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Item 2. Management’s Discussion and Analysis

2023-04-25 compared with 2022-10-25 · 165 added, 206 removed, 127 unchanged (74% of the section changed)

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The Sherwin-Williams Company, founded in 1866, and its consolidated wholly owned subsidiaries (collectively, the Company) are engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean region and throughout Europe, Asia and Australia.

The Company is structured into three reportable segments - The Americas Group, Consumer Brands Group and Performance Coatings Group (collectively, the Reportable Segments) - and an Administrative segment in the same way it is internally organized for assessing performance and making decisions regarding allocation of resources.

The Company is structured into three reportable segments - Paint Stores Group, Consumer Brands Group and Performance Coatings Group (collectively, the Reportable Segments) - and an Administrative segment in the same way it is internally organized for assessing performance and making decisions regarding allocation of resources.

See Note 19 of Item 1 for additional information on the Company's Reportable Segments.

Effective January 1, 2023, the Company changed its organizational structure to manage and report the Latin America architectural paint business within the Consumer Brands Group to more closely align demand and service model trends with its current business strategy.

The Latin America business was formerly part of The Americas Group, which has become the Paint Stores Group concurrent with this change.

The Company will report segment results for the newly realigned Paint Stores Group and Consumer Brands Group, for both current and prior periods presented, beginning with the first quarter of 2023.

• Consolidated net sales increased 8.9% in the quarter to $5.442 billion

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and Canada open more than twelve calendar months increased 14.2% in the quarter

• Diluted net income per share was $2.62 per share in the quarter compared to $1.88 per share in the third quarter 2021

• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased to $1.124 billion, or 18.6% of sales, in the quarter

Demand remained strong during the third quarter as pricing initiatives were realized in each of our businesses and volumes increased in all architectural paint end markets in The Americas Group.

In the Performance Coatings Group, sales grew in every division as a result of pricing actions and contributions from acquisitions.

The Consumer Brands Group continued to gain momentum in North America with our retail partners.

Consolidated gross margin and profit improved sequentially and year-over-year.

The Company expects the strong positive results we experienced in the third quarter to continue into the fourth quarter, driven by continued momentum in both The Americas Group and North American industrial end markets, continued price realization, good cost control, and softer year-over-year comparisons.

In the near term, our team will continue to remain focused on new account growth, expanding product offerings to existing customers and managing expenses tightly, given interest rate actions designed to slow U.S.

demand and the expectations of continued macro headwinds in Europe and China into next year.

The trajectory of raw material costs is trending favorably as we exit the year, although the pace and level of potential relief next year is difficult to project.

We remain confident in our strategy, our capabilities and solutions, and our people.

We maintained our disciplined capital allocation approach, focused on driving value for our customers and returns to our shareholders.

We continue to pursue business acquisitions, transactions, and investments that fit our growth strategy, and we expect to use any excess cash to make open market purchases of our common stock.

We have a strong liquidity position, with $130.5 million in cash and $2.826 billion of unused capacity under our credit facilities at September 30, 2022.

• Diluted net income per share increased 30.5% to $1.84 per share in the quarter compared to $1.41 per share in the first quarter 2022

• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased 26.7% to $878.2 million in the quarter

The Company delivered strong first quarter results as pricing initiatives were realized in each of our businesses.

Sales growth was driven primarily by architectural paint, protective and marine, commercial and residential repaint end markets within the Paint Stores Group.

In the Performance Coatings Group, sales benefited from pricing actions and contributions from acquisitions.

Growth was strongest in Automotive Refinish, with modest improvements in General Industrial and Coil Coatings.

This growth was partially offset by softness in Packaging and Industrial Wood.

Within the Consumer Brands Group, strength in the Latin America region was partially offset by weakness in all other regions, particularly Europe and China.

Consolidated gross profit and margin in the first quarter improved both sequentially and year-over-year.

We continue to expect a very challenging demand environment, particularly in the second half of 2023 against difficult year-over-year comparisons.

Although our visibility remains limited at this time, we anticipate softness in new residential and retail home improvement end markets, particularly in North America.

Our industrial end markets are expected to be impacted by slow economic recovery in Europe and China, and we are experiencing increased pressure within North America.

However, we will continue to prioritize our focus on recession resilient markets, new account growth, and managing expenses prudently.

We are confident in our differentiated strategy, capabilities, product and service solutions, and our people.

Our capital deployment strategy remains balanced and disciplined, with an emphasis on driving value for our customers and returns to our shareholders.

We continue to pursue business acquisitions, transactions, and investments that fit our long-term growth strategy.

We will return value to our shareholders through the payment of dividends and the reinvestment of excess cash for share repurchases of Company stock.

We have a strong liquidity position, with $151.4 million in cash and $2.228 billion of unused capacity under our credit facilities at March 31, 2023.

We are in compliance with bank covenants and expect to remain in compliance.

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The Company has historically experienced, and expects to continue to experience, variability in quarterly results.

The results of operations for the three and nine months ended September 30, 2022 are not indicative of the results to be expected for the full year as business is seasonal in nature with the majority of Net sales for the Reportable Segments traditionally occurring during the second and third quarters.

The results of operations for the three months ended March 31, 2023 are not indicative of the results to be expected for the full year as our business is seasonal in nature, with the majority of Net sales for the Reportable Segments traditionally occurring during the second and third quarters.

However, periods of economic uncertainty can alter the Company's seasonal patterns.

The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for the three and nine months ended September 30, 2022 and 2021.

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 $ Change % Change 2022 2021 $ Change % Change

The Americas Group $ 3,602.7 $ 2,967.0 $ 635.7 21.4 % $ 9,589.9 $ 8,563.5 $ 1,026.4 12.0 %

The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

2023 2022 $ Change % Change

Paint Stores Group $ 2,859.1 $ 2,491.3 $ 367.8 14.8 %

Consumer Brands Group 872.7 852.2 20.5 2.4 %

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Total $ 5,442.4 $ 4,998.7 $ 443.7 8.9 %

Three Months Ended September 30, 2022

Consolidated net sales increased in the third quarter of 2022 primarily due to selling price increases in all segments and higher architectural sales volume in The Americas Group, partially offset by lower sales volume in the Consumer Brands Group.

Currency translation rate changes decreased consolidated net sales by 2.1% in the third quarter.

Net sales of all consolidated foreign subsidiaries increased 4.5% to $1.064 billion in the third quarter compared to $1.019 billion in the same period last year.

The increase in net sales for all consolidated foreign subsidiaries in the third quarter was due primarily to selling price increases in the Latin America and APAC regions, partially offset by lower sales volumes in most end markets for the EMEAI region and unfavorable currency translation.

Net sales of all operations other than consolidated foreign subsidiaries increased 20.7% to $4.983 billion in the third quarter compared to $4.128 billion in the same period last year.

Net sales in The Americas Group increased in the third quarter due primarily to higher architectural sales volume across all end markets and selling price increases.

Net sales from stores open for more than twelve calendar months in the U.S.

and Canada increased 20.7% in the third quarter compared to last year’s comparable period.

Sales of non-paint products increased 4.9% compared to last year's third quarter.

A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general merchandise sold.

Net sales of the Consumer Brands Group increased in the third quarter due primarily to selling price increases in all regions, partially offset by lower sales volume outside of North America and continued tightness in alkyd resins impacting certain product sales in North America.

Currency translation rate changes decreased the Consumer Brands Group's net sales by 1.6% in the third quarter.

Net sales in the Performance Coatings Group increased in the third quarter due to higher sales volume in most end markets, primarily attributable to selling price increases and acquisitions, partially offset by lower sales volume outside of North America.

Currency translation rate changes decreased the Performance Coatings Group's net sales by 5.1% in the third quarter.

Nine Months Ended September 30, 2022

Consolidated net sales increased in the first nine months of 2022 primarily due to selling price increases in all segments and higher architectural sales volume in The Americas Group, partially offset by lower sales volume outside of North America.

Currency translation rate changes decreased net sales by 1.4% in the first nine months.

Net sales of all consolidated foreign subsidiaries increased 3.3% to $3.262 billion in the first nine months compared to $3.158 billion in the same period last year.

The increase in net sales for all consolidated foreign subsidiaries in the first nine months was due primarily to selling price increases in most end markets, partially offset by lower sales volume in the Consumer Brands Group as a result of the Wattyl divestiture and challenging prior year sales volume comparisons in the EMEAI and APAC regions, as well as unfavorable currency translation.

Net sales of all operations other than consolidated foreign subsidiaries increased 13.6% to $13.656 billion in the first nine months compared to $12.025 billion in the same period last year.

Net sales in The Americas Group increased in the first nine months due primarily to selling price increases and higher sales volume in all professional end markets, partially offset by lower sales volume in DIY.

Net sales from stores open for more than twelve calendar months in the U.S.

and Canada increased 10.6% in the first nine months compared to last year’s comparable period.

Sales of non-paint products increased 0.5% compared to last year's first nine months.

Three Months Ended March 31, 2023

Consolidated net sales increased in the first quarter of 2023 primarily due to selling price increases in all segments and higher architectural sales volume in the Paint Stores Group, partially offset by lower sales volume in the Consumer Brands and Performance Coatings Groups.

Acquisitions added 1.8% to net sales, while currency translation rate changes decreased consolidated net sales by 1.0% in the first quarter.

Net sales of all consolidated foreign subsidiaries increased to $1.087 billion in the first quarter compared to $1.078 billion in the same period last year.

The increase in net sales for all consolidated foreign subsidiaries was due to growth in the Latin America and Europe regions driven primarily from sales price increases, as well as contributions from acquisitions, partially offset by lower sales in most end markets for the Asia region and unfavorable currency translation.

Net sales of all operations other than consolidated foreign subsidiaries increased to $4.356 billion in the first quarter compared to $3.921 billion in the same period last year.

Net sales in the Paint Stores Group increased in the first quarter due primarily to higher volume in protective and marine, property maintenance, commercial and residential repaint, as well as selling price increases.

Net sales from stores open for more than twelve calendar months increased 14.2% in the first quarter compared to last year’s comparable period.

Sales of non-paint products increased 26.5% compared to last year's first quarter.

A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general merchandise sold.

Net sales in the Consumer Brands Group decreased in the first nine months due primarily to the Wattyl divestiture and lower sales volumes outside of North America, partially offset by selling price increases.

Currency translation rate changes decreased the Consumer Brands Group's net sales by 1.0% in the first nine months.

Net sales in the Performance Coatings Group increased in the first nine months due to higher sales in all end markets, primarily attributable to selling price increases and contributions from acquisitions.

Currency translation rate changes decreased the Performance Coatings Group's net sales by 3.6% in the first nine months.

Net sales of the Consumer Brands Group increased in the first quarter due primarily to selling price increases in all regions and strong growth within Latin America, partially offset by lower sales volumes in all other regions.

Currency translation rate changes decreased the Consumer Brands Group's net sales by 1.7% in the first quarter.

Net sales in the Performance Coatings Group increased in the first quarter primarily due to selling price increases in all end markets and incremental sales from acquisitions, partially offset by lower sales volumes in Asia and Europe.

Acquisitions added 5.4% to the Performance Coatings Group’s net sales, while currency translation rate changes decreased net sales by 1.9% in the first quarter.

Income Before Income Taxes

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

% of Net Sales % of Net Sales % of Net Sales % of Net Sales

Three Months Ended March 31,

% of Net Sales % of Net Sales

Net sales $ 5,442.4 100.0 % $ 4,998.7 100.0 %

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SG&A 1,693.0 31.1 % 1,485.5 29.7 %

Other general (income) expense - net (14.4) (0.2) % (1.1) — % (7.5) — % 111.2 0.7 %

Amortization 81.3 1.3 % 76.2 1.5 % 237.8 1.4 % 233.2 1.5 %

Other general expense - net 10.5 0.2 % 2.5 0.1 %

Interest expense 109.3 2.0 % 88.4 1.7 %

Interest income (3.5) (0.1) % (0.9) — %

Other expense (income) - net 18.1 0.3 % 1.7 — % 49.9 0.3 % (1.6) — %

Other (income) expense - net (3.2) — % 16.3 0.3 %

Income before income taxes $ 614.8 11.3 % $ 461.1 9.3 %

Three Months Ended September 30, 2022

Consolidated cost of goods sold increased $450.9 million, or 15.0%, in the third quarter of 2022 compared to the same period in 2021 primarily due to higher sales volume in The Americas Group and higher raw material costs (including titanium dioxide and petrochemical feedstock sources), freight and transportation, and other input costs, partially offset by lower sales volume outside of North America in the Consumer Brands Group and favorable currency translation rate changes.

Currency translation rate changes decreased Cost of goods sold by 2.7% in the third quarter of 2022.

Consolidated gross profit increased $449.8 million in the third quarter of 2022 compared to the same period in 2021.

Consolidated gross profit as a percent of consolidated net sales increased in the third quarter to 42.8% compared to 41.6% during the same period in 2021.

Consolidated gross profit dollars increased primarily due to selling price increases in all Reportable Segments and higher sales volume in The Americas Group, partially offset by higher raw material costs in each Reportable Segment and lower sales volume in the Consumer Brands Group.

The gross margin rate decreased primarily as a result of higher raw material costs and supply chain inefficiencies in each Reportable Segment.

The Americas Group’s gross profit in the third quarter was higher than the same period last year by $284.5 million due primarily to selling price increases and higher sales volume in all architectural paint end markets, partially offset by higher raw material costs.

The Americas Group’s gross profit as a percent of net sales decreased in the third quarter compared to the same period in 2021 primarily due to higher raw material costs.

The Consumer Brands Group’s gross profit increased by $18.3 million in the third quarter compared to the same period last year due primarily to selling price increases, partially offset by higher raw material costs, lower sales volume and supply chain inefficiencies.

The Consumer Brands Group’s gross profit as a percent of net sales decreased in the third quarter compared to the same period last year for these same reasons.

The Performance Coatings Group’s gross profit increased $141.1 million in the third quarter compared to the same period last year due primarily to selling price increases, partially offset by higher raw material costs and unfavorable currency translation rate changes.

The Performance Coatings Group’s gross profit as a percent of net sales increased in the third quarter compared to the same period last year primarily due to selling price increases, partially offset by higher raw material costs.

Consolidated selling, general and administrative expenses (SG&A) increased $159.7 million in the third quarter versus the same period last year due primarily to increased expenses to support net new store openings and investments in digital technologies and system upgrades, partially offset by favorable currency translation rate changes.

As a percent of net sales, consolidated SG&A decreased 130 basis points in the third quarter compared to the same period last year primarily due to good cost control.

The Americas Group’s SG&A increased $157.2 million in the third quarter compared to the same period last year due primarily to increased spending from new store openings and higher costs to serve our customers.

The Consumer Brands Group’s SG&A decreased $1.2 million in the third quarter compared to the same period last year due to lower marketing spend and good cost

The Performance Coatings Group’s SG&A increased $10.7 million in the third quarter compared to the same period last year primarily due to acquisitions, partially offset by good cost control and favorable currency translation rate changes.

The Administrative segment’s SG&A decreased $7.0 million in the third quarter compared to the same period last year due primarily to lower investments in digital technologies.

In the third quarter of 2022, Other general (income) expense - net improved $13.3 million compared to the same period in 2021 primarily due to higher gains from the sale and disposition of fixed assets, partially offset by an increase in provisions for environmental matters in the Administrative segment.

See Note 15 of Item 1 for additional information.

Interest expense increased $18.1 million in the third quarter compared to the same period last year due primarily to higher interest rates and an increase in outstanding debt.

See Note 6 of Item 1 for additional information on the Company’s outstanding debt.

In the third quarter of 2022, Other expense (income) - net declined $16.4 million compared to the same period in 2021 primarily due to higher foreign currency transaction related losses in the Administrative segment.

See Note 15 of Item 1 for additional information.

Nine Months Ended September 30, 2022

Consolidated cost of goods sold increased $1.308 billion, or 15.3%, in the first nine months of 2022 compared to the same period in 2021 primarily due to higher sales volume in The Americas Group and higher raw material costs (including titanium dioxide and petrochemical feedstock sources), supply chain inefficiencies, freight and transportation, and other input costs, partially offset by lower sales volume in the Consumer Brands Group, as well as favorable currency translation rate changes.

Currency translation rate changes decreased Cost of goods sold by 1.9% in the first nine months of 2022.

Consolidated gross profit increased $428.3 million in the first nine months of 2022 compared to the same period in 2021.

Consolidated gross profit as a percent of consolidated net sales decreased in the first nine months to 41.9% compared to 43.9% during the same period in 2021.

Consolidated gross profit dollars increased primarily due to selling price increases in each Reportable Segment and higher sales volume in The Americas Group, partially offset by higher raw material costs in each Reportable Segment and lower sales volumes in the Consumer Brands Group.

The gross margin rate decreased primarily as a result of higher raw material costs in each Reportable Segment and supply chain inefficiencies in the Consumer Brands Group.

The Americas Group’s gross profit in the first nine months was higher than the same period last year by $263.9 million due primarily to selling price increases and higher sales volume, partially offset by higher raw material costs.

The Americas Group’s gross profit as a percent of net sales decreased in the first nine months compared to the same period in 2021 primarily due to higher raw material costs.

The Consumer Brands Group’s gross profit decreased by $84.2 million in the first nine months compared to the same period last year due primarily to lower sales volume (including the impact from the Wattyl divestiture), higher raw material costs and supply chain inefficiencies.

The Consumer Brands Group’s gross profit as a percent of net sales decreased in the first nine months compared to the same period last year for these same reasons.

The Performance Coatings Group’s gross profit increased $242.4 million in the first nine months compared to the same period last year due primarily to higher selling prices, partially offset by higher raw material costs and unfavorable currency translation rate changes.

The Performance Coatings Group’s gross profit as a percent of net sales increased in the first nine months compared to the same period last year primarily due to higher selling prices, partially offset by higher raw material costs.

Consolidated SG&A increased $322.6 million in the first nine months versus the same period last year due primarily to increased expenses to support net new store openings and investments in digital technologies and system upgrades, partially offset by favorable currency translation rate changes.

As a percent of net sales, consolidated SG&A decreased 90 basis points in the first nine months compared to the same period last year primarily due to good cost control.

The Americas Group’s SG&A increased $208.9 million in the first nine months compared to the same period last year due primarily to increased spending from new store openings, higher costs to serve our customers and investments in information systems.

The Consumer Brands Group’s SG&A increased $40.7 million in the first nine months compared to the same period last year due to higher marketing spend and investments in customer programs.

The Performance Coatings Group’s SG&A increased $47.6 million in the first nine months compared to the same period last year due primarily to acquisitions and to support higher sales levels, partially offset by good cost control and favorable currency translation rate changes.

The Administrative segment’s SG&A increased $25.4 million in the first nine months compared to the same period last year due primarily to integration costs related to acquisitions and higher investments in digital technologies.

In the first nine months of 2022, Other general (income) expense - net improved $118.7 million compared to the same period in 2021 primarily due to the recognition of a $111.9 million loss on the Wattyl divestiture in the Administrative segment in the first quarter of 2021.

Three Months Ended March 31, 2023

Consolidated cost of goods sold increased $75.7 million, or 2.6%, in the first quarter of 2023 compared to the same period in 2022 primarily due to higher sales volume in the Paint Stores Group, as well as impacts of inflation in wages and other employee-related costs.

This increase was partially offset by lower sales volumes in the Consumer Brands and Performance Coatings Groups, a slight decrease in raw material costs, and favorable impacts of currency translation rate changes.

Currency translation rate changes decreased Cost of goods sold by 1.1% in the first quarter of 2023.

Consolidated gross profit increased $368.0 million in the first quarter of 2023 compared to the same period in 2022.

Consolidated gross profit as a percent of consolidated net sales increased in the first quarter to 44.5% compared to 41.1% during the same period in 2022.

Consolidated gross profit dollars increased primarily due to selling price increases in all Reportable Segments and higher sales volume in the Paint Stores Group, partially offset by lower sales volumes in the Consumer Brands and Performance Coatings Groups and unfavorable currency translation rate changes.

The gross margin rate increased primarily as a result of benefits from selling price increases in each Reportable Segment.

The Paint Stores Group’s gross profit in the first quarter was higher than the same period last year by $225.7 million due primarily to selling price increases and higher sales volume in architectural paint end markets.

The Paint Stores Group’s gross profit as a percent of net sales increased in the first quarter compared to the same period in 2022 primarily due to higher sales driven by both increased volume and selling price actions.

The Consumer Brands Group’s gross profit increased by $22.5 million in the first quarter compared to the same period last year due primarily to selling price increases, partially offset by lower sales volume and inflation in wages and other employee related costs.

The Consumer Brands Group’s gross profit as a percent of net sales was comparable in the first quarter to the same period last year.

The Performance Coatings Group’s gross profit increased $130.4 million in the first quarter compared to the same period last year due primarily to selling price increases.

The Performance Coatings Group’s gross profit as a percent of net sales increased in the first quarter compared to the same period last year also due to selling price increases.

Consolidated selling, general and administrative expenses (SG&A) increased $207.5 million in the first quarter versus the same period last year due primarily to increased expenses to support higher sales levels and net new store openings, and investments in digital technologies and system upgrades.

These increases were partially offset by favorable currency translation rate changes.

As a percent of net sales, consolidated SG&A increased 140 basis points in the first quarter compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $140.7 million in the first quarter compared to the same period last year due primarily to investments in long-term growth initiatives, including increased spending from new store openings and costs to support higher sales levels.

The Consumer Brands Group’s SG&A increased $6.5 million in the first quarter compared to the same period last year due to higher employee costs including in the Latin America region to support higher sales levels, partially offset by favorable currency translation rate changes.

The Performance Coatings Group’s SG&A increased $48.3 million in the first quarter compared to the same period last year primarily due to costs to support higher sales levels and acquisitions, partially offset by favorable currency translation rate changes.

The Administrative segment’s SG&A increased $12.0 million in the first quarter compared to the same period last year due primarily to higher compensation and investments in digital technologies.

In the first quarter of 2023, Other general expense - net increased $8.0 million compared to the same period in 2022 primarily due to an increase in provisions for environmental matters in the Administrative segment, partially offset by higher gains from the sale and disposition of assets.

See Note 16 of Item 1 for additional information.

For information on the amortization of acquired intangible assets and related impairment considerations, see Note 5 of Item 1 and Note 5 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Interest expense increased $32.7 million in the first nine months of 2022 compared to the same period last year due primarily to higher interest rates and an increase in outstanding debt.

Interest expense increased $20.9 million in the first quarter compared to the same period last year due primarily to higher interest rates and an increase in outstanding debt.

See Note 7 of Item 1 for additional information on the Company’s outstanding debt.

In the first nine months of 2022, Other expense (income) - net declined $51.5 million compared to the same period in 2021 primarily due to lower returns on investments held in the Administrative segment and higher foreign currency transaction related losses.

In the first quarter of 2023, Other (income) expense - net improved $19.5 million compared to the same period in 2022 primarily due to higher returns on investments held in the Administrative segment.

See Note 16 of Item 1 for additional information.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 % Change 2022 2021 % Change

2023 2022 % Change

Income Before Income Taxes:

The Americas Group $ 764.1 $ 631.5 21.0 % $ 1,909.9 $ 1,838.8 3.9 %

Paint Stores Group $ 526.7 $ 428.8 22.8 %

Consumer Brands Group 93.8 81.5 15.1 %

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as a % of Net Sales:

The Americas Group 21.2 % 21.3 % 19.9 % 21.5 %

Paint Stores Group 18.4 % 17.2 %

Consumer Brands Group 10.7 % 9.6 %

Performance Coatings Group 12.8 % 8.7 %

Administrative nm nm nm nm

Administrative nm nm

Total 11.3 % 9.2 %

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Income Tax Expense

The effective tax rate was 21.9% for the third quarter of 2022 compared to 17.9% for the third quarter of 2021, and 21.4% for the first nine months of 2022 compared to 19.6% for the first nine months of 2021.

The effective tax rate was less favorably impacted by tax benefits related to employee share based payments in the third quarter and first nine months of 2022 than in the same periods last year.

The effective tax rate was 22.3% for the first quarter of 2023 compared to 19.6% for the first quarter of 2022.

The effective tax rate was less favorably impacted by tax benefits related to employee share based payments in the first quarter of 2023 than in the same period last year.

The other significant components of the Company's tax rate were consistent year over year.

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Net Income Per Share

Diluted net income per share in the third quarter of 2022 increased 39.4% to $2.62 per share compared to $1.88 per share in the third quarter of 2021.

Diluted net income per share for the third quarter of 2022 included a $0.21 per share charge for acquisition-related amortization expense.

Diluted net income per share for the third quarter of 2021 included a $0.21 per share charge for acquisition-related amortization expense.

Currency translation rate changes decreased diluted net income per share by $0.04 in the third quarter.

Diluted net income per share for the first nine months of 2022 increased 7.0% to $6.23 per share compared to $5.82 per share in the first nine months of 2021.

Diluted net income per share for the first nine months of 2022 included a $0.61 per share charge for acquisition-related amortization expense.

Diluted net income per share for the first nine months of 2021 included a $0.34 per share loss from the Wattyl divestiture and a $0.64 per share charge for acquisition-related amortization expense.

Currency translation rate changes decreased diluted net income per share by $0.06 in the first nine months.

Diluted net income per share in the first quarter of 2023 increased 30.5% to $1.84 per share compared to $1.41 per share in the first quarter of 2022.

Diluted net income per share for the first quarter of 2023 included a $0.20 per share charge for acquisition-related amortization expense.

Diluted net income per share for the first quarter of 2022 included a $0.20 per share charge for acquisition-related amortization expense.

Currency translation rate changes decreased diluted net income per share by $0.01 in the first quarter.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

The Company’s financial condition and liquidity remained strong at September 30, 2022.

During the first nine months of 2022, the Company generated $1.279 billion in net operating cash despite increasing working capital requirements as a result of higher selling prices and raw material costs.

During the first nine months of 2022, the Company’s EBITDA increased 6.5% to $2.793 billion.

The Company’s financial condition and liquidity remained strong at March 31, 2023.

During the first three months of 2023, the Company generated $88.2 million in net operating cash primarily as a result of higher profit driven by selling price actions, despite the normal seasonal increase in working capital requirements.

During the first three months of 2023, the Company’s EBITDA increased 26.7% to $878.2 million.

See the Non-GAAP Financial Measures section below for the definition and calculation of EBITDA.

Cash and cash equivalents decreased $35.2 million during the first nine months of 2022.

Cash flow from operations, along with increased short-term borrowings and long-term debt, funded normal seasonal working capital increases and allowed the Company to return $1.214 billion to shareholders in the form of share buybacks and cash dividends, repay $260.3 million in long-term debt, and close acquisitions with an aggregate purchase price of $649.1 million during the first nine months of 2022.

At September 30, 2022, the Company had cash and cash equivalents of $130.5 million and total debt outstanding of $10.535 billion.

Cash and cash equivalents decreased $47.4 million during the first three months of 2023.

Cash flow from operations, along with increased short-term borrowings, funded working capital increases and allowed the Company to return $458.2 million to shareholders in the form of share buybacks and cash dividends during the first three months of 2023.

At March 31, 2023, the Company had cash and cash equivalents of $151.4 million and total debt outstanding of $11.075 billion.

Total debt, net of cash and cash equivalents, was $10.924 billion.

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Net Working Capital

Net working capital, defined as total current assets less total current liabilities, increased $1.121 billion to a surplus of $21.2 million at September 30, 2022 compared to a deficit of $1.100 billion at September 30, 2021.

The net working capital increase is due to an increase in current assets and a decrease in current liabilities.

Current asset balances increased $738.8 million at September 30, 2022 compared to September 30, 2021 primarily due to an increase in inventories of $731.8 million due to higher raw material costs and an increase in accounts receivable of $299.6 million due to higher sales, partially offset by a decrease in cash and cash equivalents of $182.8 million and a decrease in other current assets of $109.8 million primarily related to prepaid expenses and refundable income taxes.

Current liability balances decreased $382.5 million at September 30, 2022 compared to September 30, 2021 primarily due to a decrease in current debt as current portion of long-term debt decreased $661.5 million, partially offset by an increase in short-term borrowings of $235.8 million.

Excluding short-term borrowings and the current portion of long-term debt, current liabilities increased $43.2 million primarily due to the timing of payments related to accounts payable and accrued taxes.

At September 30, 2022, the Company’s current ratio was 1.00 compared to 0.88 and 0.83 at December 31, 2021 and September 30, 2021, respectively.

Net working capital, defined as Total current assets less Total current liabilities, increased $853.5 million to a deficit of $13.2 million at March 31, 2023 compared to a deficit of $866.7 million at March 31, 2022.

The net working capital increase is primarily due to an increase in current assets and a decrease in current liabilities.

Current asset balances increased $206.4 million at March 31, 2023 compared to March 31, 2022 primarily due to an increase in Inventories of $379.2 million driven by higher inventory levels and a slight decrease in year over year raw material costs, and an increase in Accounts receivable, net of $125.6 million due to higher sales.

These increases were partially offset by a decrease in Cash and cash equivalents of $249.7 million and a decrease of $48.7 million in Other current assets primarily related to refundable income taxes and prepaid expenses.

Current liability balances decreased $647.1 million at March 31, 2023 compared to March 31, 2022 primarily due to a decrease in the current portion of long-term debt, which decreased $260.1 million, and a decrease in short-term borrowings of $258.4 million.

Excluding short-term borrowings and the current portion of long-term debt, current liabilities decreased $128.6 million primarily due to the timing of payments related to accounts payable and accrued taxes.

At March 31, 2023, the Company’s current ratio was 1.00 compared to 0.99 and 0.88 at December 31, 2022 and March 31, 2022, respectively.

Property, Plant and Equipment

Net property, plant and equipment increased $173.9 million in the first nine months of 2022 and increased $214.0 million in the twelve months since September 30, 2021.

The increase in the first nine months was primarily due to capital expenditures of $397.5 million and incremental assets recognized through acquisitions of $46.9 million, partially offset by depreciation expense of $194.8 million, unfavorable changes in foreign currency translation of $52.8 million and the sale or disposition of fixed assets of $22.9 million.

Since September 30, 2021, the increase was primarily due to capital expenditures of $521.5 million and incremental assets recognized through acquisition of $75.2 million, partially offset by depreciation expense of $258.1 million, unfavorable changes in foreign currency translation of $98.6 million and sale or disposition of fixed assets of $26.0 million.

Capital expenditures primarily represented expenditures in The Americas Group associated with the opening of new paint stores and renovation and improvements in existing stores, and expenditures associated with operational efficiencies, capacity, health and safety at sites currently in operation in the Consumer Brands and Performance Coatings Groups.

Net property, plant and equipment increased $155.0 million in the first three months of 2023 and increased $454.7 million in the twelve months since March 31, 2022.

The increase in the first three months was primarily due to capital expenditures of $209.9 million, incremental assets recognized through acquisitions of $9.0 million, and currency translation and other adjustments of $7.0 million, offset by depreciation expense of $70.4 million and the sale or disposition of fixed assets of $0.5 million.

Since March 31, 2022, the increase was primarily due to capital expenditures of $748.1 million and incremental assets recognized through acquisitions of $91.2 million, partially offset by depreciation expense of $268.9 million, sale or disposition of fixed assets of $11.8 million, and currency translation and other adjustments of $103.9 million, which primarily includes government incentives associated with the construction of our new headquarters and research and development (R&D) center.

The Company has entered into an agreement to sell its current headquarters and R&D center.

The sale is expected to be completed during 2023.

Capital expenditures primarily represented expenditures in the Paint Stores Group associated with the opening of new paint stores and renovation and improvements in existing stores, and expenditures associated with operational efficiencies, capacity, health and safety at sites currently in operation in the Consumer Brands and Performance Coatings Groups.

The Administrative segment incurred capital expenditures primarily related to construction activities associated with expenditures related to the construction of our new headquarters and R&D center.

Construction on the new headquarters and R&D center is expected to complete in 2024 at the earliest.

In 2023, the Company expects to spend more than 2022 for capital expenditures, which it will fund primarily through the generation of operating cash.

Core capital expenditures in support of growth initiatives in 2023 are expected to be for investments in various productivity improvement and maintenance projects at existing manufacturing, distribution and research and development facilities, new store openings and new or upgraded information systems hardware.

Additionally, the Company

will continue to construct its new headquarters and R&D center.

Refer to “Real Estate Financing” section below for further information on the financing transaction for the new headquarters.

Real Estate Financing

In December 2022, the Company closed a transaction to sell and subsequently lease back its partially-constructed new headquarters.

This transaction did not meet the criteria for recognition as an asset sale under U.S.

generally accepted accounting principles (US GAAP) and as such, was accounted for as a real estate financing transaction.

During the first quarter of 2023, the Company received $66.5 million pursuant to the transaction.

See Note 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for more information concerning real estate financing.

Goodwill and Intangible Assets

Goodwill and intangible assets increased $140.4 million from December 31, 2021 and increased $211.4 million from September 30, 2021.

The net increase during the first nine months of 2022 was primarily due to incremental goodwill and intangible assets recognized from acquisitions of $600.7 million and capitalized software of $13.2 million, partially offset by amortization of $237.8 million and foreign currency translation of $235.7 million.

The net increase over the twelve month period from September 30, 2021 was primarily due to incremental goodwill and intangible assets recognized from acquisitions of $765.9 million and capitalized software of $13.2 million, partially offset by amortization of $314.1 million and foreign currency translation of $253.6 million.

See Note 3 in Item 1 for additional information on the Company’s recognition of incremental goodwill and intangible assets in the current year in connection with recent acquisitions.

See Note 6 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for more information concerning the Company's goodwill and intangible assets, including impairment testing of these assets.

Other assets increased $168.9 million from December 31, 2021 and increased $266.4 million from September 30, 2021.

The increase in the first nine months was primarily due to an increase in other investments and the net investment hedge asset, partially offset by the sale of investments to fund the Company’s domestic defined contribution plan.

The increase from September 30, 2021 was primarily due to an increase in other investments (including an increase in deferred pension assets), the net investment hedge asset and deferred tax assets, partially offset by the sale of investments to fund the Company’s domestic defined contribution plan.

See Notes 13 and 19 in Item 1 for additional information on the Company’s investments.

Goodwill and intangible assets decreased $36.3 million from December 31, 2022 and increased $486.1 million from March 31, 2022 as compared to March 31, 2023.

The net decrease during the first three months of 2023 was primarily due to amortization of $83.7 million, offset by purchase accounting allocations of $43.1 million and foreign currency translation and other adjustments of $4.3 million.

The net increase over the twelve month period from March 31, 2022 was primarily due to incremental goodwill and intangible assets recognized from acquisitions of $891.6 million, partially offset by amortization of $322.8 million, foreign currency translation and other adjustments of $67.2 million and impairment of trademarks of $15.5 million.

See Note 6 in Item 1 for additional information on the Company’s goodwill and intangible assets, including the quantitative impairment analysis performed as a result of the Latin America architectural paint business moving to the Consumer Brands Group reportable segment.

See Note 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for more information concerning the Company's goodwill and intangible assets.

Other assets increased $44.7 million from December 31, 2022 and increased $236.0 million from March 31, 2022.

The increase in the first quarter was primarily due to an increase in deposits and prepaid expenses.

The increase from March 31, 2022 was primarily due to an increase in non-traded investments.

See Note 1 in Item 1 for additional information on the Company’s non-traded investments.

Debt (including Short-term borrowings)

September 30, December 31, September 30,

March 31, December 31, March 31,

2023 2022 2022

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Total debt outstanding $ 11,075.0 $ 10,569.7 $ 10,592.7

The Company’s long-term debt primarily consists of senior notes as disclosed in Note 6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

In August 2022, the Company issued $600.0 million of 4.050% Senior Notes due 2024 and $400.0 million of 4.250% Senior Notes due 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.

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 $2.250 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 June 29, 2021, as amended, which was terminated effective August 30, 2022.

The New 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 New 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.

The Company had unused capacity under its various credit agreements of $2.826 billion at September 30, 2022.

The Company’s long-term debt primarily consists of senior notes as disclosed in Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

On February 28, 2023, the Company amended its credit agreement dated August 2, 2021, as amended, to extend the maturity of $125.0 million of the commitments available for borrowing and for the issuance, renewal, extension, and increase of a letter of credit under the credit agreement from June 20, 2023 to December 20, 2027.

The Company had unused capacity under its various credit agreements of $2.228 billion at March 31, 2023.

See Note 7 in Item 1 of this report for additional information.

Defined Benefit Pension and Other Postretirement Benefit Plans

Long-term liabilities for defined benefit pension and other postretirement benefit plans did not change significantly from December 31, 2021 and September 30, 2021.

See Note 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for more information concerning the Company’s benefit plan obligations.

Long-term liabilities for defined benefit pension and other postretirement benefit plans did not change significantly from December 31, 2022 and March 31, 2022.

See Note 9 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for more information concerning the Company’s benefit plan obligations.

Deferred Income Taxes

Deferred income taxes decreased $76.4 million from December 31, 2021, and decreased $109.7 million from September 30, 2021, primarily due to amortization of acquisition-related intangible assets.

Deferred income taxes increased $58.3 million from December 31, 2022 primarily due to incremental deferred tax liabilities recognized in connection with the acquisition of ICA as result of adjustments to the preliminary purchase allocation in the first

Compared to March 31, 2022, deferred income taxes decreased $20.3 million primarily due to amortization of acquisition-related intangible assets, partially offset by the incremental deferred tax liabilities recognized in connection with the acquisitions closed during the past 12 months.

See Note 3 in Item 1 of this report for more information regarding the Company’s recent acquisitions.

Other Long-Term Liabilities

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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.

Depreciation of capital expenditures and other expenses related to ongoing environmental compliance measures were included in the normal operating expenses of conducting business.

The Company’s capital expenditures, depreciation and other expenses related to ongoing environmental compliance measures were not material to the Company’s financial condition, liquidity, cash flow or results of operations during the first nine months of 2022.

Management does not expect that such capital expenditures, depreciation and other expenses will be material to the Company’s financial condition, liquidity, cash flow or results of operations in 2023.

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Contractual Obligations, Commercial Commitments and Warranties

During the first nine months of 2022, the Company completed the acquisition of a domestic floor coatings company and three European coatings companies.

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

The Company funded the acquisitions, totaling approximately $649.1 million, through cash generated from operating activities and borrowings under committed credit agreements.

During the third quarter of 2022, the Company signed an agreement to acquire Industria Chimica Adriatica S.p.A.

(ICA), an Italian designer, manufacturer and distributor of industrial wood coatings with global operations and production facilities in Italy and Poland.

The transaction is subject to customary closing conditions and is expected to close by the end of 2022.

Except for the acquisitions discussed above and in Note 3 of Item 1, and the debt transactions discussed above and in Note 6 of Item 1, there have been no other significant changes to the Company’s contractual obligations and commercial commitments in the first nine months of 2022 as summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no significant changes to the Company’s contractual obligations and commercial commitments in the first three months of 2023 as summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

See Note 3 in Item 1 for information on contractual obligations and commercial commitments related to acquisitions and divestitures.

See Note 10 in Item 1 for information concerning litigation.

Shareholders’ Equity

September 30, December 31, September 30,

March 31, December 31, March 31,

2023 2022 2022

Total shareholders’ equity $ 3,166.8 $ 3,102.1 $ 2,234.3

Shareholders’ equity increased $160.6 million during the first nine months of 2022 as a result of net income of $1,633.8 million and an increase in Other capital of $126.6 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $773.1 million of Treasury stock activity primarily attributable to treasury stock repurchases, cash dividends paid on common stock of $462.9 million and a decrease in Accumulated other comprehensive loss of $364.1 million.

Shareholders’ equity decreased $92.5 million since September 30, 2021 as a result of $1.380 billion of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $607.1 million, partially offset by net income of $1.938 billion and an increase in Other capital of $231.5 million primarily associated with stock-based compensation expense and stock option exercises.

During the first nine months of 2022, the Company purchased 2.75 million shares of its common stock for treasury purposes through open market purchases.

Shareholders’ equity increased $64.7 million during the first three months of 2023 as a result of net income of $477.4 million, an increase in Other capital of $34.1 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $325.2 million of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $156.5 million.

Shareholders’ equity increased $932.5 million since March 31, 2022 as a result of net income of $2.127 billion and an increase in Other capital of $155.3 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $801.9 million of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $624.1 million.

During the first three months of 2023, the Company purchased 1.30 million shares of its common stock for treasury purposes through open market purchases.

The Company acquires its common stock for general corporate purposes, and depending on its cash position and market conditions, it may acquire additional shares in the future.

The Company had remaining authorization at September 30, 2022 to purchase 45.8 million shares of its common stock.

The Company had remaining authorization at March 31, 2023 to purchase 43.9 million shares of its common stock.

In February 2023, the Company's Board of Directors increased the quarterly cash dividend from $.60 per share to $.605 per share.

This quarterly dividend was approved in all subsequent quarters and will result in an annual dividend for 2022 of $2.40 per share or a 34% payout of 2021 diluted net income per share.

Net operating cash for the nine months ended September 30, 2022 was a cash source of $1.279 billion compared to a cash source of $2.051 billion for the same period in 2021.

The decrease in net operating cash was primarily due to an increase in cash requirements for working capital.

Net investing cash usage increased $823.8 million in the first nine months of 2022 to a usage of $1.051 billion compared to a usage of $226.7 million for the same period in 2021 primarily due to an increase in cash used for acquisitions and capital expenditures, as well as the proceeds received from the Wattyl divestiture in the prior year.

See Note 3 in Item 1 for additional information on acquisitions.

Net financing cash usage decreased $1.474 billion in the first nine months of 2022 to a usage of $263.6 million from a usage of $1.738 billion for the same period in 2021 primarily due to lower level of cash used for treasury stock purchases and an increase in net proceeds from debt (including short-term borrowings and long-term debt).

In the twelve month period from October 1, 2021 through September 30, 2022, the Company generated net operating cash of $1.473 billion, used $1,300.2 million in investing activities and used $359.9 million in financing activities.

If approved in all subsequent quarters, this quarterly dividend will result in an annual dividend for 2023 of $2.42 per share or a 31% payout of 2022 diluted net income per share.

Net operating cash for the three months ended March 31, 2023 was a cash source of $88.2 million compared to a cash source of $26.3 million for the same period in 2022.

The improvement in net operating cash was primarily due to higher net income, partially offset by an increase in cash requirements for working capital.

Net investing cash usage increased $37.8 million in the first three months of 2023 to a usage of $233.4 million compared to a usage of $195.6 million for the same period in 2022 primarily due to an increase in cash used for capital expenditures.

Net financing cash for the three months ended March 31, 2023 was a cash source of $98.1 million compared to a cash source of $415.7 million for the same period in 2022 primarily due to lower net proceeds from short-term borrowings, partially offset by lower treasury stock purchases and proceeds from real estate financing transactions.

In the twelve month period from April 1, 2022 through March 31, 2023, the Company generated net operating cash of $1.982 billion, used $1.645 billion in investing activities and used $600.0 million in financing activities.

The Company is exposed to market risk associated with interest rate, foreign currency and commodity fluctuations.

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See Note 13 in Item 1 for disclosures related to the $812.7 million of outstanding U.S.

Dollar to Euro cross currency swap contracts designed to hedge the Company’s net investment in its European subsidiaries and $194.5 million of outstanding foreign currency forward contracts not designated as hedging instruments.

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

Financial Covenant

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Refer to the “Non-GAAP Financial Measures” section below for a reconciliation of EBITDA to Net income.

At September 30, 2022, the Company was in compliance with the covenant and expects to remain in compliance.

At March 31, 2023, the Company was in compliance with the covenant and expects to remain in compliance.

The Company’s notes, debentures and revolving credit agreements contain various default and cross-default provisions.

In the event of default under any one of these arrangements, acceleration of the maturity of any one or more of these borrowings may result.

See Note 6 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for more information concerning the Company’s debt and related covenant.

See Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for more information concerning the Company’s debt and related covenant.

Non-GAAP Financial Measures

Management utilizes certain financial measures that are not in accordance with U.S.

generally accepted accounting principles (US GAAP) to analyze and manage the performance of the business.

Management utilizes certain financial measures that are not in accordance with US GAAP to analyze and manage the performance of the business.

The required disclosures for these non-GAAP measures are shown below.

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EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP financial measure defined as net income before income taxes and interest, depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that excludes the loss on the divestiture of Wattyl in 2021.

EBITDA is a non-GAAP financial measure defined as net income before income taxes, interest, depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure defined as EBITDA that excludes restructuring expense.

Management considers EBITDA and Adjusted EBITDA useful in understanding the operating performance of the Company.

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Further, EBITDA and Adjusted EBITDA should not be considered alternatives to net income or net operating cash as an indicator of operating performance or as a measure of liquidity.

The reader should refer to the determination of Net income and Net operating cash in accordance with US GAAP disclosed in the Statements of Consolidated Income and Condensed Statements of Consolidated Cash Flows in Item 1.

The reader should refer to the determination of net income and net operating cash in accordance with US GAAP disclosed in the Statements of Consolidated Income and Statements of Condensed Consolidated Cash Flows in Item 1.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 477.4 $ 370.8

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EBITDA $ 878.2 $ 693.0

Loss on divestiture — — — 111.9

Restructuring 0.9 —

Adjusted EBITDA $ 879.1 $ 693.0

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (US GAAP) requires management to make estimates and assumptions that affect amounts reported in the accompanying consolidated unaudited interim financial statements.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial statements.

These determinations were made based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances, giving due consideration to materiality.

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A comprehensive discussion of the Company’s critical accounting policies, management estimates and significant accounting policies followed in the preparation of the financial statements is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended December 31, 2021.

There have been no significant changes in critical accounting policies, management estimates or accounting policies since the year ended December 31, 2022.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of the federal securities laws.

These forward-looking statements are based upon management’s current expectations, predictions, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and the costs and potential liability for environmental-related matters and the lead pigment and lead-based paint litigation.

Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “believe,” “expect,” “may,” “will,” “should,” “project,” “could,” “plan,” “goal,” “target,” “potential,” “seek,” “intend,” “aspire” or “anticipate” or the negative thereof or comparable terminology.

Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “believe,” “expect,” “may,” “will,” “should,” “project,” “could,” “plan,” “goal,” “target,” “potential,” “seek,” “intend,” “aspire,” “strive” or “anticipate” or the negative thereof or comparable terminology.

Readers are cautioned not to place undue reliance on any forward-looking statements.

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• changes in raw material and energy supplies and pricing;

• changes in our relationships with customers and suppliers;

• disruptions in the supply chain, including those caused by industry capacity constraints, labor shortages, raw material availability, and logistics delays and constraints;

• cybersecurity incidents and other disruptions to our information technology systems and operations;

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

• disruptions in the supply chain, including those caused by industry capacity constraints, labor shortages, raw material availability, and transportation and logistics delays and constraints;

• adverse weather conditions or natural disasters, including those that may be related to climate change or otherwise, and public health crises, including the COVID-19 pandemic;

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

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

• our ability to attain cost savings from productivity initiatives;

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

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

• our ability to achieve expected benefits of restructuring and productivity initiatives;

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

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

• the achievement of growth in foreign markets, such as Asia, Europe and South America;

• cybersecurity incidents and other disruptions to our information technology systems and operations;

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

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

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

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

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

• adverse weather conditions or natural disasters, including due to the impacts of climate change;

• public health crises, including the duration, severity and scope of the COVID-19 pandemic and the actions implemented by international, federal, state and local public health and governmental authorities to contain and combat COVID-19, which may exacerbate one or more of the aforementioned and/or other risks, uncertainties and factors more fully described in the Company’s reports filed with the Securities and Exchange Commission.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered a complete list.

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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-Q

Item 2. Management’s Discussion and Analysis