What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-17 · 389 added, 422 removed, 1236 unchanged (40% of the section changed)

22 unchanged sentences

This assessment was based on the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As permitted by SEC rules, we have excluded the operations and related assets of the 2022 acquisitions from the scope of our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022.

The Total assets and Net sales of the 2022 acquisitions represented approximately 5.0% and 0.6% of the Company's respective consolidated Total assets and Net sales as of and for the year ended December 31, 2022.

Based on our assessment of internal control over financial reporting under the criteria established in Internal Control – Integrated Framework, we have concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

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Our internal control over financial reporting as of December 31, 2022 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, President and Chief Executive Officer

Chairman and Chief Executive Officer

Senior Vice President - Finance and Chief Financial Officer

Senior Vice President - Corporate Controller

Senior Vice President - Enterprise Finance

Report of Independent Registered Public Accounting Firm

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

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

Opinion on Internal Control Over Financial Reporting

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In our opinion, The Sherwin-Williams Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

As indicated in the accompanying Report of Management On Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sika AG, Gross & Perthun GmbH, Dur-A-Flex, Inc., Powdertech Oy Ltd., and Industria Chimica Adriatica S.p.A.

(collectively the 2022 acquisitions), which are included in the 2022 consolidated financial statements of the Company and constituted 5.0% of Total assets as of December 31, 2022 and 0.6% of Net sales for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the 2022 acquisitions excluded from the scope of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of The Sherwin-Williams Company as of December 31, 2022, 2021, and 2020, the related statements of consolidated income, comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in Item 15(a) and our report dated February 22, 2023 expressed an unqualified opinion thereon.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young, LLP

Cleveland, Ohio

13 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, President and Chief Executive Officer

Chairman and Chief Executive Officer

Senior Vice President - Finance and Chief Financial Officer

Senior Vice President - Corporate Controller

Senior Vice President - Enterprise Finance

Report of Independent Registered Public Accounting Firm

13 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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The Company’s largest and most complex site is the Gibbsboro, New Jersey site (“Gibbsboro”) and the substantial majority of the environmental-related accrual relates to this site.

Gibbsboro consists of six operable units which contain a combination of soil, waterbodies and groundwater contamination, and are in various phases of investigation and remediation with the Environmental Protection Agency (“EPA”).

The Company’s estimated environmental-related accrual for Gibbsboro is based on industry standards and professional judgement, and the most significant assumptions underlying the estimated cost of remediation efforts reserved for Gibbsboro are the types and extent of contamination.

Auditing the Company’s environmental-related accrual at the Gibbsboro site required complex judgement due to the inherent challenges in identifying the type and extent of future remedies and the costs of implementing those remedies in determining the probable and reasonably estimable loss for which the Company will be responsible.

Gibbsboro consists of six operable units which contain a combination of soil, sediment, waterbodies and groundwater contamination, and are in various phases of investigation and remediation with the Environmental Protection Agency (“EPA”).

Auditing the Company’s environmental-related accrual at the Gibbsboro site required complex judgement due to the inherent challenges in identifying the type and extent of future remedies in determining the probable and reasonably estimable loss for which the Company will be responsible.

How We Addressed the Matter

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For example, we tested controls over management’s review of the environmental loss calculations and the key assumptions affecting those calculations as described above.

To test the Gibbsboro environmental-related accrual, our audit procedures included, among others, a review of correspondence with the EPA supporting the Company’s assessment of the type and extent of contamination at the Gibbsboro site for which the Company is responsible.

We involved our environmental specialists to confirm our understanding of the remediation plans for the most significant operable units within the Gibbsboro site and to evaluate the Company's methodology and assumptions to estimate the unit cost and extent of contamination in accordance with industry practice, applicable laws and regulations.

We recalculated the remediation cost estimate based on unit cost and estimated extent of remediation required.

We reconciled types and extent of contamination identified in communications between the Company and the EPA to the Company’s remediation cost estimates recorded for Gibbsboro and confirmed a sample of underlying cost estimates with third-parties.

We also conducted a search for publicly available information that might indicate facts contrary to the types and extent of contamination currently identified in the Company’s remediation cost estimates recorded for Gibbsboro.

To test the Gibbsboro environmental-related accrual, our audit procedures included, among others, a review of correspondence with the EPA supporting the Company’s assessment of the type, extent and cost of remediation at the Gibbsboro site for which the Company is responsible.

We assessed the appropriateness of the Company’s policies and procedures and tested management’s environmental reserve estimate.

We involved our environmental specialists to confirm our understanding of the remediation plans for the most significant operable units within the Gibbsboro site and to evaluate the impact of current year investigation and remediation activities on the Company's methodology and assumptions used to estimate the cost and extent of remediation in accordance with industry practice, applicable laws and regulations.

We reconciled types and extent of remediation identified in communications between the Company and the EPA to the Company’s remediation cost estimates recorded for Gibbsboro.

We also conducted a search for publicly available information that might indicate facts contrary to the types and extent of remediation currently identified in the Company’s remediation cost estimates recorded for Gibbsboro.

/s/ Ernst & Young, LLP

We have served as the Company’s auditor since 1908.

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February 22, 2023

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THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

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Percent to Net sales 27.2 % 27.9 % 29.8 %

Other general expense - net 101.8 27.7 39.1

Other general (income) expense - net ( 24.9 ) 101.8 27.7

Amortization 317.1 309.5 313.4

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Interest expense 390.8 334.7 340.4

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

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

Interest income ( 8.0 ) ( 4.9 ) ( 3.6 )

Other expense (income) - net 47.0 ( 19.5 ) 5.3

Income before income taxes 2,573.1 2,248.6 2,519.2

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Pension and other postretirement benefit adjustments:

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

Amounts recognized in AOCI (2)

106.8 48.7 ( 19.4 )

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

Amounts reclassified from AOCI (3)

110.5 55.0 ( 18.0 )

Unrealized net gains on cash flow hedges:

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

Amounts reclassified from AOCI (4)

( 4.0 ) ( 4.5 ) ( 6.7 )

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

Other comprehensive (loss) income, net of tax ( 2.2 ) 19.9 ( 38.8 )

Comprehensive income $ 2,017.9 $ 1,884.3 $ 1,991.6

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Goodwill 7,583.2 7,134.6 7,049.1

Intangible assets 4,001.5 4,471.2 4,734.5

Intangible assets, net 4,002.0 4,001.5 4,471.2

Operating lease right-of-use assets 1,866.8 1,820.6 1,761.1

43 unchanged sentences

Provisions for environmental-related matters ( 7.1 ) ( 4.0 ) 37.1

Provisions for restructuring 47.3 — —

Deferred income taxes ( 144.8 ) ( 80.3 ) ( 145.3 )

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Stock-based compensation expense 99.7 97.7 95.9

Decrease in non-traded investments 53.6 84.8 82.3

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

Amortization of non-traded investments 38.5 53.6 84.8

Gain on sale or disposition of assets ( 10.7 ) ( 6.1 ) ( 9.4 )

Other 29.6 ( 6.4 ) ( 6.9 )

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(Decrease) increase in accrued taxes ( 38.1 ) ( 32.7 ) 99.2

(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 )

Increase (decrease) in accrued compensation and taxes withheld 65.8 ( 10.9 ) 197.7

Decrease (increase) in refundable income taxes 47.6 ( 38.5 ) 40.6

Other 32.5 ( 46.8 ) ( 62.0 )

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Proceeds from treasury stock issued 22.0 11.7 182.4

Proceeds from real estate financing transactions 207.3 — —

Other ( 23.8 ) ( 23.4 ) ( 30.6 )

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Effect of exchange rate changes on cash 3.2 4.9 ( 1.3 )

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

Net increase (decrease) in cash and cash equivalents 33.1 ( 60.9 ) 64.8

Cash and cash equivalents at beginning of year 165.7 226.6 161.8

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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

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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

4 unchanged sentences

Net income 2,020.1 2,020.1

Other comprehensive income 19.9 19.9

Other comprehensive loss ( 2.2 ) ( 2.2 )

Treasury stock purchased ( 883.2 ) ( 883.2 )

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Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable were recorded at the time of credit sales net of allowance for credit losses.

The Company recorded an allowance for doubtful accounts of $ 48.9 million, $ 53.5 million and $ 36.5 million at December 31, 2021, 2020 and 2019, respectively, to reduce Accounts receivable to the net amount expected to be collected (estimated net realizable value).

Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, “Measurement of Credit Losses on Financial Instruments” (ASC 326) using the modified retrospective transition method, electing to not restate prior periods.

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.

As a result of the transition method elected, the required comparative period disclosures are prepared in accordance with the incurred loss impairment methodology.

Under ASC 326, the Company reviews the collectibility of the Accounts receivable balance each reporting period and estimates the allowance based on historical bad debt experience, aging of accounts receivable, current creditworthiness of customers, current economic factors, as well as reasonable and supportable forward-looking information.

Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made.

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

Accounts receivable are recorded at the time of credit sales, net of allowance for credit losses.

The Company records an allowance for doubtful accounts to reduce Accounts receivable to the net amount expected to be collected (estimated net realizable value).

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

Under ASC 326, the Company reviews the collectibility of the Accounts receivable balance each reporting period and estimates the allowance for doubtful accounts based on historical bad debt experience, aging of accounts receivable, current creditworthiness of customers, current economic factors, as well as reasonable and supportable forward-looking information.

Accounts receivable balances are written-off against the allowance for doubtful accounts if a final determination of uncollectibility is made.

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

See Note 19 for further details.

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These contracts qualified for and were designated as net investment hedges as permitted under US GAAP.

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

The cash flow impact of these instruments is classified as an investing activity in the consolidated statement of cash flows.

The changes in fair value for the cross currency swaps are recognized in the foreign currency translation adjustments component of accumulated other comprehensive income (loss) (AOCI).

The cash flow impact of these instruments is classified as an investing activity in the Statements of Consolidated Cash Flows.

See Note 17 for further details.

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The Company has investments in the U.S.

affordable housing and historic renovation real estate markets and certain other investments that have been identified as variable interest entities.

affordable housing and historic renovation real estate markets and certain other investments that have been identified as variable interest entities which qualify for certain tax credits.

However, because the Company does not have the power to direct the day-to-day operations of the investments and the risk of loss is limited to the amount of contributed capital, the Company is not considered the primary beneficiary.

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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.

The following table summarizes the balances related to the investments.

2022 2021 2020

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Defined Benefit Pension and Other Postretirement Benefit Plans

The Company accounts for its defined benefit pension and other postretirement benefit plans in accordance with the Retirement Benefits Topic of the ASC, which requires the recognition of a plan’s funded status as an asset for overfunded plans and as a liability for unfunded or underfunded plans.

The Company accounts for its defined benefit pension and other postretirement benefit plans in accordance with the Retirement Benefits Topic of the ASC, which requires the Company recognize an asset for overfunded defined benefit pension or other postretirement benefit plans and a liability for unfunded or underfunded plans.

In addition, actuarial gains and losses and prior service costs of such plans are recorded in AOCI.

The amounts recorded in AOCI will continue to be modified as actuarial assumptions and service costs change, and all such amounts will be amortized to expense over a period of years through the net pension cost (credit) and net periodic benefit cost (credit).

See Note 9 for further details.

Environmental Matters

Capital expenditures for ongoing environmental compliance measures were recorded in Property, plant and equipment, and related expenses were included in the normal operating expenses of conducting business.

Capital expenditures for ongoing environmental compliance measures are recorded in Property, plant and equipment, and related expenses are included in the normal operating expenses of conducting business.

The Company accrued for environmental-related activities for which commitments or clean-up plans have been developed and when such costs could be reasonably estimated based on industry standards and professional judgment.

Accrued amounts were primarily recorded on an undiscounted basis and have not been recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC.

Environmental-related expenses included direct costs of investigation and remediation and indirect costs such as compensation and benefits for employees directly involved in the investigation and remediation activities and fees paid to outside engineering, consulting and law firms.

Accrued amounts are primarily recorded on an undiscounted basis and have not been recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC.

Environmental-related expenses include direct costs of investigation and remediation and indirect costs such as compensation and benefits for employees directly involved in the investigation and remediation activities and fees paid to outside engineering, consulting and law firms.

See Notes 11 and 20 for further details.

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.

See Note 12 for further details.

Defined Contribution Savings Plan

The Company accounts for its salaried defined contribution savings plan in accordance with the Defined Contribution Plans Subtopic of the Compensation – Retirement Benefits Topic of the ASC.

The Company recognized compensation expense for amounts contributed to the defined contribution savings plan.

See Note 14 for further details on the defined contribution savings plan.

Stock-Based Compensation

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The Company retains risk for certain liabilities, primarily workers’ compensation claims, employee medical and disability benefits, and automobile, property, general and product liability claims.

Estimated amounts were accrued for certain workers’ compensation, employee medical and disability benefits, automobile and property claims filed but unsettled, and estimated claims incurred but not reported.

Estimates were based upon management’s estimated aggregate liability for claims incurred using historical experience, actuarial assumptions followed in the insurance industry and actuarially-developed models for estimating certain liabilities.

Certain estimated general and product liability claims filed but unsettled were accrued based on management’s best estimate of ultimate settlement or actuarial calculations of potential liability using industry experience and actuarial assumptions developed for similar types of claims.

Estimated amounts are accrued for certain workers’ compensation, employee medical and disability benefits, automobile and property claims filed but unsettled and estimated claims incurred but not reported.

Estimates are based upon management’s estimated aggregate liability for claims incurred using historical experience, actuarial assumptions followed in the insurance industry and actuarially-developed models for estimating certain liabilities.

Certain estimated general and product liability claims filed but unsettled are accrued based on management’s best estimate of ultimate settlement or actuarial calculations of potential liability using industry experience and actuarial assumptions developed for similar types of claims.

Foreign Currency Translation

All consolidated non-highly inflationary foreign operations use the local currency of the country of operation as the functional currency and translated the local currency asset and liability accounts at year-end exchange rates while income and expense accounts were translated at average exchange rates.

The resulting translation adjustments were included in accumulated other comprehensive income (loss) (AOCI), a component of Shareholders’ equity.

All consolidated non-highly inflationary foreign operations use the local currency of the country of operation as the functional currency.

Local currency asset and liability accounts are translated at year-end exchange rates while income and expense accounts are translated at average exchange rates.

The resulting translation adjustments are included in AOCI.

Revenue Recognition

The Company recognized revenue when performance obligations under the terms of the agreement were satisfied.

The Company recognizes revenue when performance obligations under the terms of the agreement are satisfied.

This generally occurs with the transfer of control of our products to the customer.

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Customer and Vendor Consideration

The Company offered certain customers rebate and sales incentive programs which were classified as reductions in net sales.

Such programs were in the form of volume rebates, rebates that constituted a percentage of sales or rebates for attaining certain sales goals.

The Company received consideration from certain suppliers of raw materials in the form of volume rebates or rebates that constituted a percentage of purchases.

These rebates were recognized on an accrual basis by the Company as a reduction of the purchase price of the raw materials and a subsequent reduction of Cost of goods sold when the related product was sold.

Costs of Goods Sold

Included in Costs of goods sold were costs for materials, manufacturing, distribution and related support.

Distribution costs included expenses related to the distribution of products including inbound freight charges, purchase and receiving costs, warehousing costs, internal transfer costs and other costs incurred to ship products.

Also included in Costs of goods sold were total technical expenditures, which included research and development costs, quality control, product formulation expenditures and other similar items.

The Company offers certain customers rebate and sales incentive programs which are classified as reductions in net sales.

Such programs are in the form of volume rebates, rebates that constituted a percentage of sales or rebates for attaining certain sales goals.

The Company receives consideration from certain suppliers of raw materials in the form of volume rebates or rebates that constituted a percentage of purchases.

These rebates are recognized on an accrual basis by the Company as a reduction of the purchase price of the raw materials and a subsequent reduction of Cost of goods sold when the related product was sold.

Cost of Goods Sold

Included in Cost of goods sold are costs for materials, manufacturing, distribution and related support.

Distribution costs include expenses related to the distribution of products including inbound freight charges, purchase and receiving costs, warehousing costs, internal transfer costs and other costs incurred to ship products.

Also included in Cost of goods sold are total technical expenditures, which include research and development costs, quality control, product formulation expenditures and other similar items.

Research and development costs included in technical expenditures were $ 119.3 million, $ 115.9 million and $ 97.1 million for 2022, 2021 and 2020, respectively.

Selling, General and Administrative Expenses

Selling costs included advertising expenses, marketing costs, employee and store costs and sales commissions.

The cost of advertising was expensed as incurred.

Selling costs include advertising expenses, marketing costs, employee and store costs and sales commissions.

The cost of advertising is expensed as incurred.

The Company incurred $ 314.4 million, $ 311.9 million and $ 363.4 million in advertising costs during 2022, 2021 and 2020, respectively.

General and administrative expenses included human resources, legal, finance and other support and administrative functions.

General and administrative expenses include human resources, legal, finance and other support and administrative functions.

Government Incentives

The Company receives incentives from various government entities in the form of tax rebates or credits, grants, and loans.

These incentives typically require that the Company maintain specified spending levels and other operational metrics and may be subject to reimbursement if conditions are not met or maintained.

Government incentives are recorded in the Company’s consolidated financial statements in accordance with their purpose as a reduction of expense, a reduction of the cost of the capital investment or other income.

The benefit of these incentives is recorded when received and all conditions as specified in the agreement are fulfilled.

There were $ 86.6 million and $ 49.4 million of government incentives received as cash payments related to the construction of the Company’s new headquarters and R&D center in 2022 and 2021, respectively.

These government incentives were recorded as a reduction in the carrying amount of the respective assets under construction within Property, plant and equipment, net on the Consolidated Balance Sheets and within Other as an investing activity on the Statements of Consolidated Cash Flows.

Real Estate Financing

The Company has entered into certain sale-leaseback agreements that do not qualify as asset sales and were accounted for as real estate financing transactions.

These arrangements primarily consist of our new headquarters currently under construction, for which we expect to receive total proceeds approximating $ 800 million to $ 850 million on an incremental basis until the completion of construction.

In December 2022, the Company received $ 210 million at closing pursuant to the transaction.

The net proceeds are recognized within the Financing Activities section of the Statements of Consolidated Cash Flows, and corresponding financing obligations are recognized within Other long-term liabilities and Other accruals on the Consolidated Balance Sheets.

Future payments are estimated to be $ 77 million during the remaining construction period, of which $ 22 million is estimated to be paid in the following twelve months.

Earnings Per Share

Common stock held in a revocable trust (see Note 11) was not included in outstanding shares for basic or diluted income per share calculations.

Basic and diluted net income per share were calculated using the treasury stock method in accordance with the Earnings Per Share Topic of the ASC.

Basic net income per share amounts were computed based on the weighted-average number of shares outstanding during the year.

Diluted net income per share amounts were computed based on the weighted-average number of shares outstanding plus all dilutive securities potentially outstanding during the year.

Common stock held in a revocable trust (see Note 13) is not included in outstanding shares for basic or diluted income per share calculations.

Basic and diluted net income per share are calculated using the treasury stock method in accordance with the Earnings Per Share Topic of the ASC.

Basic net income per share amounts are computed based on the weighted-average number of shares outstanding during the year.

Diluted net income per share amounts are computed based on the weighted-average number of shares outstanding plus all dilutive securities potentially outstanding during the year.

See Note 22 for further details.

Reclassifications

Certain amounts in the consolidated financial statements and notes to the consolidated financial statements for 2019 and 2020 have been reclassified to conform to the 2021 presentation.

NOTE 2 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adopted in 2022

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 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.

Effective January 1, 2022, the Company adopted Accounting Standards Update (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 adoption of ASU 2021-10 did not affect the Company’s financial position, results of operations or cash flows as the standard only impacts annual financial statement footnote disclosures.

See Note 1 for additional information.

Not Yet Adopted

In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.” This ASU requires disclosure about an entity’s use of supplier finance programs, including the key terms of the program, amount of obligations outstanding at the end of the reporting period, and a rollforward of activity within the program during the period.

The ASU is effective as of January 1, 2023 and will not affect the Company’s financial position, results of operations or cash flows as the standard only impacts financial statement footnote disclosures.

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

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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 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.

During the fourth quarter of 2022, the Company signed an agreement to acquire German-based Specialized Industrial Coatings Holding (SIC Holding), a Peter Möhrle Holding and GP Capital UG venture comprised of Oskar Nolte GmbH and Klumpp Coatings GmbH.

The transaction is subject to customary closing conditions and is expected to close in 2023.

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

Closed in Current Year

In April 2022, the Company completed the acquisition of the European industrial coatings business of Sika AG.

This business engineers, manufactures and sells corrosion protection coating systems and fire protection coating systems.

In July 2022, the Company completed the acquisitions of Gross & Perthun GmbH, a German-based developer, manufacturer, and distributor of coatings primarily for the heavy equipment and transportation industries, Dur-A-Flex, Inc., a domestic floor coatings company, and Powdertech Oy Ltd., a Finland-based distributor of powder coatings and related products.

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

In December 2022, the Company completed the acquisition of Industria Chimica Adriatica S.p.A.

(ICA), an Italian designer, manufacturer and distributor of industrial wood coatings with global operations.

The aggregate purchase price for the acquisitions completed in 2022 was approximately $ 1.024 billion, 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 identification and valuation of intangible assets.

As of December 31, 2022, $ 282.8 million of intangible assets and $ 565.8 million of goodwill were recognized from these transactions.

The Company expects to finalize the purchase price allocation for each of the acquisitions 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.

Closed in Prior Year

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.

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

1 unchanged sentence

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.

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

The aggregate purchase price for acquisitions completed 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.

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.

During the first quarter of 2022, the Company made certain adjustments to the preliminary purchase accounting adjustments associated with the net assets acquired in its 2021 acquisition of Specialty Polymers.

The fair value of finite-lived intangible assets increased by $ 61.3 million and property, plant and equipment assets acquired increased by $ 11.0 million, offset by a corresponding net decrease in goodwill.

There was no material impact on previously reported financial results from these adjustments.

The Company completed the preliminary purchase price allocation for the acquisitions completed in 2021 within the allowable measurement period.

See Note 7 for additional information related to the acquisitions.

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

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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.

These acquisitions support the growth of the Performance Coatings Group by providing new technologies and an expanded global platform.

The acquisitions have been accounted for as business combinations.

The results of operations of these companies have been included in the consolidated financial statements since the date of acquisition.

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

NOTE 4 – RESTRUCTURING

In the fourth quarter of 2022, the Company approved a business restructuring plan (Restructuring Plan) to simplify the Company’s operating model and portfolio of brands within the Consumer Brands Group and to reduce costs in all regions in the Consumer Brands Group, Performance Coatings Group and the Administrative segment.

The actions taken under the Restructuring Plan better position the Company to continue to add long-term shareholder value.

Key focus areas within the Consumer Brands Group include the China architectural business, aerosol portfolio and optimization of the overall retail portfolio.

The majority of these restructuring actions are expected to be completed by the end of 2023.

The following table summarizes the activity and remaining liabilities associated with the Restructuring Plan:

Consumer Brands

Group Performance

Group Administrative Total

Balance at January 1, 2022

$ — $ — $ — $ —

Severance and related costs 14.5 19.5 34.0

Other qualified costs 11.1 2.7 13.8

Total 25.6 22.2 — 47.8

Payments ( 5.7 ) ( 5.7 )

Currency impact and other adjustments ( 0.4 ) ( 0.4 )

Balance at December 31, 2022

$ 25.6 $ 16.1 $ — $ 41.7

Restructuring Plan Expense:

Total expense incurred to date $ 25.6 $ 22.2 $ — $ 47.8

Additional expense expected 93.9 2.8 10.0 106.7

Total expected expense $ 119.5 $ 25.0 $ 10.0 $ 154.5

In addition to the provisions above, which were primarily recorded in Cost of goods sold and Selling, general and administrative expense, trademark impairment of $ 15.5 million was also recorded in the Consumer Brands Group.

See Note 7 for further information.

NOTE 5 – INVENTORIES

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The Company recorded a reserve for obsolescence of $ 139.0 million, $ 118.6 million and $ 125.8 million at December 31, 2022, 2021 and 2020, respectively, to reduce Inventories to their estimated net realizable value.

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

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

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

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No material impairments of long-lived assets were recorded in 2022, 2021 or 2020.

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

During 2022, the Company acquired five companies which resulted in the recognition of goodwill of $ 565.8 million and finite-lived intangibles of $ 282.8 million.

The acquired intangibles are being amortized over a weighted-average useful life of approximately 14 years.

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.

As a result of certain adjustments to the preliminary purchase accounting for the 2021 acquisitions during 2022, goodwill decreased by $ 72.3 million and the fair value of finite-lived intangibles assets increased by $ 61.3 million.

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.

In accordance with the Goodwill and Other Intangibles Topic of the ASC, goodwill at the reporting unit level 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.

October 1 has been established for the annual impairment review.

At the time of impairment testing, values are estimated separately for goodwill and trademarks with indefinite lives using a valuation model, incorporating discount rates commensurate with the risks involved for each group of assets.

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

An optional qualitative assessment may alleviate the need to perform quantitative goodwill and indefinite-lived intangible asset impairment tests when impairment is unlikely.

Should a quantitative impairment test be performed, values are estimated separately for goodwill and indefinite-lived intangible assets using a valuation model, incorporating discount rates commensurate with the risks involved for each group of assets.

The annual impairment review performed as of October 1, 2022, which incorporated the impact of the Restructuring Plan, resulted in trademark impairments totaling $ 15.5 million in the Consumer Brands Group related to the discontinuation of an architectural paint brand and lower than anticipated sales of an acquired brand and no goodwill impairment.

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.

During the fourth quarter of 2019, the Company performed a strategic review of its business lines as part of the annual planning cycle.

Decisions were made during this review related to certain brands which resulted in a reduction to the long-term forecasted net sales for certain indefinite-lived trademarks acquired in the Valspar acquisition within the Performance Coatings and Consumer Brands Groups.

As a result of the strategic decisions made at that time and in conjunction with the annual impairment review performed as of October 1, 2019, the Company recognized non-cash pre-tax impairment charges totaling $ 122.1 million related to certain recently acquired indefinite-lived trademarks.

These charges included impairments totaling $ 117.0 million in the Performance Coatings Group and $ 5.1 million in the Consumer Brands Group.

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.

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

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$ 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

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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 )

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

Acquisitions 155.6 155.6

Acquisitions and acquisition adjustments 49.7 21.3 422.5 493.5

Currency and other adjustments ( 2.8 ) ( 42.1 ) ( 44.9 )

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Finite-Lived Intangible Assets Trademarks

Software Customer Relationships Intellectual Property All Other Subtotal

Software Customer

Relationships Intellectual

Property All Other Subtotal

December 31, 2022

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Net value $ 24.0 $ 2,376.9 $ 1,420.3 $ 33.4 $ 3,854.6 $ 616.6 $ 4,471.2

(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.

(1) Trademarks are net of accumulated impairment losses of $ 139.9 million as of December 31, 2022 and $ 124.4 million as of December 31, 2021 and 2020.

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

$ 323.1 million in 2023, $ 320.0 million in 2024, $ 311.1 million in 2025, $ 302.9 million in 2026 and $ 298.9 million in 2027.

Although the Company believes its estimates of fair value related to reporting units and indefinite-lived trademarks are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates.

Although the Company believes its estimates of fair value related to reporting units and indefinite-lived intangible assets are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates.

Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact and future impairment charges may be required.

NOTE 8 – DEBT

Long-Term Debt

The table below summarizes the carrying value of the Company’s outstanding debt, net of capitalized debt issuance costs:

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2025 249.8 249.6 249.5

4.40 % Senior Notes

2045 240.5 240.0 239.6

7.375 % Debentures

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2022 — 260.0 259.6

0.92 % Fixed Rate Loan

2021 — 24.4 22.4

Floating Rate Loan 2021 — — 251.9

4.20 % Senior Notes

2022 — — 405.7

0.92 % Fixed Rate Loan

2021 — — 24.4

9,591.6 8,851.5 8,292.0

Less amounts due within one year 0.6 260.6 25.1

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$ 0.6 million in 2023;

$ 0.9 million in 2023;

$ 500.2 million in 2024, $ 650.1 million in 2025 and $ 350.1 million in 2026.

$ 1.101 billion in 2024;

$ 1.050 billion in 2025, $ 350.1 million in 2026 and $ 1.619 billion in 2027.

Interest expense on long-term debt was $ 348.4 million, $ 320.4 million and $ 320.5 million for 2022, 2021 and 2020, respectively.

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

In August 2022, the Company issued $ 600.0 million of 4.05 % Senior Notes due August 2024 and $ 400.0 million of 4.25 % Senior Notes due August 2025 in a public offering.

The net proceeds from the issuance of these notes were used to repay borrowings outstanding under the Company’s credit agreement dated May 9, 2016, as amended, and domestic commercial paper program.

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 (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 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 (income) expense - net .

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

This repurchase resulted in an insignificant gain.

Corporation (collectively, the 4.20 % Senior Notes).

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 expense (income) - net .

Short-Term Borrowings

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

On August 30, 2022, 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.

(SW Luxembourg, together with the Company and SW Canada, the Borrowers), entered into a new five-year $ 2.250 billion credit agreement (2022 Credit Agreement).

The 2022 Credit Agreement may be used for general corporate purposes, including the financing of working capital requirements.

The 2022 Credit Agreement replaced the $ 2.000 billion credit agreement dated June 29, 2021, as amended, which was terminated effective August 30, 2022.

The 2022 Credit Agreement will mature on August 30, 2027 and provides that the Company may request to extend the maturity date of the facility for two additional one-year periods.

In addition, the 2022 Credit Agreement provides that the Borrowers may increase the aggregate size of the facility up to an additional amount of $ 750.0 million, 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.

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

The 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 (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 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.

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Foreign 6.7 % 9.5 % 0.2 %

Interest expense on Short-term borrowings was $ 42.4 million, $ 14.3 million and $ 19.9 million for 2022, 2021 and 2020, respectively.

NOTE 9 – PENSION, HEALTH CARE AND OTHER POSTRETIREMENT BENEFITS

The Company provides pension benefits to substantially all full-time employees through primarily noncontributory defined contribution or defined benefit plans and certain health care and life insurance benefits to domestic active employees and eligible retirees.

In accordance with the Retirement Benefits Topic of the ASC, the Company recognizes an asset for overfunded defined benefit pension or other postretirement benefit plans and a liability for unfunded or underfunded plans.

In addition, actuarial gains and losses and prior service costs of such plans are recorded in AOCI.

Health Care Plans

The Company provides certain domestic health care plans that are contributory and contain cost-sharing features such as deductibles and coinsurance.

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.

There were 30,009 , 29,016 and 27,782 active employees covered by the benefits under these plans at December 31, 2022, 2021 and 2020, respectively.

The cost of these benefits for active employees, which includes claims incurred but not reported, amounted to $ 347.4 million, $ 336.0 million and $ 298.8 million for 2022, 2021 and 2020, respectively.

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Defined Benefit Pension Plans

In 2018, the Company’s domestic defined benefit pension plan was split into two separate overfunded plans:

one that will continue to operate, and one that was frozen and subsequently terminated during 2018 (Terminated Plan).

Active participants in the Terminated Plan were moved to the Company’s domestic defined contribution plan (Qualified Replacement Plan).

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.

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 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.

This amount included $ 131.8 million of Company common stock ( 900,000 shares).

The shares are treated as treasury stock in accordance with ASC 715.

See Note 11 .

The remaining surplus consists of investment funds held at fair value.

At December 31, 2022, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $ 91.7 million, fair value of plan assets of $ 119.4 million and excess plan assets of $ 27.7 million.

The plan was funded in accordance with all applicable regulations at December 31, 2022.

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

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

At December 31, 2022, 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 $ 65.8 million, $ 78.5 million, $ 20.0 million and $ 58.5 million, respectively.

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The Company expects to contribute $ 5.5 million to the foreign plans in 2023.

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 estimated net actuarial gains and prior service costs for the defined benefit pension plans that are expected to be amortized from AOCI into net pension costs in 2023 are $( 1.1 ) million and $ 1.1 million, respectively.

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

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Expected return on plan assets ( 7.6 ) ( 7.1 ) ( 6.3 ) ( 9.4 ) ( 9.6 ) ( 10.0 )

Amortization of prior service cost 1.1 1.4 1.4 ( 0.1 )

Amortization of prior service cost (credit) 1.0 1.1 1.4 ( 0.2 ) ( 0.1 )

Amortization of actuarial losses 0.2 1.5 1.0

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obligation recognized in AOCI (before taxes):

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

Net actuarial losses (gains) arising during the year 5.0 ( 10.5 ) ( 4.5 ) ( 29.6 ) ( 44.9 ) 7.0

Prior service cost (credit) arising during the year 1.6 1.4 0.2 ( 0.3 ) ( 1.0 ) ( 0.5 )

Amortization of actuarial losses ( 0.2 ) ( 1.5 ) ( 1.0 )

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

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

Gain arising from curtailment ( 0.7 )

Amortization of prior service (cost) credit ( 1.0 ) ( 1.1 ) ( 1.4 ) 0.2 0.1

Gain (loss) recognized for settlement 0.3 ( 0.3 ) ( 0.2 )

Exchange rate (loss) gain recognized during the year ( 0.4 ) ( 0.6 ) 1.7

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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 (income) expense - net.

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

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

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The following tables summarize the fair value of the defined benefit pension plan assets at December 31, 2022, 2021 and 2020.

The presentation is in accordance with the Retirement Benefits Topic of the ASC.

The presentation is in accordance with the Fair Value Topic of the ASC.

Fair value at December 31, 2022 Quoted Prices

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Fixed income investments (2)

182.3 24.3 158.0

Other assets (3)

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Settlements ( 2.4 ) ( 1.7 ) ( 4.3 )

Transfer related to plan termination ( 245.3 )

Effect of foreign exchange ( 29.3 ) ( 5.5 ) 9.8

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Employees of the Company hired in the United States prior to January 1, 1993 who are not members of a collective bargaining unit, and certain groups of employees added through acquisitions, are eligible for health care and life insurance benefits upon retirement, subject to the terms of the unfunded plans.

There were 3,410 , 3,465 and 3,481 retired employees entitled to receive such postretirement benefits at December 31, 2021, 2020 and 2019, respectively.

There were 3,409 , 3,410 and 3,465 retired employees covered by these postretirement benefits at December 31, 2022, 2021 and 2020, respectively.

The following table summarizes the obligation and the assumptions used for other postretirement benefits:

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Amounts recognized in AOCI:

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

Prior service credit (cost) 1.6 ( 0.9 ) 1.1

Net actuarial gains (losses) $ 4.7 $ ( 54.0 ) $ ( 62.8 )

Prior service credits (cost) 64.0 1.6 ( 0.9 )

$ 68.7 $ ( 52.4 ) $ ( 63.7 )

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Prescription drug cost increases 8.25 % 8.25 % 8.25 %

Employer Group Waiver Plan (EGWP) trend rate 8.25 % 8.25 % 9.00 %

Employer Group Waiver Plan (EGWP) trend rate N/A 8.25 % 8.25 %

Weighted-average assumptions used to determine net periodic benefit cost:

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Amortization of actuarial losses 4.2 4.7 2.0

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

Amortization of prior service (credit) cost ( 0.4 ) 0.3 ( 1.1 )

Net periodic benefit cost 11.0 11.3 10.0

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Amortization of actuarial losses ( 4.2 ) ( 4.7 ) ( 2.0 )

Amortization of prior service credit ( 0.3 ) 1.1 5.0

Amortization of prior service credit (cost) 0.4 ( 0.3 ) 1.1

Total recognized in AOCI ( 121.1 ) ( 11.3 ) 19.7

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Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future.

Management believes that the Company conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs designed to protect the environment and promote continued compliance.

Management believes that the Company conducts its operations in compliance with applicable environmental laws, regulations and requirements and has implemented various programs designed to protect the environment and promote continued compliance.

The Company is involved with environmental investigation and remediation activities at some of its currently and formerly owned sites (including sites which were previously owned and/or operated by businesses acquired by the Company).

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If the reasonably estimable costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided.

The Company continuously assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued.

The Company continuously assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available, including as a result of sites progressing through investigation and remediation-related activities, upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued.

At December 31, 2022, 2021 and 2020, the Company had accruals reported on the balance sheet as Other long-term liabilities of $ 240.2 million, $ 277.4 million and $ 300.5 million, respectively.

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In the aggregate unaccrued maximum of $ 94.2 million at December 31, 2022, $ 72.7 million, or 77.2 %, related to the Major Sites.

The significant cost components of this liability continue to be related to remedy implementation, regulatory agency interaction, project management and other costs.

The significant cost components of this liability continue to be related to remedy implementation, regulatory agency interaction and project management and other costs.

While different for each specific environmental situation, these components generally each account for approximately 85 %, 10 %, and 5 %, respectively, of the accrued amount and those percentages are subject to change over time.

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Gibbsboro, a former manufacturing plant, and related areas, which ceased operations in 1978, has had various areas included on the National Priorities List since 1999.

This location has soil, waterbodies, and groundwater contamination related to the historic operations of the facility.

This location has soil, sediment, waterbodies, and groundwater contamination related to the historic operations of the facility.

Gibbsboro has been divided by the Environmental Protection Agency (“EPA”) into six operable units (“OUs”) based on location and characteristics, whose investigation and remediation efforts are likely to occur over an extended period of time.

Each of the OUs are in various phases of investigation and remediation with the EPA that provide enough information to reasonably estimate cost ranges and record environmental-related accruals.

The most significant assumptions underlying the reliability and precision of remediation cost

estimates for the Gibbsboro site are the type and extent of future remedies to be selected by the EPA and the costs of implementing those remedies.

The remaining three Major Sites comprising the majority of the accrual include (1) a multi-party Superfund site that has received a record of decision from the federal EPA and is currently in the remedial design phase for one operable unit and for which a remedial investigation/feasibility study has been submitted for another operable unit, (2) a closed paint manufacturing facility that is in the operation and maintenance phase of remediation under both federal and state EPA programs, and (3) a formerly-owned site containing warehouse and office space that is in the remedial investigation phase under a state EPA program.

The most significant assumptions underlying the reliability and precision of remediation

cost estimates for the Gibbsboro site are the type and extent of future remedies to be selected by the EPA and the costs of implementing those remedies.

The remaining three Major Sites comprising the majority of the accrual include:

(1) a multi-party Superfund site that (a) has received a record of decision from the federal EPA and is currently in the remedial design phase for one OU, (b) has received a record of decision from the federal EPA for an interim remedy for another OU, and (c) has a remedial investigation ongoing for another OU, (2) a closed paint manufacturing facility that is in the operation and maintenance phase of remediation under both federal and state EPA programs, and (3) a formerly-owned site containing warehouse and office space that is in the remedial investigation phase under a state EPA program.

Each of these three Major Sites are in phases of investigation and remediation that provide sufficient information to reasonably estimate cost ranges and record environmental-related accruals.

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and Lehigh and Montgomery Counties in Pennsylvania.

Except for the Santa Clara County, California proceeding and the pending Pennsylvania proceedings, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.

Santa Clara County, California Proceeding .

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

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;

(ii) subsequent annual payments of $ 12.0 million one year after the initial payment and for a period of four years thereafter;

and (iii) a final payment of approximately $ 16.7 million on the sixth anniversary of the initial payment.

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 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.

Except for the Santa Clara County, California proceeding in which the Company reached a court-approved agreement in 2019 after nearly twenty years of litigation, and the pending Pennsylvania proceedings, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.

Pennsylvania Proceedings .

Two proceedings in Pennsylvania were initiated in October 2018.

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.

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.

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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.

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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.

The Commonwealth Court granted the defendants’ petitions for permission to appeal in both the Montgomery County and Lehigh County actions on February 18, 2022, and stayed all proceedings in the trial courts pending the appellate court proceedings.

The parties filed their respective briefs in both actions, and oral argument occurred on December 14, 2022.

Litigation seeking damages from alleged personal injury.

The Company and other companies are defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries.

The Company and other companies are or have been defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries.

These proceedings include claims by children allegedly injured from ingestion of lead pigment or lead-containing paint and claims for damages allegedly incurred by the children’s parents or guardians.

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

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.

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However, in an unrelated action filed in the United States District Court for the Eastern District of Wisconsin, Gibson v.

American Cyanamid, et al., on November 15, 2010, the district court held that Wisconsin’s risk contribution theory as applied in that case violated the defendants’ right to substantive due process and is unconstitutionally retroactive.

American Cyanamid, et al., on November 15, 2010, the district court held that

Wisconsin’s risk contribution theory as applied in that case violated the defendants’ right to substantive due process and is unconstitutionally retroactive.

The district court’s decision in Gibson v.

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 Seventh Circuit reversed the judgment and remanded the case back to the district court for further proceedings.

On July 24, 2014, the Seventh Circuit reversed the judgment.

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.

The case was remanded to the district court for further proceedings.

The United States District Court for the Eastern District of Wisconsin consolidated three cases (Ravon Owens v.

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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.

being reduced to $ 800,000 , the Company filed a notice of appeal with 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.

American Cyanamid, et al., also pending in the United States District Court for the Eastern District of Wisconsin, cases involving six of the 146 plaintiffs were selected for discovery.

In Dijonae Trammell, et al.

American Cyanamid, et al., also pending in the United States District Court for the Eastern District of Wisconsin, discovery for one of the three plaintiffs was consolidated with the six Allen cases referenced above.

The parties selected four of the cases to proceed to expert discovery and to prepare for trial.

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.

The plaintiffs’ petition was denied on May 12, 2021.

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

On March 3, 2022, the district court granted summary judgment in favor of the Company and the other defendants on all claims then pending in the district court.

On March 31, 2022, the plaintiffs filed a motion seeking to alter or amend the judgment.

Briefing on the motion concluded, and the district court denied the plaintiffs’ motion to alter or amend the judgment on August 16, 2022.

On September 15, 2022, the plaintiffs filed notices of appeal with the Seventh Circuit, seeking to appeal the district court’s summary judgment in favor of the Company and the other defendants.

The plaintiffs filed their brief in support on December 9, 2022.

The defendants’ brief in opposition is due on February 22, 2023.

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

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

The Company intends to vigorously defend this litigation.

On March 2, 2022, the plaintiff filed a motion for declaratory judgment seeking to clarify Wisconsin law following the Seventh Circuit’s decision in favor of the Company in the Owens, Sifuentes and Burton cases, to which the Company responded on April 15, 2022.

Prior to filing its response to the declaratory judgment motion, the Company removed the case to the Eastern District of Wisconsin on March 25, 2022.

The plaintiff filed a motion to remand the case to the state circuit court on April 7, 2022, which the Company opposed.

On May 10, 2022, the plaintiff filed a motion for sanctions related to the Company’s removal of the case to federal court, to which the Company responded on May 27, 2022.

Other lead-based paint and lead pigment litigation.

In Mary Lewis v.

Lead Industries Association, et al.

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.

Lead Industries Association, et al., which was pending in the Circuit Court of Cook County, Illinois, plaintiff parents sought 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 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.

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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 8, 2021, the circuit court entered an order granting the defendants’ motion for decertification of the class, denying the petition to intervene by the Department, 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.

The Department appealed to the Appellate Court of Illinois, First District and filed its opening brief on May 25, 2022.

The Company filed a response to the opening brief on July 13, 2022, to which the Department replied on August 10, 2022.

The appellate court entered an order on August 19, 2022, affirming the denial of the Department’s petition to intervene and the granting of the defendants’ motion for final judgment.

The time period for any further appeal by the Department or the plaintiffs has now expired.

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

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

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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.

On September 1, 2022, the appellate court reversed the trial court’s grant of summary judgment, finding in favor of the Company on its appeal and against the insurers on their cross-appeal, and remanded the case to the trial court for further proceedings.

On September 12, 2022, the insurers applied to the appellate court for reconsideration of its decision, en banc review, or certification of an appeal to the Ohio Supreme Court, which the Company opposed.

On September 30, 2022, the appellate court denied the insurers’ applications for reconsideration and certification.

On January 9, 2023, the appellate court denied the insurers’ application for en banc review.

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.

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Other litigation.

On December 18, 2019, the New Jersey Department of Environmental Protection, the Commissioner of the New Jersey Department of Environmental Protection, and the Administrator of the New Jersey Spill Compensation Fund filed a lawsuit against the Company in the Superior Court of New Jersey Law Division in Camden County, New Jersey.

The plaintiffs seek to recover natural resource damages, punitive damages, and litigation fees and costs, as well as other costs, damages, declaratory relief, and penalties pursuant to New Jersey state statutes and common law theories in connection with the alleged discharge of hazardous substances and pollutants at the Company’s Gibbsboro, New Jersey site, a former manufacturing plant and related facilities.

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

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.

On December 18, 2019, the New Jersey Department of Environmental Protection, the Commissioner of the New Jersey Department of Environmental Protection, and the Administrator of the New Jersey Spill Compensation Fund (collectively, the NJ DEP) filed a lawsuit against the Company in the Superior Court of New Jersey Law Division in Camden County, New Jersey.

The NJ DEP seeks to recover natural resource damages, punitive damages, and litigation fees and costs, as well as other costs, damages, declaratory relief, and penalties pursuant to New Jersey state statutes and common law theories in connection with the alleged discharge of hazardous substances and pollutants at the Company’s Gibbsboro, New Jersey site, a former manufacturing plant and related facilities.

The court has scheduled a trial date of September 26, 2023.

NOTE 13 – 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, 2022, there were 900,000,000 shares of common stock and 30,000,000 shares of serial preferred stock authorized for issuance.

Of the authorized serial preferred stock, 9,000,000 shares are designated as cumulative redeemable serial preferred and 3,000,000 shares are designated as convertible serial preferred stock.

Of the authorized serial preferred stock, 3,000,000 shares are designated as cumulative redeemable serial preferred stock.

Under the 2006 Equity and Performance Incentive Plan (2006 Employee Plan), 71,100,000 shares may be issued or transferred.

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

Shares transferred from defined benefit pension plan (1)

Treasury stock retired ( 91,746,432 )

Treasury stock sold (1)

( 825,000 ) 825,000

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

Treasury stock retired ( 91,746,432 )

Shares sold (1)

( 825,000 ) 825,000

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

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Treasury stock purchased 3,350,000 ( 3,350,000 )

Treasury stock sold (1)

( 75,000 ) 75,000

Balance at December 31, 2022 14,717,347 258,875,999

(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.

In accordance with ASC 715, the transferred shares are treated as treasury stock.

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.

NOTE 12 – ESOP

As of December 31, 2021, 42,721 employees contributed to the Company’s ESOP, a voluntary defined contribution plan available to all eligible salaried employees.

(1) During the years ended December 31, 2020 and 2022, the Company sold treasury shares to fund Company contributions to the domestic defined contribution plan.

The related proceeds were $ 182.4 million and $ 22.0 million, respectively.

NOTE 14 – DEFINED CONTRIBUTION SAVINGS PLAN

As of December 31, 2022, 45,075 employees contributed to the Company’s defined contribution savings plan, voluntary to all eligible salaried employees.

Participants are allowed to contribute, on a pretax or after-tax basis, up to the lesser of fifty percent of their annual compensation or the maximum dollar amount allowed under the Internal Revenue Code.

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Participants are permitted to diversify both future and prior Company matching contributions previously allocated to the Company common stock fund into a variety of investment funds.

The Company made contributions to the ESOP on behalf of participating employees, representing amounts authorized by employees to be withheld from their earnings, of $ 224.3 million, $ 196.5 million and $ 180.5 million in 2021, 2020 and 2019, respectively.

The Company’s matching contributions to the ESOP charged to operations were $ 133.7 million, $ 120.0 million and $ 111.9 million for 2021, 2020 and 2019, respectively.

At December 31, 2021, there were 20,639,085 shares of the Company’s common stock being held by the ESOP, representing 7.9 % of the total number of voting shares outstanding.

Shares of Company common stock credited to each member’s account under the ESOP are voted by the trustee under instructions from each individual plan member.

The Company made contributions to the defined contribution savings plan on behalf of participating employees, representing amounts authorized by employees to be withheld from their earnings, of $ 240.1 million, $ 224.3 million and $ 196.5 million in 2022, 2021 and 2020, respectively.

The Company’s matching contributions to the defined contribution savings plan charged to operations were $ 140.0 million, $ 133.7 million and $ 120.0 million for 2022, 2021 and 2020, respectively.

At December 31, 2022, there were 19,689,197 shares of the Company’s common stock being held by the defined contribution savings plan, representing 7.6 % of the total number of voting shares outstanding.

Shares of Company common stock credited to each member’s account under the defined contribution savings plan are voted by the trustee under instructions from each individual plan member.

Shares for which no instructions are received are voted by the trustee in the same proportion as those for which instructions are received.

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The 2006 Employee Plan authorizes the Board of Directors, or a committee of the Board of Directors, to issue or transfer up to an aggregate of 71,100,000 shares of common stock, plus any shares relating to awards that expire, are forfeited or canceled.

The Company issues new shares upon exercise of option rights and vesting of restricted stock units (RSUs).

The 2006 Employee Plan permits the granting of option rights, appreciation rights, restricted stock, RSUs, performance shares and performance units to eligible employees.

The Company issues new shares upon exercise of option rights (options) and vesting of restricted stock units (RSUs).

The 2006 Employee Plan permits the granting of options, appreciation rights, restricted stock, RSUs, performance shares and performance units to eligible employees.

At December 31, 2022, no appreciation rights, performance shares or performance units had been granted under the 2006 Employee Plan.

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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.

The Nonemployee Director Plan permits the granting of option rights, appreciation rights, restricted stock and RSUs to members of the Board of Directors who are not employees of the Company.

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

The Nonemployee Director Plan permits the granting of options, appreciation rights, restricted stock and RSUs to members of the Board of Directors who are not employees of the Company.

At December 31, 2022, no options or appreciation rights had been granted under the Nonemployee Director Plan.

Shares available for future grants under the Nonemployee Director Plan were 223,833 at December 31, 2022.

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

At December 31, 2022, the Company had total unrecognized stock-based compensation expense of $ 125.2 million that is expected to be recognized over a weighted-average period of 1.05 years.

Stock-based compensation expense during 2021, 2020 and 2019 was $ 97.7 million, $ 95.9 million and $ 101.7 million, respectively.

The related tax benefit was $ 24.1 million, $ 23.6 million and $ 25.1 million during 2021, 2020 and 2019, respectively.

Excess tax benefits from share-based payments are recognized as an income tax benefit in the statement of consolidated income when options are exercised and RSUs vest.

2022 2021 2020

Stock-based compensation expense $ 99.7 $ 97.7 $ 95.9

Income tax benefit recognized 24.6 24.1 23.6

Excess tax benefits from share-based payments are recognized as an income tax benefit in the Statements of Consolidated Income when options are exercised and RSUs vest.

For the years ended December 31, 2022, 2021 and 2020, the Company’s excess tax benefit from options exercised and RSUs vested reduced the income tax provision by $ 35.4 million, $ 108.7 million and $ 94.7 million respectively.

Option Rights

The fair value of the Company’s option rights was estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following weighted-average assumptions for all options granted:

The fair value of the Company’s options was estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following weighted-average assumptions for all options granted:

2022 2021 2020

Risk-free interest rate 4.00 % 1.11 % .39 %

Expected life of option rights 5.05 years 5.05 years 5.05 years

Expected life of options 5.05 years 5.05 years 5.05 years

Expected dividend yield of stock .92 % .75 % .88 %

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Treasury yield curve at the time of grant.

The expected life of option rights was calculated using a scenario analysis model.

Historical data was used to aggregate the holding period from actual exercises, post-vesting cancellations and hypothetical assumed exercises on all outstanding option rights.

The expected life of options was calculated using a scenario analysis model.

Historical data was used to aggregate the holding period from actual exercises, post-vesting cancellations and hypothetical assumed exercises on all outstanding options.

The expected dividend yield of stock is the Company’s best estimate of the expected future dividend yield.

Expected volatility of stock was calculated using historical and implied volatilities.

Grants of option rights for non-qualified and incentive stock options have been awarded to certain officers and key employees under the 2006 Employee Plan.

The option rights generally become exercisable to the extent of one-third of the optioned shares for each full year following the date of grant and generally expire ten years after the date of grant.

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

Grants of non-qualified and incentive stock options have been awarded to certain officers and key employees under the 2006 Employee Plan.

The options generally become exercisable to the extent of one-third of the optioned shares for each full year following the date of grant and generally expire ten years after the date of grant.

Unrecognized compensation expense with respect to options granted to eligible employees amounted to $ 84.4 million at December 31, 2022.

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 1.09 years.

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.

The total intrinsic value of option rights exercised during 2021, 2020, and 2019 was $ 485.8 million, $ 407.9 million and $ 285.8 million, respectively.

The total fair value of options vested during 2021, 2020 and 2019 was $ 53.2 million, $ 51.0 million and $ 43.2 million, respectively.

There were no outstanding option rights for nonemployee directors at December 31, 2021, 2020 and 2019.

A summary of the Company’s non-qualified and incentive stock option right activity is shown in the following table:

2021 2020 2019

Shares Weighted-

Per Share Aggregate

(in millions) Optioned

Shares Weighted-

Per Share Aggregate

(in millions) Optioned

The following table summarizes the Company’s option activity:

Shares Weighted

Per Share Aggregate

(in millions)

Outstanding at

beginning of year

Value Weighted Average Remaining Term

Outstanding at January 1, 2022

8,982,935 $ 147.83 $ 1,835.5 6.09

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Expired ( 18,581 ) 182.48

Outstanding at

Outstanding at December 31, 2022

9,102,638 $ 160.09 $ 756.6 5.82

Exercisable at

Exercisable at December 31, 2022

7,088,732 $ 137.09 $ 727.7 4.91

The weighted-average remaining term for options outstanding at the end of 2021, 2020 and 2019 was 6.09 , 6.12 and 6.02 years, respectively.

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.

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.

The February 2021, 2020 and 2019 grants consisted of performance-based awards that vest at the end of a three-year period based on the Company’s achievement of specified financial and operating performance goals relating to earnings per share and return on net assets employed.

Unrecognized compensation expense with respect to grants of RSUs to eligible employees amounted to $ 68.6 million at December 31, 2021 and is being amortized on a straight-line basis over the vesting period and is expected to be recognized over a weighted-average period of 0.91 years.

The following table summarizes fair value and intrinsic value information for option activity:

2022 2021 2020

Weighted average grant date fair value per share $ 69.82 $ 68.63 $ 46.56

Total fair value of options vested 57.9 53.2 51.0

Total intrinsic value of options exercised 125.4 485.8 407.9

The fair value of each RSU is equal to the market value of a share of the Company’s stock on the grant date.

Grants of time-based 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.

The February 2022, 2021 and 2020 grants of performance-based RSUs vest at the end of a three-year period based on the Company’s achievement of specified financial and operating performance goals relating to earnings per share and return on net assets employed.

Unrecognized compensation expense with respect to grants of RSUs to eligible employees amounted to $ 39.1 million at December 31, 2022.

The unrecognized compensation expense is being amortized on a straight-line basis over the vesting period and is expected to be recognized over a weighted-average period of 0.85 years.

Grants of RSUs have been awarded to nonemployee directors under the Nonemployee Director Plan.

These grants generally vest and stock is received without restriction to the extent of one-third of the RSUs for each year following the date of grant.

Unrecognized compensation expense with respect to grants of RSUs to nonemployee directors amounted to $ 1.7 million at December 31, 2021 and is being amortized on a straight-line basis over the three-year vesting period and is expected to be recognized over a weighted-average period of 0.94 years.

A summary of the Company’s RSU activity for the years ended December 31 is shown in the following table:

Unrecognized compensation expense with respect to grants of RSUs to nonemployee directors amounted to $ 1.7 million at December 31, 2022.

The unrecognized compensation expense is being amortized on a straight-line basis over the three-year vesting period and is expected to be recognized over a weighted-average period of 0.89 years.

The following table summarizes the Company’s RSU activity:

Number of RSUs Weighted Average Grant Date Fair Value Per Share Aggregate

Value Weighted Average Remaining Term

Outstanding at January 1, 2022

510,680 $ 185.38 $ 179.8 0.96

Outstanding at beginning of year 625,383 744,516 871,206

Granted 254,935 271.75

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Forfeited ( 5,859 ) 225.42

Outstanding at end of year 510,680 625,383 744,516

The weighted-average per share fair value of RSUs granted during 2021, 2020 and 2019 was $ 238.89 , $ 193.79 and $ 144.18 , respectively.

NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Outstanding at December 31, 2022

401,924 231.09 $ 95.4 1.02

The following table summarizes the fair value and intrinsic value information for RSU activity:

2022 2021 2020

Weighted average grant date fair value per share $ 271.75 $ 238.89 $ 193.79

Intrinsic value of RSUs vested during year 97.5 66.3 75.0

NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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Balance at January 1, 2020 $ ( 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 )

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NOTE 17 – DERIVATIVES AND HEDGING

In February 2020, the Company entered into two U.S.

The Company has two U.S.

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, 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.

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

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

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.

Dollar to Euro cross currency swap contract with a total notional amount of $ 400.0 million to hedge the Company’s net investment in its European operations.

This contract was designated as a net investment hedge and had a maturity date of January 15, 2022.

During the term of the contract, the Company paid fixed-rate interest in Euros and received fixed-rate interest in U.S.

During the term of the contracts, 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.

At December 31, 2021, the contracts had a notional value of $ 500.0 million and $ 244.0 million, respectively, and maturity dates of June 1, 2024 and June 1, 2027, respectively.

In April 2022, the Company settled a portion of the $ 244.0 million contract, which reduced the outstanding notional value to $ 162.7 million.

An immaterial loss was recognized in AOCI at the time of settlement.

In February 2020, the Company settled its $ 400.0 million U.S.

Dollar to Euro cross currency swap contract.

Dollar to Euro cross currency swap contract entered into on May 9, 2019 to hedge the Company’s net investment in its European operations.

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

7 unchanged sentences

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

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

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

2022 2021 2020

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

Gain (loss) $ 45.2 $ 49.3 $ ( 71.7 )

Tax effect ( 11.1 ) ( 12.2 ) 17.7

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

Gain (loss), net of taxes $ 34.1 $ 37.1 $ ( 54.0 )

NOTE 18 – FAIR VALUE MEASUREMENTS

6 unchanged sentences

There were no assets and liabilities measured at fair value on a recurring basis classified as Level 3 at December 31, 2022, 2021 and 2020.

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.

Except for the acquisition and divestiture-related fair value measurements described in Note 3 and the trademark impairments described in Note 7, 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.

11 unchanged sentences

The cost basis of the investment funds was $ 67.2 million, $ 63.0 million, and $ 58.1 million at December 31, 2022, 2021 and 2020, respectively.

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

The qualified replacement plan assets consist of investment funds maintained for future contributions to the Company’s domestic defined contribution pension plan.

The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC.

1 unchanged sentence

The cost basis of the investment funds was $ 29.8 million, $ 86.9 million and $ 159.6 million at December 31, 2022, 2021 and 2020, respectively.

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

The net investment hedge asset and liability represent the fair value of the cross currency swaps.

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

24 unchanged sentences

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.

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

Under these circumstances, the Company recognizes a contract asset and amortizes these prepayments over the expected benefit life of the long-term contract typically on a straight-line basis.

10 unchanged sentences

Balance at December 31, 2022 2,563.6 43.8 117.7 292.9 7.1

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

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

Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue per ASC 606 when the products are sold.

21 unchanged sentences

NOTE 20 – OTHER EXPENSE (INCOME)

Other General Expense - Net

Included in Other general expense - net were the following:

Other General (Income) Expense - Net

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

2022 2021 2020

1 unchanged sentence

Loss on divestiture (see Note 3) — 111.9 —

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

Gain on sale or disposition of assets ( 17.8 ) ( 6.1 ) ( 9.4 )

Total $ ( 24.9 ) $ 101.8 $ 27.7

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.

These provisions are recorded or adjusted as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued.

See Note 11 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 (Income) Expense - Net

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

The gain on sale or disposition of assets represents the net realized gain 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 (Income) - Net

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

2022 2021 2020

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

Investment losses (gains) $ 9.7 $ ( 30.4 ) $ ( 16.4 )

(Gain) loss on extinguishment of debt (see Note 8) — ( 1.4 ) 21.3

1 unchanged sentence

Foreign currency transaction related losses 33.6 12.0 7.2

Domestic pension plan settlement expense

Miscellaneous pension expense 4.0 4.4 4.9

Indirect tax credits — — ( 38.7 )

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

Other income ( 39.6 ) ( 29.0 ) ( 44.7 )

1 unchanged sentence

Total $ 47.0 $ ( 19.5 ) $ 5.3

Investment losses (gains) primarily relate to the change in market value of the investments held in the deferred compensation plan and qualified replacement plan.

See Note 18 for additional information on the fair value of these investments.

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, 2022, 2021 and 2020.

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.

(Sherwin-Williams Brazil) in the fourth quarter of 2019 related to the recovery of certain social contribution (PIS/COFINS) taxes paid over gross sales including ICMS receipts, a type of state level value-added tax in Brazil.

In 2014, Sherwin-Williams Brazil filed a lawsuit against the Brazilian tax authorities to challenge the inclusion of ICMS on the PIS/COFINS tax base.

During 2019, Sherwin-Williams Brazil received a favorable final, non-appealable decision against the Brazilian tax authorities.

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

Miscellaneous pension expense consists of the non-service components of Net periodic benefit cost.

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

There were no items within Other income or Other expense that were individually significant in December 31, 2021, 2020 and 2019.

There were no items within Other income or Other expense that were individually significant at December 31, 2022, 2021 and 2020.

NOTE 21 – INCOME TAXES

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 in 2020 or 2021.

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

federal and state income taxes as well as U.S.

federal payroll withholding taxes until subsequent periods.

During 2019, the Company recorded an increase to the tax provision of $ 74.3 million related to the reversal of all net tax benefits recognized in previous tax years from federal renewable energy tax credit funds with DC Solar Solutions, Inc.

and certain of its affiliates.

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

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.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021, 2020 and 2019 were as follows:

2021 2020 2019

Deferred tax assets:

Environmental and other similar items $ 73.2 $ 82.9 $ 83.5

Employee related and benefit items 170.3 166.6 129.3

Operating lease liabilities 463.1 448.9 430.6

Other items 192.0 232.8 204.0

Total deferred tax assets 898.6 931.2 847.4

Deferred tax liabilities:

Intangible assets and Property, plant, and equipment 1,053.7 1,156.4 1,232.6

LIFO inventories 68.6 87.6 80.5

Operating lease right-of-use assets 448.4 434.0 417.8

Other items 33.3 31.7 28.1

Total deferred tax liabilities 1,604.0 1,709.7 1,759.0

Net deferred tax liabilities

$ 705.4 $ 778.5 $ 911.6

As of December 31, 2021, the Company’s net deferred income tax liability relates primarily to deferred tax liabilities recorded for intangible assets acquired through the Valspar acquisition.

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 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.

The foreign net operating losses are related to various jurisdictions that provide for both indefinite carryforward periods and others with carryforward periods that range from the tax years 2021 to 2041.

Significant components of the provisions for income taxes were as follows:

9 unchanged sentences

Total provisions for income taxes $ 553.0 $ 384.2 $ 488.8

Under provisions of the Tax Cuts and Jobs Act (Tax Act), the Company received an income tax benefit of $ 12.2 million, $ 12.0 million and $ 10.4 million in 2021, 2020 and 2019, respectively, related to foreign derived intangible income and incurred income tax expense of $ 2.7 million, $ 7.0 million and $ 7.9 million in 2021, 2020 and 2019, respectively, related to Global Intangible Low Taxed Income (GILTI).

The Company has made an accounting policy election to record GILTI as a period cost.

Significant components of income before income taxes as used for income tax purposes, were as follows:

2021 2020 2019

Domestic $ 2,106.8 $ 2,317.9 $ 1,899.6

Foreign 141.8 201.3 82.2

$ 2,248.6 $ 2,519.2 $ 1,981.8

A reconciliation of the statutory federal income tax rate to the effective tax rate follows:

6 unchanged sentences

Amended returns and refunds 0.4 0.2 0.3

Tax credit reversal — — 3.7

Other - net ( 0.3 ) ( 0.1 ) 0.7

Reported effective tax rate 21.5 % 17.1 % 19.4 %

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 increase in the effective tax rate for 2022 compared to 2021 was primarily due to a decrease in tax benefits related to employee share-based payments and the net unfavorable impact of various other tax benefits received by the Company in 2022 compared to 2021.

Significant components of income before income taxes as used for income tax purposes, were as follows:

2022 2021 2020

Domestic $ 2,427.6 $ 2,106.8 $ 2,317.9

Foreign 145.5 141.8 201.3

$ 2,573.1 $ 2,248.6 $ 2,519.2

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022, 2021 and 2020 were as follows:

2022 2021 2020

Deferred tax assets:

Environmental and other similar items $ 66.4 $ 73.2 $ 82.9

Employee related and benefit items 157.1 170.3 166.6

Operating lease liabilities 478.1 463.1 448.9

Research and development capitalization 52.6

Other items 204.1 192.0 232.8

Total deferred tax assets 958.3 898.6 931.2

Deferred tax liabilities:

Intangible assets and Property, plant, and equipment 973.4 1,053.7 1,156.4

LIFO inventories 97.3 68.6 87.6

Operating lease right-of-use assets 460.5 448.4 434.0

Other items 31.7 33.3 31.7

Total deferred tax liabilities 1,562.9 1,604.0 1,709.7

Net deferred tax liabilities

$ 604.6 $ 705.4 $ 778.5

As of December 31, 2022, the Company’s net deferred income tax liability relates primarily to deferred tax liabilities recorded for intangible assets acquired through the Valspar acquisition.

Netted against the Company’s other deferred tax assets were valuation allowances of $ 97.5 million, $ 97.2 million and $ 104.6 million at December 31, 2022, 2021 and 2020, respectively.

The Company has $ 15.7 million of domestic net operating loss carryforwards acquired through acquisitions that have expiration dates through tax year 2037, foreign tax credits of $ 18.0 million that expire in calendar years 2028 through 2032 and foreign net operating losses of $ 339.0 million.

The foreign net operating losses are related to various jurisdictions that provide for both indefinite carryforward periods and others with carryforward periods that expire between tax years 2022 to 2042.

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

federal jurisdiction, and various state and foreign jurisdictions.

The IRS audited the Company’s 2013 through 2016 income tax returns.

As a result of these audits, certain adjustments have been agreed upon with the IRS.

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

The IRS is currently auditing the Company’s 2017, 2018 and 2019 income tax returns.

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

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, 2022, the U.S.

12 unchanged sentences

Balance at end of year $ 242.4 $ 228.5 $ 227.0

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.

The increase in unrecognized tax benefits was primarily related to the reversal of benefits recognized from certain positions taken on current and prior year income tax returns filed in U.S.

federal and various state jurisdictions.

These additions were partially offset by various positions taken on prior year income tax returns filed in U.S.

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

1 unchanged sentence

Included in the balance of unrecognized tax benefits at December 31, 2022 is $ 92.7 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months.

This amount represents a decrease in unrecognized tax benefits comprised primarily of items related to federal audits of partnership investments and expiring statutes in federal, foreign and state jurisdictions.

This amount represents expected settlements related to federal renewable energy tax credit funds with DC Solar Solutions, Inc.

and certain of its affiliates and also includes items currently under review with IRS Appeals in each of the years 2013 through 2016.

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

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.

During the year ended December 31, 2022, there was an increase in income tax interest and penalties of $ 10.3 million.

During the years ended December 31, 2021 and 2020, there was a (decrease) increase in income tax interest and penalties of $( 2.7 ) million and $ 4.0 million, respectively.

The Company accrued $ 36.6 million, $ 26.4 million and $ 30.3 million at December 31, 2022, 2021 and 2020, 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.

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

2022 2021 2020

Net income $ 2,020.1 $ 1,864.4 $ 2,030.4

5 unchanged sentences

Stock options and other contingently issuable shares (1)

Non-vested restricted stock grants — — 0.1

Average shares outstanding assuming dilution 261.8 267.1 275.8

20 unchanged sentences

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

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).

During 2022, this segment opened 72 net new stores, consisting of 89 new stores opened ( 71 in the United States, 11 in Mexico, 6 in Canada and 1 in South America) and 17 stores closed ( 2 in the United States, 14 in South America and 1 in Mexico).

In 2021 and 2020, this segment opened 85 and 16 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 China and Europe.

The Consumer Brands Group manufactures and 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 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.

Approximately 67 % of the total sales of the Consumer Brands Group in 2022 were intersegment transfers of products primarily sold through The Americas Group.

At December 31, 2021, the Consumer Brands Group consisted of operations in the United States and subsidiaries in 5 foreign countries.

Sales and marketing of certain controlled brand and private-label products is performed by a direct sales staff.

1 unchanged sentence

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 operational efficiencies, capacity, health and safety at sites currently in operation.

This segment incurred most of the Company’s capital expenditures related to operational efficiencies, capacity and health and safety initiatives 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 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.

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

During 2022, this segment added 35 net new branches, consisting of 39 opened or acquired branches and 4 branches closed.

The CODM uses discrete financial information about the Performance Coatings Group, supplemented with information about geographic divisions, business units and subsidiaries, to assess performance of and allocate resources to the Performance Coatings Group as a whole.

2 unchanged sentences

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.

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

See Notes 3 and 20 for additional information on the Wattyl divestiture.

13 unchanged sentences

The Administrative segment assets consisted primarily of cash and cash equivalents, investments, deferred pension assets and headquarters property, plant and equipment.

The margin for each reportable segment was based upon total net sales and intersegment transfers.

Domestic intersegment transfers were primarily accounted for at the approximate fully absorbed manufactured cost, based on normal capacity volumes, plus customary distribution costs for paint products.

45 unchanged sentences

Amortization 4.5 90.0 213.9 5.0 313.4

NOTE 22 – SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following tables summarize the unaudited quarterly results of operations for the years ended December 31, 2021 and 2020.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year (1)

Net sales $ 4,656.0 $ 5,379.8 $ 5,146.7 $ 4,762.1 $ 19,944.6

Gross profit 2,112.0 2,411.4 2,139.6 1,879.7 8,542.7

Net income 409.6 648.6 502.2 304.0 1,864.4

Net income per share:

Basic $ 1.54 $ 2.47 $ 1.92 $ 1.17 $ 7.10

Diluted $ 1.51 $ 2.42 $ 1.88 $ 1.15 $ 6.98

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year (1)

Net sales $ 4,146.7 $ 4,604.0 $ 5,122.2 $ 4,488.8 $ 18,361.7

Gross profit 1,889.7 2,208.9 2,455.3 2,128.7 8,682.6

Net income 321.7 595.9 705.8 407.0 2,030.4

Net income per share:

Basic $ 1.18 $ 2.20 $ 2.60 $ 1.51 $ 7.48

Diluted $ 1.15 $ 2.16 $ 2.55 $ 1.49 $ 7.36

(1) The sum of the quarterly earnings per share data may not equal the full year amount as the computations of the weighted average shares outstanding for each quarter and the full year are calculated independently.

NOTE 24 – SUBSEQUENT EVENT

During the first quarter of 2023, the Company realigned its organizational structure to manage the Latin America Division within the Consumer Brands Group.

Previously, the Latin America Division was managed and reported within The Americas Group;

however, Latin America architectural demand and service model trends are shifting to align more closely with the Consumer Brands Group’s strategy.

In addition, the new structure enables The Americas Group to focus on the core U.S.

and Canada stores business.

Beginning with the quarterly reporting for the period ending March 31, 2023, the Company will report the Latin America Division within the Consumer Brands Group and will also reflect the change in the comparable prior period.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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