What changed in this filing

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Item 1. Financial Statements

2023-07-25 compared with 2023-04-25 · 221 added, 106 removed, 648 unchanged (34% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net sales $ 6,240.6 $ 5,872.3 $ 11,683.0 $ 10,871.0

4 unchanged sentences

Percent to net sales 28.2 % 27.2 % 29.6 % 28.4 %

Other general expense - net 10.5 2.5

Other general (income) expense - net ( 32.5 ) 4.4 ( 22.0 ) 6.9

Impairment 34.0 — 34.0 —

Interest expense 111.7 92.9 221.0 181.3

13 unchanged sentences

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

(in millions) Three Months Ended

(in millions) Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Net income $ 793.7 $ 577.9 $ 1,271.1 $ 948.7

4 unchanged sentences

Amounts reclassified from AOCI (2)

( 4.5 ) 1.5 ( 9.0 ) 2.5

Unrealized net gains on cash flow hedges:

3 unchanged sentences

Comprehensive income $ 808.2 $ 405.3 $ 1,320.4 $ 732.5

(1) The three months ended March 31, 2023 and 2022 include unrealized unrealized gains (losses), net of taxes, of $( 4.2 ) million and $ 8.1 million, respectively, related to net investment hedges.

(1) The three months ended June 30, 2023 and 2022 include unrealized (losses) gains, net of taxes, of $( 8.6 ) million and $ 30.8 million, respectively, related to net investment hedges.

The six months ended June 30, 2023 and 2022 include unrealized (losses) gains, net of taxes, of $( 12.8 ) million and $ 38.9 million, respectively, related to net investment hedges.

See Note 14 for additional information.

(2) Net of taxes of $ 1.7 million and $( 0.2 ) million in the three months ended March 31, 2023 and 2022, respectively.

(3) Net of taxes of $ 0.3 million in the three months ended March 31, 2023 and 2022.

(2) Net of taxes of $ 1.3 million and $( 0.6 ) million for the three months ended June 30, 2023 and 2022, respectively.

Net of taxes of $ 3.0 million and $( 0.8 ) million for the six months ended June 30, 2023 and 2022, respectively.

(3) Net of taxes of $ 0.3 million and $ 0.4 million for the three months ended June 30, 2023 and 2022, respectively.

Net of taxes of $ 0.6 million and $ 0.7 million for the six months months ended June 30, 2023 and 2022, respectively.

See notes to condensed consolidated financial statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions) March 31,

(in millions) June 30,

2023 December 31,

2022 March 31,

2022 June 30,

Current assets:

28 unchanged sentences

257.1 million, 258.9 million and 259.2 million shares outstanding

at March 31, 2023, December 31, 2022 and March 31, 2022, respectively

at June 30, 2023, December 31, 2022 and June 30, 2022, respectively

91.4 91.2 91.0

8 unchanged sentences

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (UNAUDITED)

(in millions) Three Months Ended

2023 March 31,

(in millions) Six Months Ended

2023 June 30,

OPERATING ACTIVITIES

4 unchanged sentences

Amortization of intangible assets 166.7 156.5

Gain on divestiture of business ( 20.1 ) —

Impairment 34.0 —

Amortization of credit facility and debt issuance costs 4.5 3.3

11 unchanged sentences

Costs incurred for environmental-related matters ( 12.4 ) ( 12.0 )

Costs incurred for restructuring ( 11.7 ) —

Other ( 119.0 ) 12.2

3 unchanged sentences

Acquisitions of businesses, net of cash acquired ( 23.2 ) ( 211.8 )

Proceeds from divestiture of business 33.0 —

Proceeds from sale of assets 47.2 14.9

2 unchanged sentences

FINANCING ACTIVITIES

Net increase in short-term borrowings 503.0 972.2

Net (decrease) increase in short-term borrowings ( 171.6 ) 1,248.5

Payments of long-term debt — ( 260.2 )

Payments of cash dividends ( 312.8 ) ( 307.1 )

6 unchanged sentences

Effect of exchange rate changes on cash 3.5 ( 10.9 )

Net (decrease) increase in cash and cash equivalents ( 47.4 ) 235.4

Net increase in cash and cash equivalents 10.6 146.9

Cash and cash equivalents at beginning of year 198.8 165.7

19 unchanged sentences

Balance at March 31, 2023 $ 91.3 $ 3,998.0 $ 3,844.1 $ ( 4,100.8 ) $ ( 665.8 ) $ 3,166.8

Net income 793.7 793.7

Other comprehensive income 14.5 14.5

Treasury stock purchased ( 234.2 ) ( 234.2 )

Stock-based compensation activity 0.1 47.5 ( 0.1 ) 47.5

Other adjustments ( 0.9 ) ( 0.9 )

Cash dividends -- $ 0.605 per share

( 156.3 ) ( 156.3 )

Balance at June 30, 2023 $ 91.4 $ 4,044.6 $ 4,481.5 $ ( 4,335.1 ) $ ( 651.3 ) $ 3,631.1

(in millions, except per share data) Common

14 unchanged sentences

Balance at March 31, 2022 $ 91.0 $ 3,842.7 $ 2,341.5 $ ( 3,298.9 ) $ ( 742.0 ) $ 2,234.3

Net income 577.9 577.9

Other comprehensive loss ( 172.6 ) ( 172.6 )

Treasury stock purchased ( 296.4 ) ( 296.4 )

Stock-based compensation activity 41.5 41.5

Other adjustments ( 3.9 ) 0.1 ( 0.1 ) ( 3.9 )

Cash dividends -- $ 0.60 per share

( 156.2 ) ( 156.2 )

Balance at June 30, 2022 $ 91.0 $ 3,880.3 $ 2,763.3 $ ( 3,595.4 ) $ ( 914.6 ) $ 2,224.6

See notes to condensed consolidated financial statements.

2 unchanged sentences

(millions of dollars, unless otherwise noted)

Periods ended March 31, 2023 and 2022

Periods ended June 30, 2023 and 2022

NOTE 1 - BASIS OF PRESENTATION

4 unchanged sentences

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

The results of operations for the three months ended March 31, 2023 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 and six months ended June 30, 2023 are not indicative of the results to be expected for the full year as business is seasonal in nature with the majority of Net sales for the Reportable Segments traditionally occurring during the second and third quarters.

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

Since December 31, 2022, a ccounting estimates were revised as necessary during the first three months of 2023 based on new information and changes in facts and circumstances.

Certain amounts in the condensed consolidated financial statements for the three months ended March 31, 2022 have been reclassified to conform to the 2023 presentation.

Since December 31, 2022, a ccounting estimates were revised as necessary during the first six months of 2023 based on new information and changes in facts and circumstances.

Certain amounts in the condensed consolidated financial statements for the three and six months ended June 30, 2022 have been reclassified to conform to the 2023 presentation.

The following represents updates to certain significant accounting policy disclosures.

10 unchanged sentences

These arrangements primarily consist of our new headquarters currently under construction.

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

During the second quarter of 2023, the Company received $ 72.2 million pursuant to the transaction for a total amount in 2023 of $ 138.7 million.

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.

5 unchanged sentences

On the invoice due date, the Company settles the outstanding amount with the respective financial institution.

Liabilities associated with these arrangements are recorded in Accounts payable on the Consolidated Balance Sheets and amounted to $ 251.3 million, $ 258.1 million and $ 250.6 million at March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Liabilities associated with these arrangements are recorded in Accounts payable on the Consolidated Balance Sheets and amounted to $ 242.3 million, $ 258.1 million and $ 267.1 million at June 30, 2023, December 31, 2022 and June 30, 2022, respectively.

Non-Traded Investments

6 unchanged sentences

The following table summarizes the balances related to the investments:

March 31, December 31, March 31,

June 30, December 31, June 30,

2023 2022 2022

18 unchanged sentences

NOTE 3 - ACQUISITIONS AND DIVESTITURES

Pending Acquisition

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.

Acquisitions Closed in Prior Year

4 unchanged sentences

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

During the first quarter of 2023, the Company revised the purchase price allocation from Goodwill to the various net assets acquired through its 2022 acquisition of ICA.

Goodwill decreased $ 149.6 million and deferred tax liabilities increased $ 59.0 million, offset by an increase in finite-lived intangible assets of $ 192.7 million, with the remaining purchase price

allocated to various other assets acquired and liabilities assumed in the transaction.

During 2023, the Company revised the purchase price allocation from Goodwill to the various net assets acquired through its 2022 acquisition of ICA.

Goodwill decreased $ 149.6 million and deferred tax liabilities increased $ 59.0 million, offset by an increase in finite-lived intangible assets of $ 192.7 million, with the remaining purchase price allocated to various other assets acquired and liabilities assumed in the transaction.

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

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.

Furthermore, in accordance with certain purchase agreements, the Company paid $ 22.9 million in 2023 related to holdbacks for acquisitions completed in prior years.

The Company has finalized the purchase price allocation for Sika AG and expects to complete this process for the remaining 2022 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.

Subsequent Events

Pending Acquisition

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.

The Company completed the divestiture of a non-core domestic aerosol business within the Consumer Brands Group in April 2023.

This transaction resulted in the recognition of a $ 20.1 million gain within the Administrative segment.

This gain was recorded within the Other general (income) expense - net caption in the Statements of Consolidated Income during the second quarter of 2023.

In April 2023, the Company signed a definitive agreement to divest the Consumer Brand Group’s China architectural business with annual revenue of approximately $ 100 million and 300 employees.

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

The transaction is expected to close in the second half of 2023, subject to regulatory approval and other customary closing conditions.

We expect to incur a loss in the second quarter of 2023, but are unable to estimate the amount at this time due to uncertainty of the impact closing conditions will have on the transaction.

The Company also signed a definitive agreement to divest a non-core domestic aerosol business within the Consumer Brands Group.

This transaction closed in April 2023 and will result in the recognition of an immaterial gain during the second quarter of 2023.

The transaction is subject to customary closing conditions.

Refer to Note 4 for further information regarding the assets and liabilities held for sale as of June 30, 2023.

NOTE 4 - HELD FOR SALE

During the second quarter of 2023, the Company determined the China architectural business within the Consumer Brands Group reportable segment met the criteria to be classified as held for sale in accordance with the Property, Plant, and Equipment Topic of the ASC.

The assets and liabilities held for sale as of June 30, 2023 are measured at the lower of carrying value or fair value less cost to sell and were determined to not meet the criteria of a discontinued operation as the pending divestiture did not represent a strategic shift for the Company.

Depreciation and amortization expense was not recorded for the period in which the long-lived assets were classified as held for sale.

Following the prescribed order of impairment testing, the Company first reviewed individual tangible and intangible assets under their applicable Topic of the ASC to determine if their carrying value was higher than their respective fair value.

As a result, the Company recorded an impairment charge of $ 6.9 million within the Consumer Brands Group related to China architectural trademarks using the royalty savings valuation method.

For more information on the Company’s Goodwill and Intangible Assets critical accounting policy, refer to 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.

The Company then compared the updated carrying value of the assets and liabilities comprising the disposal group as a whole to its respective fair value which was determined to be equal to the selling price, less costs to sell.

As a result of this comparison, the Company recorded an additional impairment charge of $ 27.1 million within the Administrative segment in the second quarter of 2023 and classified the remaining assets as Other current assets and remaining liabilities as Other accruals at June 30, 2023.

The disposal group is classified as level 2 in the fair value hierarchy as it is based on a specific price and other observable inputs for similar items with no active market.

The assets, liabilities and valuation adjustment held for sale at June 30, 2023 were as follows:

June 30, 2023

Tangible assets $ 22.5

Intangible assets 93.3

Valuation adjustment ( 27.1 )

Total assets $ 88.7

Total liabilities $ 20.9

NOTE 5 – 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.

In the fourth quarter of 2022, the Company announced 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.

Multiple alternatives were considered to determine the course of action related to the focus areas.

The Company ultimately determined that divestiture, rather than restructuring, of the China architectural business and a non-core domestic aerosol business was the highest and best use of resources to drive long-term shareholder value.

For more information on these divestitures, see Note 3.

As a result of continuing evaluation in the second quarter of 2023, the Company determined that these divestitures and previous actions under the Restructuring Plan achieved the original objectives of the focus areas.

Accordingly, and in conjunction with other restructuring actions during 2023, there is no additional expense expected to be incurred under the Restructuring Plan.

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

4 unchanged sentences

$ 25.6 $ 16.1 $ — $ 41.7

Provisions for severance and related costs (1)

Severance and related costs (1)

3.6 ( 0.2 ) 1.3 4.7

Payments ( 7.7 ) ( 4.0 ) — ( 11.7 )

Currency impact and other adjustments ( 2.0 ) 0.3 — ( 1.7 )

Balance at March 31, 2023 $ 16.9 $ 12.3 $ — $ 29.2

Other qualified costs (2)

10.6 — — 10.6

Total 14.2 ( 0.2 ) 1.3 15.3

Payments, currency and other adjustments ( 31.8 ) ( 8.8 ) ( 1.3 ) ( 41.9 )

Balance at June 30, 2023 $ 8.0 $ 7.1 $ — $ 15.1

Restructuring Plan Expense:

2 unchanged sentences

Total expected expense $ 39.8 $ 22.0 $ 1.3 $ 63.1

(1) Provisions were primarily recorded in Selling, general and administrative expenses.

(1) Severance and related costs were recorded in Selling, general and administrative expenses.

(2) Other qualified costs of $ 5.7 million were recorded in Selling, general and administrative expenses and the remaining $ 4.9 million was recorded in Cost of goods sold.

NOTE 6 - INVENTORIES

Included in Inventories were the following:

March 31, December 31, March 31,

June 30, December 31, June 30,

2023 2022 2022

9 unchanged sentences

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

March 31, December 31, March 31,

June 30, December 31, June 30,

2023 2022 2022

7 unchanged sentences

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

As a result of the Latin America architectural paint business moving to the Consumer Brands Group reportable segment, the Company performed a quantitative impairment analysis for the impacted reporting units and determined both before and after the change, there is no indication of impairment.

In addition, see Note 4 for information on the impairment test performed as a result of the China architectural business classification change to held for sale.

NOTE 8 - DEBT

The following table summarizes the Company’s outstanding debt:

March 31, December 31, March 31,

June 30, December 31, June 30,

2023 2022 2022

3 unchanged sentences

Short-Term Borrowings

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.

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 obtaining the issuance, renewal, extension, and increase of a letter of credit under the credit agreement from June 20, 2023 to December 20, 2027.

On May 1, 2023, the Company amended its credit agreement dated May 9, 2016, as amended, to extend the maturity of $ 125.0 million of the commitments available for borrowing and obtaining the issuance, renewal, extension, and increase of a letter of credit under the credit agreement from June 20, 2023 to June 20, 2028.

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

At March 31, 2023 , the Company had unused

capacity under its various credit agreements of $ 2.228 billion.

At June 30, 2023 , the Company had unused capacity under its various credit agreements of $ 2.874 billion.

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

March 31, December 31, March 31,

June 30, December 31, June 30,

2023 2022 2022

1 unchanged sentence

Domestic commercial paper $ 805.6 $ 938.5 $ 1,708.8

Revolving credit facility — — 250.0

Foreign facilities 0.6 39.6 53.2

2 unchanged sentences

Domestic commercial paper 5.4 % 4.6 % 1.7 %

Revolving credit facility — % — % 2.6 %

Foreign facilities 11.4 % 6.7 % 6.5 %

8 unchanged sentences

2023 2022 2023 2022 2023 2022

Three Months Ended March 31:

Three Months Ended June 30:

Service cost $ 0.8 $ 1.2 $ 1.0 $ 1.7 $ 0.2 $ 0.3

Interest cost 1.1 0.8 2.8 0.9 1.8 1.6

Expected return on assets ( 1.9 ) ( 1.9 ) ( 3.1 ) ( 2.5 )

Amortization of prior service cost (credit) 0.4 0.3 ( 6.0 ) ( 0.1 )

Amortization of actuarial (gains) losses ( 0.3 ) 0.9 0.1 1.0

Net periodic benefit cost (credit) $ 0.4 $ 0.4 $ 0.4 $ 1.0 $ ( 3.9 ) $ 2.8

Six Months Ended June 30:

Service cost $ 1.6 $ 2.5 $ 2.1 $ 3.3 $ 0.3 $ 0.6

2 unchanged sentences

Amortization of prior service cost (credit) 0.7 0.5 ( 0.1 ) ( 0.1 ) ( 12.0 ) ( 0.2 )

Amortization of actuarial losses ( 0.4 ) 0.1 1.1

Total $ 0.5 $ 0.4 $ 0.4 $ 1.0 $ ( 4.0 ) $ 2.7

Amortization of actuarial (gains) losses ( 0.7 ) 1.0 0.1 2.1

Net periodic benefit cost (credit) $ 0.9 $ 0.8 $ 0.8 $ 2.0 $ ( 7.9 ) $ 5.5

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

14 unchanged sentences

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 March 31, 2023 and 2022, the Company had accruals reported on the balance sheet as Other long-term liabilities of $ 248.2 million and $ 272.5 million , respectively.

Estimated costs of current investigation and remediation activities of $ 50.2 million and $ 45.9 million are included in Other accruals at March 31, 2023 and 2022 , respectively.

At June 30, 2023 and 2022, the Company had accruals reported on the balance sheet as Other long-term liabilities of $ 240.7 million and $ 269.2 million , respectively.

Estimated costs of current investigation and remediation activities of $ 50.2 million and $ 45.9 million are included in Other accruals at June 30, 2023 and 2022 , respectively.

Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site.

If the Company's future loss contingency is ultimately determined to be at the unaccrued maximum of the estimated range of possible outcomes for every site for which costs can be reasonably estimated, the Company's accrual for environmental-related activities would be $ 83.5 million higher than the minimum accruals at March 31, 2023.

If the Company's future loss contingency is ultimately determined to be at the unaccrued maximum of the estimated range of possible outcomes for every site for which costs can be reasonably estimated, the Company's accrual for environmental-related activities would be $ 85.9 million higher than the minimum accruals at June 30, 2023.

Additionally, costs for environmental-related activities may not be reasonably estimable at early stages of investigation and therefore would not be included in the unaccrued maximum amount.

Four of the Company’s currently and formerly owned manufacturing sites (Major Sites) account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at March 31, 2023 .

At March 31, 2023 , $ 254.5 million, or 85.3 % of the total accrual, related directly to the Major Sites.

In the aggregate unaccrued maximum of $ 83.5 million at March 31, 2023 , $ 62.3 million, or 74.6 %, related to the Major Sites.

At June 30, 2023 , $ 248.6 million, or 85.4 % of the total accrual, related directly to the Major Sites.

In the aggregate unaccrued maximum of $ 85.9 million at June 30, 2023 , $ 60.9 million, or 70.9 %, related to the Major Sites.

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

6 unchanged sentences

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 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/design phase under a state EPA program.

5 unchanged sentences

Unasserted claims could have a material effect on the Company's loss contingency as more information becomes available over time.

At March 31, 2023 , the Company did not have material loss contingency accruals related to unasserted claims.

At June 30, 2023 , the Company did not have material loss contingency accruals related to unasserted claims.

Management does not expect that a material portion of unrecognized loss contingencies will be recoverable through insurance, indemnification agreements or other sources.

22 unchanged sentences

The Company, along with other companies, is and has been a defendant in a number of legal proceedings, including individual personal injury actions, purported class actions, and actions brought by various counties, cities, school districts and other government-related entities, arising from the manufacture and sale of lead pigments and lead-based paints.

The plaintiffs’ claims have been based upon various legal theories, including negligence, strict liability, breach of warranty, negligent misrepresentations and omissions, fraudulent misrepresentations and omissions, concert of action, civil conspiracy, violations of unfair trade practice and consumer protection laws, enterprise liability, market share liability, public

nuisance, unjust enrichment and other theories.

The plaintiffs have sought various damages and relief, including personal injury and property damage, costs relating to the detection and abatement of lead-based paint from buildings, costs associated with a public education campaign, medical monitoring costs and others.

39 unchanged sentences

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

On May 5, 2023, the Commonwealth Court reversed both trial courts’ orders denying the defendants’ preliminary objections and remanded the cases for entry of an order dismissing the actions.

On June 5, 2023, Montgomery and Lehigh Counties each filed a petition for allowance of appeal in the Supreme Court of Pennsylvania.

The Company filed its opposition briefs on June 20, 2023.

Litigation seeking damages from alleged personal injury.

13 unchanged sentences

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.

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.

8 unchanged sentences

On April 14, 2023, the defendants filed a reply in support of their motion to strike.

Oral argument is set for September 26, 2023.

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

20 unchanged sentences

On February 21, 2023, the insurers filed with the Ohio Supreme Court a notice of appeal and memorandum in support of jurisdiction, to which the Company responded in opposition on March 22, 2023.

On May 9, 2023, the Ohio Supreme Court accepted the insurers’ appeal.

The insurers filed their merit brief with the Ohio Supreme Court on July 17, 2023.

Briefing is scheduled to be completed in September 2023.

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.

3 unchanged sentences

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 (collectively, the NJ DEP) filed a lawsuit against the Company in the Superior Court of New Jersey Law Division in Camden County, New Jersey.

(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.

7 unchanged sentences

First Quarter $ 0.605 $ 156.5 $ 0.60 $ 150.9

Second Quarter 0.605 156.3 0.60 156.2

Total $ 1.21 $ 312.8 $ 1.20 $ 307.1

Treasury Stock

The Company acquires its common stock for general corporate purposes through its publicly announced share repurchase program.

As of March 31, 2023, the Company had remaining authorization from its Board of Directors to purchase 43.9 million shares of its common stock.

The table below summarizes share repurchases during the three months ended March 31, 2023 and 2022:

Three Months Ended

Treasury stock purchases $ 301.7 $ 407.1

As of June 30, 2023, the Company had remaining authorization from its Board of Directors to purchase 42.9 million shares of its common stock.

The table below summarizes share repurchases during the three and six months ended June 30, 2023 and 2022:

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Treasury stock purchases (in millions) $ 234.2 $ 296.4 $ 535.9 $ 703.5

Treasury stock purchases (shares) 1,000,000 1,100,000 2,300,000 2,550,000

2 unchanged sentences

Other Activity

During the three months ended March 31, 2023, 120,769 stock options were exercised at a weighted average price per share of $ 95.38 .

During the six months ended June 30, 2023, 384,767 stock options were exercised at a weighted average price per share of $ 92.75 .

In addition, 301,651 restricted stock units vested during the same period.

7 unchanged sentences

Amounts reclassified from AOCI ( 9.0 ) ( 1.8 ) ( 10.8 )

Balance at March 31, 2023 $ ( 770.6 ) $ 73.8 $ 31.0 $ ( 665.8 )

Balance at June 30, 2023 $ ( 750.7 ) $ 69.3 $ 30.1 $ ( 651.3 )

Adjustments Pension and

4 unchanged sentences

Amounts reclassified from AOCI 2.5 ( 2.0 ) 0.5

Balance at March 31, 2022 $ ( 745.7 ) $ ( 31.2 ) $ 34.9 $ ( 742.0 )

Balance at June 30, 2022 $ ( 918.8 ) $ ( 29.7 ) $ 33.9 $ ( 914.6 )

NOTE 14 - DERIVATIVES AND HEDGING

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The Company has U.S.

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

The contracts were entered into on February 13, 2020, November 8, 2021 and March 28, 2023 with various counterparties.

The total notional value of the outstanding contracts entered into on each date are $ 500.0 million, $ 162.7 million, and $ 150.0 million, respectively, and mature on June 1, 2024, June 1, 2027 and August 8, 2024, respectively.

Dollar to Euro cross currency swap contracts with various counterparties to hedge the Company's net investment in its European operations.

The outstanding contracts as of June 30, 2023 are summarized in the table below.

Contract Date Notional

Value Maturity Date

February 13, 2020 $ 500.0 June 1, 2024

November 8, 2021 162.7 June 1, 2027

March 28, 2023 150.0 August 8, 2024

June 28, 2023 200.0 August 8, 2025

During the term of the contracts, the Company will pay fixed-rate interest in Euros and receive fixed-rate interest in U.S.

1 unchanged sentence

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

The following table summarizes amounts recognized in Consolidated Balance Sheets for cross currency swap contracts.

The following table summarizes amounts recognized in the Consolidated Balance Sheets for cross currency swap contracts.

See Note 15 for additional information on the fair value of these contracts.

March 31, December 31, March 31,

June 30, December 31, June 30,

2023 2022 2022

Other assets $ — $ 9.1 $ 15.4

Other accruals 5.0 — —

Other long-term liabilities 2.8 — —

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 three months ended March 31, 2023 and 2022.

Three Months Ended

March 31, March 31,

Unrealized (losses) gains $ ( 5.6 ) $ 10.7

The following table summarizes the unrealized (losses) gains for the three and six months ended June 30, 2023 and 2022.

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30,

2023 2022 2023 2022

(Losses) gains $ ( 11.3 ) $ 40.8 $ ( 16.9 ) $ 51.5

Tax effect 2.7 ( 10.0 ) 4.1 ( 12.6 )

Unrealized (losses) gains, net of taxes

(Losses) gains, net of taxes

$ ( 8.6 ) $ 30.8 $ ( 12.8 ) $ 38.9

1 unchanged sentence

The Company enters into foreign currency option and forward contracts with maturity dates less than twelve months primarily to hedge against value changes in foreign currency.

There were no material foreign currency option and forward contracts outstanding at March 31, 2023, December 31, 2022 and March 31, 2022.

There were no material foreign currency option and forward contracts outstanding at June 30, 2023, December 31, 2022 and June 30, 2022.

The related gains and losses are recorded in Other (income) expense - net.

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Significant unobservable inputs

Except for the acquisition related fair value measurements described in Note 3 and the reporting unit impairment analysis described in Note 6, there were no assets and liabilities measured at fair value on a nonrecurring basis.

Except for the acquisition related fair value measurements described in Note 3, the assets held for sale described in Note 4, and the reporting unit impairment analysis described in Note 7, there were no assets and liabilities measured at fair value on a nonrecurring basis.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

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The level 2 investments are valued based on vendor or broker models.

The cost basis of the investment funds was $ 68.3 million and $ 67.2 million at March 31, 2023 and December 31, 2022, respectively.

The cost basis of the investment funds was $ 75.0 million and $ 67.2 million at June 30, 2023 and December 31, 2022, respectively.

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

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The Company's publicly traded debt and non-publicly traded debt are classified as level 1 and level 2, respectively, in the fair value hierarchy.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Value Carrying

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Balance sheet caption:

Accounts receivable Other

Accounts receivable, net Other

current assets Other

accruals Other

accruals Other long-term

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

Balance at March 31, 2023 2,909.2 45.9 141.6 229.2 7.7

Balance at June 30, 2023 3,117.8 46.0 141.4 267.2 8.6

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.

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

The Company only offers an assurance type warranty on products sold, and there is no material service to the customer beyond fixing defects that existed at the time of sale and no warranties are sold separately.

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

Three Months Ended

Six Months Ended

Beginning balance $ 56.6 $ 48.9

3 unchanged sentences

NOTE 17 - OTHER

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:

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Provisions for environmental matters - net $ 0.6 $ 4.1 $ 13.3 $ 4.7

Gain on divestiture of business (see Note 3) ( 20.1 ) — ( 20.1 ) —

(Gains) losses on sale or disposition of assets ( 16.2 ) 0.3 ( 20.8 ) 2.2

Other general expense - net $ 10.5 $ 2.5

Other 3.2 — 5.6 —

Other general (income) expense - net $ ( 32.5 ) $ 4.4 $ ( 22.0 ) $ 6.9

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.

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Investment (gains) losses $ ( 15.5 ) $ 8.2 $ ( 18.7 ) $ 14.9

Net expense from banking activities 3.9 3.0 7.8 5.9

Foreign currency transaction related losses (gains) 6.8 4.1

Foreign currency transaction related losses 16.8 6.2 23.6 10.3

Miscellaneous pension (credit) expense ( 5.1 ) 1.0 ( 10.2 ) 1.9

10 unchanged sentences

NOTE 18 - INCOME TAXES

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 effective tax rate was 21.6 % and 21.9 % for the second quarter and first six months of 2023, respectively, compared to 21.9 % and 21.0 % for the second quarter and first six months of 2022, respectively.

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

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

3 unchanged sentences

At December 31, 2022, the Company had accrued $ 36.6 million for the potential payment of income tax interest and penalties.

There were no significant changes to any of the balances of unrecognized tax benefits at December 31, 2022 during the three months ended March 31, 2023.

There were no significant changes to any of the balances of unrecognized tax benefits at December 31, 2022 during the six months ended June 30, 2023.

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

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

As of March 31, 2023, the federal statute of limitations had not expired for the 2013 through 2022 tax years.

At March 31, 2023, the Company is subject to non-U.S.

As of June 30, 2023, the federal statute of limitations had not expired for the 2013 through 2022 tax years.

At June 30, 2023, the Company is subject to non-U.S.

income tax examinations for the tax years of 2014 through 2022.

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net income $ 793.7 $ 577.9 $ 1,271.1 $ 948.7

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Stock options and other contingently issuable shares (1)

2.9 3.7 3.0 4.0

Average shares outstanding assuming dilution 258.9 261.8 259.3 262.5

Diluted net income per share $ 3.07 $ 2.21 $ 4.90 $ 3.61

(1) There were 2.8 million and 1.0 million of stock options and other contingently issuable shares excluded due to their anti-dilutive effect for the three months ended March 31, 2023 and 2022, respectively.

(1) There were 2.0 million and 2.8 million of stock options and other contingently issuable shares excluded due to their anti-dilutive effect for the three and six months ended June 30, 2023, respectively.

There were 1.0 million of stock options and other contingently issuable shares excluded due to their anti-dilutive effect for the three and six months ended June 30, 2022.

NOTE 20 - REPORTABLE SEGMENT INFORMATION

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While this changed the composition of certain reportable segments, the Company determined it continues to have three reportable segments:

Paint Stores Group (formally known as The Americas Group), Consumer Brands Group and Performance Coatings Group (individually, a Reportable Segment and collectively, the Reportable Segments).

Paint Stores Group (formerly known as The Americas Group), Consumer Brands Group and Performance Coatings Group (individually, a Reportable Segment and collectively, the Reportable Segments).

Refer to Note 23 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for further details on the Company's Reportable Segments.

Certain information within the Form 10-K Reportable Segment Information Note impacted by the realignment has been revised herein.

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Group Consumer Brands

8 unchanged sentences

Income before income taxes $ 849.3 $ 110.3 $ 272.7 $ ( 220.2 ) $ 1,012.1

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Group Consumer Brands

8 unchanged sentences

Income before income taxes $ 684.0 $ 79.9 $ 196.8 $ ( 220.8 ) $ 739.9

Six Months Ended June 30, 2023

Group Consumer Brands

Group Performance

Group Administrative Consolidated

Net external sales $ 6,357.8 $ 1,818.5 $ 3,504.7 $ 2.0 $ 11,683.0

Intersegment transfers — 2,687.1 109.8 ( 2,796.9 ) —

Total net sales and intersegment transfers $ 6,357.8 $ 4,505.6 $ 3,614.5 $ ( 2,794.9 ) $ 11,683.0

Segment profit $ 1,376.0 $ 204.1 $ 491.6 $ 2,071.7

Interest expense $ ( 221.0 ) ( 221.0 )

Administrative expenses and other ( 223.8 ) ( 223.8 )

Income before income taxes $ 1,376.0 $ 204.1 $ 491.6 $ ( 444.8 ) $ 1,626.9

Six Months Ended June 30, 2022

Group Consumer Brands

Group Performance

Group Administrative Consolidated

Net external sales $ 5,672.3 $ 1,752.2 $ 3,444.4 $ 2.1 $ 10,871.0

Intersegment transfers — 2,567.2 105.6 ( 2,672.8 ) —

Total net sales and intersegment transfers $ 5,672.3 $ 4,319.4 $ 3,550.0 $ ( 2,670.7 ) $ 10,871.0

Segment profit $ 1,112.8 $ 161.4 $ 341.3 $ 1,615.5

Interest expense $ ( 181.3 ) ( 181.3 )

Administrative expenses and other ( 233.2 ) ( 233.2 )

Income before income taxes $ 1,112.8 $ 161.4 $ 341.3 $ ( 414.5 ) $ 1,201.0

In the reportable segment financial information, Segment profit was total net sales and intersegment transfers less operating costs and expenses.

2 unchanged sentences

All intersegment transfers are eliminated within the Administrative segment.

Net external sales of all consolidated foreign subsidiaries were $ 1.087 billion and $ 1.078 billion for the three months ended March 31, 2023 and 2022, respectively.

Long-lived assets of these subsidiaries totaled $ 3.458 billion and $ 2.796 billion at March 31, 2023 and 2022, respectively.

Net external sales of all consolidated foreign subsidiaries were $ 1.150 billion and $ 1.121 billion for the three months ended June 30, 2023 and 2022, respectively.

Net external sales of all consolidated foreign subsidiaries were $ 2.237 billion and $ 2.198 billion for the six months ended June 30, 2023 and 2022, respectively.

Long-lived assets of these subsidiaries totaled $ 3.348 billion and $ 2.833 billion at June 30, 2023 and 2022, respectively.

Domestic operations accounted for the remaining net external sales and long-lived assets.

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements