 2020, the outstanding cross currency swap contracts were in a net loss position of $ 85.8 million, with $ 31.0 million included in Other accruals and $ 54.8 million included in Other long-term liabilities, respectively, on the consolidated balance sheet.

As of December 31, 2019, the outstanding cross currency swap contract was in a net gain position of $ 1.5 million and included in Other assets on the consolidated balance sheet.

The following table summarizes the balance sheet location of the cross currency swaps.

See Note 16 for additional information on the fair value of these contracts.

December 31, December 31, December 31,

2021 2020 2019

Other assets $ — $ — $ 1.5

Other accruals — 31.0 —

Other long-term liabilities 36.5 54.8 —

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

For the year ended December 31, 2020, an unrealized loss of $ 54.0 million, net of tax, was recognized in AOCI.

For the year ended December 31, 2019, an unrealized gain of $ 1.1 million, net of tax, was recognized in AOCI.

The following table summarizes the unrealized gains (losses) for the years ended December 31:

2021 2020 2019

Unrealized gain (loss) $ 49.3 $ ( 71.7 ) $ 1.5

Tax effect ( 12.2 ) 17.7 ( 0.4 )

Unrealized gain (loss), net of taxes $ 37.1 $ ( 54.0 ) $ 1.1

NOTE 16 – FAIR VALUE MEASUREMENTS

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

• Cash and cash equivalents :

The carrying amounts reported for Cash and cash equivalents approximate fair value.

• Investments in securities :

Investments classified as available-for-sale are carried at fair market value.

See the recurring fair value measurements table below.

• Short-term borrowings :

The carrying amounts reported for Short-term borrowings approximate fair value.

• Long-term debt (including current portion) :

The fair values of the Company’s publicly traded debt are based on quoted market prices.

The fair values of the Company’s non-publicly traded debt are 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.

See the debt table below.

The following table summarizes the Company’s assets and liabilities measured on a recurring basis in accordance with the Fair Value Measurements and Disclosures Topic of the ASC:

Fair Value at December 31,

2020 Quoted Prices in Active Markets for

Identical Assets

(Level 1) Significant

(Level 2) Significant

The Fair Value Measurements and Disclosures Topic of the ASC applies to the Company’s financial and non-financial assets and liabilities.

The guidance applies when other standards require or permit the fair value measurement of assets and liabilities.

Under the guidance, assets and liabilities measured at fair value are categorized as follows:

Quoted prices in active markets for identical assets

Significant other observable inputs

Significant unobservable inputs

There were no assets and liabilities measured at fair value on a recurring basis classified as Level 3 at December 31, 2021, 2020 and 2019.

Except for the acquisition and divestiture-related fair value measurements described in Note 3, there were no assets and liabilities measured at fair value on a nonrecurring basis.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis, categorized using the fair value hierarchy.

December 31, 2021 December 31, 2020 December 31, 2019

Total Level 1 Level 2 Total Level 1 Level 2 Total Level 1 Level 2

Deferred compensation plan assets $ 80.4 $ 43.1 $ 37.3 $ 69.2 $ 37.9 $ 31.3 $ 61.1 $ 29.9 $ 31.2

$ 69.2 $ 37.9 $ 31.3

Qualified Replacement Plan assets 98.8 98.8 161.5 161.5 46.6 46.6

$ 230.7 $ 199.4 $ 31.3 —

Deferred compensation plan liabilities (3)

Net investment hedge asset — — 1.5 1.5

$ 179.2 $ 141.9 $ 37.3 $ 230.7 $ 199.4 $ 31.3 $ 109.2 $ 76.5 $ 32.7

Net investment hedge liability $ 36.5 $ 36.5 $ 85.8 $ 85.8 $ —

$ 178.0 $ 92.2 $ 85.8 —

(1) The deferred compensation plan assets consists of the investment funds maintained for the future payments under the Company’s executive deferred compensation plans, which are structured as rabbi trusts.

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 Topic of the ASC.

1 unchanged sentence

The level 2 investments are valued based on vendor quotes.

The cost basis of the investment funds is $ 58.1 million.

The cost basis of the investment funds was $ 63.0 million, $ 58.1 million, and $ 54.8 million at December 31, 2021, 2020 and 2019, respectively.

The Qualified Replacement Plan assets consist of investment funds maintained for future contributions to the Company’s domestic defined contribution plan.

1 unchanged sentence

The investments are valued using quoted market prices multiplied by the number of shares.

The cost basis of the investment funds is $ 159.6 million.

(3) The Company’s liabilities under its deferred compensation plans represent the fair value of the participant shadow accounts, and the value is based on quoted market prices in active markets for identical assets.

The cost basis of the investment funds was $ 86.9 million, $ 159.6 million and $ 46.7 million at December 31, 2021, 2020 and 2019, respectively.

The net investment hedge liability is the fair value of the cross currency swaps (see Note 15).

The fair value is based on a valuation model that uses observable inputs, including interest rate curves and foreign currency rate.

Except for the impairments described in Note 5, there were no assets and liabilities measured at fair value on a nonrecurring basis.

The table below summarizes the carrying amounts and fair values of the Company’s publicly traded debt and non-traded debt.

The carrying amounts reported for Cash and cash equivalents and Short-term borrowings approximate fair value.

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.

The following table summarizes the carrying amounts and fair values of the Company’s publicly traded debt and non-traded debt.

2021 2020 2019

16 unchanged sentences

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 80 % of the Company’s net external sales are in the Company’s North America region (which is comprised of the United States, Canada and the Caribbean region), slightly less than 10 % in the EMEAI region (Europe, Middle East, Africa and India), with the remaining global regions accounting for the residual balance.

No individual country outside of the United States is individually significant.

The Company has made payments or credits for rebates or incentives at the beginning of a long-term contract where future revenue is expected and before satisfaction of performance obligations.

18 unchanged sentences

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.

Obligations for returns and refunds were not material individually or in the aggregate.

Allowance for Credit Losses

4 unchanged sentences

All provisions for allowances for doubtful accounts are included in Selling, general and administrative expenses.

See Note 2 for additional information.

The following table summarizes the movement in the Company’s allowance for doubtful accounts:

12 unchanged sentences

Provisions for environmental matters - net $ ( 4.0 ) $ 37.1 $ 23.0

Loss on divestiture (see Note 3) 111.9 — —

(Gain) loss on sale or disposition of assets ( 6.1 ) ( 9.4 ) 16.1

1 unchanged sentence

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.

During 2018, the Company reached a series of agreements on remediation plans at one of the Company’s four major sites, resulting in a significant increase to provisions for environmental matters–net for 2018.

See Note 9 for further details on the Company’s environmental-related activities.

The (gain) loss on sale or disposition of assets represents the net realized (gain) loss 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.

Other Expense - Net

Included in Other expense - net were the following:

Other (Income) Expense - Net

Included in Other (income) expense - net were the following:

2021 2020 2019

Investment and royalty income $ ( 30.4 ) $ ( 16.4 ) $ ( 12.0 )

Loss on extinguishment of debt (see Note 6) 21.3 14.8

(Gain) loss on extinguishment of debt (see Note 6) ( 1.4 ) 21.3 14.8

Net expense from banking activities 10.3 10.4 10.7

1 unchanged sentence

Domestic pension plan settlement expense

Miscellaneous pension expense (income) 4.9 8.0 ( 10.8 )

Miscellaneous pension expense 4.4 4.9 8.0

Indirect tax credits — — ( 38.7 )

California litigation expense (see Note 10) — — ( 34.7 )

Other income ( 29.0 ) ( 44.7 ) ( 32.8 )

1 unchanged sentence

Total $ ( 19.5 ) $ 5.3 $ ( 18.0 )

Foreign currency transaction related losses include the impact from foreign currency transactions and net realized losses from foreign currency option and forward contracts.

Foreign currency transaction related losses include the impact from foreign currency transactions and net realized (gains) losses from foreign currency option and forward contracts.

There were no material foreign currency option and forward contracts outstanding at December 31, 2021, 2020 and 2019.

Miscellaneous pension expense (income) consists of the non-service components of net pension costs (credits).

See Note 7 for information on the Domestic pension plan settlement expense and Miscellaneous pension expense (income).

Miscellaneous pension expense consists of the non-service components of net pension costs.

See Note 7 for information on the Domestic pension plan settlement expense and Miscellaneous pension expense.

Indirect tax credits includes a gain of $ 33.5 million recognized by Sherwin-Williams do Brasil Industria e Comercio Ltda.

3 unchanged sentences

Upon clarification regarding monetization of the credits, the Company recognized the benefit.

The Brazilian Office of the Attorney General of the National Treasury has sought clarification from the Brazilian Federal Supreme Court of certain matters, including the amount (i.e.

gross or net credit amount) and timing of these credits.

As a result of the COVID-19 pandemic, the Supreme Court has postponed the hearing on the clarification sought by the Brazilian Office of the Attorney General of the National Treasury.

No date for the hearing has been rescheduled.

If the Brazilian tax authorities challenge the amount or timing of these credits, the Company may become subject to new litigation related to the indirect tax credits already monetized or it could affect the Company’s ability to monetize future indirect tax credits.

Other income and Other expense included items of revenue, gains, expenses and losses that were unrelated to the primary business purpose of the Company.

2 unchanged sentences

In response to the COVID-19 outbreak, global legislation concerning income taxes was passed throughout 2020.

The Company assessed the applicability of the stimulus elements within the global legislation, and it did not have a material impact on the Company’s consolidated financial statements.

The Company assessed the applicability of the stimulus elements within the global legislation, and it did not have a material impact on the Company’s consolidated financial statements in 2020 or 2021.

The primary benefit to the Company was the delay of payment of U.S.

4 unchanged sentences

The facts relating to the Company’s investments in the funds continue to be developed.

In 2020, there were no adjustments recognized in the Company’s tax provision for this matter.

During the second quarter of 2018, the Company made purchase accounting adjustments related to the Valspar acquisition which resulted in the reversal of $ 27.5 million of income tax benefits related to the remeasurement of U.S.

deferred tax liabilities.

There were no adjustments recognized in the Company’s tax provision for this matter in 2020 or 2021.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates and laws that are currently in effect.

17 unchanged sentences

Netted against the Company’s other deferred tax assets were valuation allowances of $ 97.2 million, $ 104.6 million and $ 84.6 million at December 31, 2021, 2020 and 2019, respectively.

The increase in the valuation allowance in 2020 is primarily due to net operating losses of certain foreign subsidiaries.

The decrease in the valuation allowance in 2021 is primarily due to the utilization of certain foreign tax credits during the year.

The Company has $ 17.6 million of domestic net operating loss carryforwards acquired through acquisitions that have expiration dates through the tax year 2037, foreign tax credits of $ 15.3 million that expire in calendar years 2028 through 2031 and foreign net operating losses of $ 327.5 million.

28 unchanged sentences

Other - net ( 0.1 ) 0.7 0.8

Subtotal 19.4 % 22.2 % 16.6 %

Effect of Tax Act 1.9

Reported effective tax rate 17.1 % 19.4 % 22.2 %

The decrease in the effective tax rate for 2020 compared to 2019 was primarily due to the reversal of certain partnership tax credits in 2019 that did not recur in 2020, partially offset by a reduction in research and development credits.

The decrease in the effective tax rate for 2021 compared to 2020 was primarily due to an increase in tax benefits related to employee share-based payments and the net favorable impact of various other tax benefits received by the Company in 2021 compared to 2020.

The Company and its subsidiaries file income tax returns in the U.S.

2 unchanged sentences

As a result of these audits, certain adjustments have been assessed.

The Company has filed a protest and submitted additional information for consideration.

The Company is evaluating the adjustments and believes that it is adequately reserved for any potential exposure.

The Company has filed a protest, submitted additional information for consideration, and is currently in the appeals process with the IRS.

The Company continues to evaluate the adjustments and believes that it is adequately reserved for any potential exposure.

As of December 31, 2021, the U.S.

6 unchanged sentences

Balance at beginning of year $ 227.0 $ 203.0 $ 89.5

Additions from the Valspar acquisition

Additions based on tax positions related to the current year 14.0 13.8 14.9

4 unchanged sentences

Balance at end of year $ 228.5 $ 227.0 $ 203.0

The increase in unrecognized tax benefits was primarily due to the reversal of tax benefits recognized in previous tax years from federal research and development credits.

Other increases in the balance of unrecognized tax benefits at December 31, 2020 were related to a number of positions taken on current and amended income tax returns filed in the U.S.

federal, and various state and foreign jurisdictions.

At December 31, 2020, 2019 and 2018, the Company had unrecognized tax benefits of $ 216.3 million, $ 195.3 million, $ 83.0 million, respectively, the recognition of which would have an effect on the effective tax rate.

The increase in unrecognized tax benefits was primarily related to the reversal of benefits recognized in previous tax years from federal research and development credits, partially offset by a number of positions taken on prior year income tax returns filed in the U.S.

and various foreign jurisdictions that were no longer deemed to be at risk.

At December 31, 2021, 2020 and 2019, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 218.9 million, $ 216.3 million and $ 195.3 million, respectively.

Included in the balance of unrecognized tax benefits at December 31, 2021 is $ 13.7 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months.

1 unchanged sentence

The Company classifies all income tax related interest and penalties as income tax expense.

During the year ended December 31, 2020, there was an increase in income tax interest and penalties of $ 4.0 million.

There was an increase in income tax interest and penalties of $ 1.6 million and a decrease of $ 4.9 million for the years ended December 31, 2019 and 2018, respectively.

During the year ended December 31, 2021, there was a decrease in income tax interest and penalties of $ 2.7 million.

During the years ended December 31, 2020 and 2019, there was an increase in income tax interest and penalties of $ 4.0 million and $ 1.6 million, respectively.

The Company accrued $ 26.4 million, $ 30.3 million and $ 26.2 million at December 31, 2021, 2020 and 2019, respectively, for the potential payment of interest and penalties.

1 unchanged sentence

Basic and diluted net income per share are calculated using the treasury stock method.

(millions of dollars, except share and per share data) 2020 2019 2018

(in millions, except per share data) 2021 2020 2019

Net income $ 1,864.4 $ 2,030.4 $ 1,541.3

5 unchanged sentences

Stock options and other contingently issuable shares (1)

1,501,142 1,601,213 1,938,586

Non-vested restricted stock grants — — 0.1

1 unchanged sentence

Diluted net income per share $ 6.98 $ 7.36 $ 5.50

(1) Stock options and other contingently issuable shares excludes 318,947 , 449,167 and 28,321 shares at December 31, 2020, 2019 and 2018, respectively, due to their anti-dilutive effect.

(1) Stock options and other contingently issuable shares excludes 0.9 million, 1.0 million and 1.3 million shares at December 31, 2021, 2020 and 2019, respectively, due to their anti-dilutive effect.

NOTE 21 – REPORTABLE SEGMENT INFORMATION

17 unchanged sentences

The loss of any single customer would not have a material adverse effect on the business of this segment.

At December 31, 2020, The Americas Group

consisted of operations from subsidiaries in 10 foreign countries.

During 2020, this segment opened 16 net new stores, consisting of 56 new stores opened ( 53 in the United States, 1 in Canada, 1 in Mexico and 1 in South America) and 40 stores closed ( 10 in the United States, 6 in Canada, 17 in South America and 7 in Mexico).

At December 31, 2021, The Americas Group consisted of operations from subsidiaries in 10 foreign countries.

During 2021, this segment opened 85 net new stores, consisting of 92 new stores opened ( 76 in the United States, 3 in Canada, 10 in Mexico and 3 in South America) and 7 stores closed ( 6 in the United States and 1 in South America).

In 2020 and 2019, this segment opened 16 and 62 net new stores, respectively.

1 unchanged sentence

In accordance with ASC 280-10-50-9, The Americas Group as a whole is considered the operating segment, and because it meets the criteria in ASC 280-10-50-10, it is also considered a Reportable Segment.

The Consumer Brands Group supplies a broad portfolio of branded and private-label architectural paint, stains, varnishes, industrial products, wood finishes products, wood preservatives, applicators, corrosion inhibitors, aerosols, caulks and adhesives to retailers and distributors throughout North America, as well as in Australia, New Zealand, China and Europe.

The Consumer Brands Group also supports the Company’s other businesses around the world with new product research and development, manufacturing, distribution and logistics.

4 unchanged sentences

The Consumer Brands Group had sales to certain customers that, individually, may be a significant portion of the sales and related profitability of the segment.

This segment incurred most of the Company’s capital expenditures related to ongoing environmental compliance measures at sites currently in operation.

This segment incurred most of the Company’s capital expenditures related to operational efficiencies, capacity, health and safety at sites currently in operation.

The CODM uses discrete financial information about the Consumer Brands Group, supplemented with information by product type and customer type, to assess performance of and allocate resources to the Consumer Brands Group as a whole.

4 unchanged sentences

The Performance Coatings Group had sales to certain customers that, individually, may be a significant portion of the sales of the segment.

However, the loss of any single customer would not have a material adverse effect on the overall profitability of the segment.

During 2020, this segment opened 1 new branch and did not close any branches for a net increase of 1 branch.

However, the loss of any single customer would not have a material adverse effect on the

overall profitability of the segment.

During 2021, this segment opened 1 new branch and closed 1 branch for no net change in the number of branches operated.

At December 31, 2021, the Performance Coatings Group consisted of operations in the United States and subsidiaries in 44 foreign countries.

1 unchanged sentence

In accordance with ASC 280-10-50-9, the Performance Coatings Group as a whole is considered the operating segment, and because it meets the criteria in ASC 280-10-50-10, it is also considered a Reportable Segment.

The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site.

Also included in the Administrative segment is interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which are not directly associated with the Reportable Segments.

The Administrative segment does not include any significant foreign operations.

Also included in the Administrative segment is a real estate management unit that is responsible for the ownership, management and leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities.

Sales of this segment represent external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its primary businesses.

Material gains and losses from the sale of property are infrequent and not a significant operating factor in determining the performance of the Administrative segment.

The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site and the operations of a real estate management unit that is responsible for the ownership, management and leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities.

Also included in the Administrative segment was interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses that were not directly associated with the Reportable Segments.

In addition, the Administrative segment includes the $ 111.9 million pre-tax loss on the Wattyl divestiture recognized during the year ended December 31, 2021.

See Notes 3 and 18 for additional information on the Wattyl divestiture.

Sales of this segment represented external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its primary businesses.

The Administrative segment did not include any significant foreign operations.

Gains and losses from the sale of property were not a significant operating factor in determining the performance of the Administrative segment.

Net external sales of all consolidated foreign subsidiaries were $ 4.223 billion, $ 3.581 billion and $ 3.679 billion for 2021, 2020 and 2019, respectively.

22 unchanged sentences

Income before income taxes $ 2,239.1 $ 358.4 $ 486.2 $ ( 835.1 ) $ 2,248.6

$ 2,294.1 $ 579.6 $ 500.1 $ ( 854.6 ) $ 2,519.2

% to net external sales 20.0 % 13.2 % 8.1 % 11.3 %

10 unchanged sentences

Segment profit $ 2,294.1 $ 579.6 $ 500.1 $ 3,373.8

California litigation expense provision reduction $ 34.7 34.7

Interest expense $ ( 340.4 ) ( 340.4 )

1 unchanged sentence

Income before income taxes $ 2,294.1 $ 579.6 $ 500.1 $ ( 854.6 ) $ 2,519.2

$ 2,056.5 $ 373.2 $ 379.1 $ ( 827.0 ) $ 1,981.8

% to net external sales 22.1 % 19.0 % 10.2 % 13.7 %

10 unchanged sentences

Segment profit $ 2,056.5 $ 373.2 $ 379.1 $ 2,808.8

California litigation expense $ ( 136.3 ) ( 136.3 )

Interest expense $ ( 349.3 ) ( 349.3 )

1 unchanged sentence

Income before income taxes $ 2,056.5 $ 373.2 $ 379.1 $ ( 827.0 ) $ 1,981.8

$ 1,898.4 $ 261.1 $ 452.1 $ ( 1,251.9 ) $ 1,359.7

% to net external sales 20.2 % 13.9 % 7.5 % 11.1 %

22 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data