What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-24 compared with 2023-07-25 · 160 added, 152 removed, 193 unchanged (62% of the section changed)

3 unchanged sentences

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 - 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.

2 unchanged sentences

The Company will report segment results for the newly realigned Paint Stores Group and Consumer Brands Group, for both current and prior periods presented herein.

• Consolidated net sales increased 6.3% in the quarter to $6.241 billion

• Consolidated net sales increased 1.1% in the quarter to $6.117 billion and 5.2% in the first nine months of 2023 to $17.800 billion

◦ Net sales from stores in U.S.

and Canada open more than twelve calendar months increased 9.5% in the quarter

• Diluted net income per share increased 38.9% to $3.07 per share in the quarter compared to $2.21 per share in the second quarter 2022

• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased 31.4% to $1.283 billion in the quarter, or 20.6% of net sales

The Company delivered record net sales in the second quarter, due to mid-single digit percentage impacts from selling price increases and mid-single digit volume growth due to higher architectural sales volume in the Paint Stores Group, partially offset by a high-single digit sales volume decrease in the Performance Coatings Group.

Net sales growth was driven primarily by protective and marine, commercial, property maintenance and residential repaint end markets within the Paint Stores Group.

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

Growth was strongest in Automotive Refinish, General Industrial and Industrial Wood, offset by softness in Packaging and Coil.

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

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

Entering the second half of 2023, we face challenging year-over-year comparisons and anticipate a wide variation in demand by region and end market.

We expect new residential demand to remain soft, particularly in North America, but anticipate solid demand in commercial, property maintenance, protective and marine and residential repaint.

We continue to see the impacts of slow economic recovery in Europe and Asia.

We will continue to prioritize investments in new stores, sales and technical personnel, innovation, digital and other growth initiatives that will allow us to capitalize on our strengths both now and as markets begin to recover more fully.

and Canada open more than twelve calendar months increased 3.0% in the quarter and 8.3% in the first nine months of 2023

• Diluted net income per share increased 12.6% to $2.95 per share in the quarter compared to $2.62 per share in the third quarter 2022 and 26.0% to $7.85 per share in the first nine months of 2023 compared to $6.23 in the first nine months of 2022

• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in the quarter increased 12.6% to $1.266 billion in the quarter, or 20.7% of net sales

• Generated net operating cash of $2.603 billion, or 14.6% of net sales, during the first nine months of 2023

The Company delivered strong results in the third quarter despite a challenging year-over-year comparison, due to low-single digit percentage impacts from selling price increases, modest net benefit from acquisitions and divestitures and favorable currency translation rate changes.

This growth was mostly offset by a low-single digit volume decrease primarily driven by the Consumer Brands and Performance Coatings Groups.

The divestiture of the China architectural business, which was completed on August 1, 2023, also reduced sales volume as compared to the prior year.

In the Performance Coatings Group, net sales benefited from pricing actions and contributions from acquisitions, but was more than offset by volume declines.

Consolidated gross profit margin in the quarter expanded both sequentially and year-over-year driven by pricing discipline and moderating raw material costs.

Our fourth quarter is often sequentially lower due to seasonal trends, and we continue to see inconsistent demand by region and end market.

We remain committed to our differentiated strategy, capabilities, product and service solutions, and our people.

Improved visibility into the second half of 2023, coupled with strong first half results, gives us confidence in our ability to continue delivering above market growth and returns.

Given our strong year-to-date results, we have confidence in our ability to continue delivering above market growth and returns.

We employ a disciplined capital deployment strategy, while maintaining a balanced approach toward driving value for our customers and returns to our shareholders.

1 unchanged sentence

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 $209.4 million in cash and $2.874 billion of unused capacity under our credit facilities at June 30, 2023.

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

We have a strong liquidity position, with $503.4 million in cash and $3.342 billion of unused capacity under our credit facilities at September 30, 2023.

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

RESULTS OF OPERATIONS

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

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 our 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 nine months ended September 30, 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 six months ended June 30, 2023 and 2022.

Three Months Ended June 30,

The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30,

2023 2022 $ Change % Change Currency Impact Acquisitions

1 unchanged sentence

Paint Stores Group $ 3,537.1 $ 3,414.0 $ 123.1 3.6 % (0.1) % — %

Consumer Brands Group 945.8 900.0 45.8 5.1 % (0.3) % nm

Consumer Brands Group 854.8 890.6 (35.8) (4.0) % 0.7 % (3.0) %

Performance Coatings Group 1,724.2 1,741.7 (17.5) (1.0) % 1.9 % 3.1 %

1 unchanged sentence

Total $ 6,116.7 $ 6,047.4 $ 69.3 1.1 % 0.6 % 0.5 %

nm - not meaningful

Three Months Ended June 30, 2023

Consolidated net sales increased by 6.3% in the second quarter of 2023 primarily driven by selling price increases in all segments, which impacted net sales by a mid-single digit percentage, mid-single digit volume growth due to higher architectural sales volume in the Paint Stores Group and a low-single digit increase from the impact of acquisitions, partially offset by a high-single digit sales volume decrease in the Performance Coatings Group.

Net sales of all consolidated foreign subsidiaries increased to $1.150 billion in the second quarter compared to $1.121 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 selling price increases, as well as contributions from acquisitions, partially offset by lower net sales in most end markets for the Asia region.

Net sales of all operations other than consolidated foreign subsidiaries increased to $5.091 billion in the second quarter compared to $4.752 billion in the same period last year.

Net sales in the Paint Stores Group increased by 10.0% in the second quarter primarily due to mid-single digit sales volume growth across most end markets as well as selling price increases, which impacted net sales by a mid-single digit percentage.

Net sales from stores open for more than twelve calendar months increased 9.5% in the second quarter compared to last year’s comparable period.

Net sales of non-paint products increased 19.2% compared to last year's second quarter.

Three Months Ended September 30, 2023

Consolidated net sales increased by 1.1% in the third quarter of 2023 primarily driven by selling price increases in all segments, a modest net benefit from the impact of acquisitions and divestitures and favorable currency translation rate changes.

This growth was mostly offset by a sales volume decrease primarily driven by the Consumer Brands and Performance Coatings Groups.

Net sales of all consolidated foreign subsidiaries increased to $1.105 billion in the third quarter compared to $1.064 billion in the same period last year.

Net sales of all operations other than consolidated foreign subsidiaries increased to $5.012 billion in the third quarter compared to $4.983 billion in the same period last year.

Net sales in the Paint Stores Group increased by 3.6% in the third quarter primarily due to selling price increases, which impacted net sales by a low-single digit percentage.

Sales volume was approximately flat year-over-year driven by higher pro architectural sales volume, excluding new residential volume which decreased a high-single digit percentage.

Net sales from stores open for more than twelve calendar months increased 3.0% in the third quarter compared to last year’s comparable period.

Net sales of non-paint products increased 15.3% 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 in the Consumer Brands Group increased by 5.1% in the second quarter primarily due to selling price increases in all regions, which impacted net sales by a mid-single digit percentage.

Net sales in the Performance Coatings Group increased by 0.3% in the second quarter primarily due to a mid-single digit increase from the impact of acquisitions and selling price increases in all end markets, which also impacted net sales by a mid-single digit percentage, partially offset by a high-single digit sales volume decrease in most regions.

Six Months Ended June 30,

Net sales in the Consumer Brands Group decreased by 4.0% in the third quarter primarily due to a mid-single digit sales volume decrease and a 3.0% decrease from divestitures, primarily related to the China architectural business.

These decreases were partially offset by selling price increases, which impacted net sales by a mid-single digit percentage.

Net sales in the Performance Coatings Group decreased by 1.0% in the third quarter primarily due to a high-single digit sales volume decrease, partially offset by a 3.1% increase from the impact of acquisitions, selling price increases, which also impacted net sales by a low-single digit percentage and favorable currency translation rate changes.

Nine Months Ended September 30,

2023 2022 $ Change % Change Currency Impact Acquisitions

1 unchanged sentence

Paint Stores Group $ 9,894.9 $ 9,086.3 $ 808.6 8.9 % (0.1) % — %

Consumer Brands Group 1,818.5 1,752.2 66.3 3.8 % (1.0) % nm

Consumer Brands Group 2,673.3 2,642.8 30.5 1.2 % (0.4) % (1.3) %

Performance Coatings Group 5,228.9 5,186.1 42.8 0.8 % (0.1) % 4.3 %

1 unchanged sentence

Total $ 17,799.7 $ 16,918.4 $ 881.3 5.2 % (0.2) % 1.1 %

nm - not meaningful

Six Months Ended June 30, 2023

Consolidated net sales increased by 7.5% in the first six months of 2023 primarily due to selling price increases, which impacted net sales by a mid-single digit percentage, mid-single digit volume growth due to higher architectural sales volume in the Paint Stores Group and a low-single digit increase from the impact of acquisitions, partially offset by a low-double digit sales volume decrease in the Performance Coatings Group.

Net sales of all consolidated foreign subsidiaries increased to $2.237 billion in the first six months compared to $2.198 billion in the same period last year.

Net sales of all operations other than consolidated foreign subsidiaries increased 8.9% to $9.446 billion in the first six months compared to $8.673 billion in the same period last year.

Net sales in the Paint Stores Group increased by 12.1% in the first six months of 2023 primarily due to mid-single digit sales volume growth across most end markets, as well as selling price increases, which impacted net sales by a mid-single digit percentage.

Nine Months Ended September 30, 2023

Consolidated net sales increased by 5.2% in the first nine months of 2023 primarily due to selling price increases, volume growth due to higher architectural sales volume in the Paint Stores Group and a 1.1% net increase from the impact of acquisitions and divestitures, partially offset by a sales volume decrease in the Consumer Brands and Performance Coatings Groups.

Net sales of all consolidated foreign subsidiaries increased to $3.342 billion in the first nine months compared to $3.262 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, partially offset by lower net sales in the Asia region from lower sales volumes and the divestiture of the China architectural business.

Net sales of all operations other than consolidated foreign subsidiaries increased 5.9% to $14.458 billion in the first nine months compared to $13.656 billion in the same period last year.

Net sales in the Paint Stores Group increased by 8.9% in the first nine months of 2023 primarily due to mid-single digit sales volume growth, as well as selling price increases, which impacted net sales by a mid-single digit percentage.

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

and Canada increased 11.6% in the first six months compared to last year’s comparable period.

Net sales of non-paint products increased 22.5% compared to last year's first six months.

and Canada increased 8.3% in the first nine months compared to last year’s comparable period.

Net sales of non-paint products increased 19.9% compared to last year's first nine months.

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 increased 3.8% in the first six months primarily due to selling price increases, which impacted net sales by a mid-single digit percentage.

Net sales in the Performance Coatings Group increased by 1.8% in the first six months primarily due to a mid-single digit increase from the impact of acquisitions and selling price increases in all end markets, which impacted net sales by a high-single digit percentage, partially offset by a low-double digit sales volume decrease in most regions.

Net sales in the Consumer Brands Group increased 1.2% in the first nine months primarily due to selling price increases, which impacted net sales by a mid-single digit percentage, partially offset by a low-single digit sales volume decrease and a 1.3% decrease from the impact of divestitures.

Net sales in the Performance Coatings Group increased by 0.8% in the first nine months primarily due to a 4.3% increase from the impact of acquisitions and selling price increases, which impacted net sales by a mid-single digit percentage, partially offset by a high-single digit sales volume decrease.

Income Before Income Taxes

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

Three Months Ended June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

4 unchanged sentences

SG&A 1,756.5 28.7 % 1,609.9 26.6 % 5,209.5 29.3 % 4,693.0 27.7 %

Other general (income) expense - net (32.5) (0.5) % 4.4 0.1 % (22.0) (0.2) % 6.9 0.1 %

Other general expense (income) - net 61.9 1.0 % (14.4) (0.2) % 39.9 0.2 % (7.5) — %

Impairment — — % — — % 34.0 0.2 % — — %

3 unchanged sentences

Income before income taxes $ 1,009.0 16.5 % $ 877.2 14.5 % $ 2,635.9 14.8 % $ 2,078.2 12.3 %

Three Months Ended June 30, 2023

Consolidated cost of goods sold decreased $55.0 million, or 1.6%, in the second quarter of 2023 compared to the same period in 2022 primarily due to lower sales volume in the Performance Coatings Group, moderating raw material costs and improvements in operational efficiencies, partially offset by higher sales volume in the Paint Stores Group and the impacts of increases in wages and other employee-related costs.

Currency translation rate changes decreased Cost of goods sold by an insignificant amount in the second quarter of 2023.

Consolidated gross profit increased $423.3 million in the second quarter of 2023 compared to the same period in 2022.

Consolidated gross profit as a percent of consolidated net sales increased in the second quarter to 46.0% compared to 41.7% during the same period in 2022.

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

The Paint Stores Group’s gross profit in the second quarter was higher than the same period last year by $274.6 million due primarily to selling price increases, higher sales volume in architectural paint end markets and moderating raw material costs.

The Paint Stores Group’s gross profit as a percent of net sales increased in the second quarter compared to the same period in 2022 for these same reasons.

The Consumer Brands Group’s gross profit increased by $49.5 million in the second quarter compared to the same period last year due primarily to selling price increases and moderating raw material costs, partially offset by increases in wages and other employee-related costs.

The Consumer Brands Group’s gross profit as a percent of net sales increased in the second quarter compared to the same period in 2022 for these same reasons.

The Performance Coatings Group’s gross profit increased $104.0 million in the second quarter compared to the same period last year due primarily to selling price increases and moderating raw material costs, partially offset by lower sales volume and increases in wages and other employee-related costs.

The Performance Coatings Group’s gross profit as a percent of net sales increased in the second quarter compared to the same period last year for these same reasons.

Consolidated selling, general and administrative expenses (SG&A) increased $162.4 million in the second quarter versus the same period last year due primarily to increased employee-related costs, expenses to support higher sales levels and net new store openings and incremental SG&A for acquisitions.

As a percent of net sales, consolidated SG&A increased 100 basis points in the second quarter compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $108.4 million in the second quarter compared to the same period last year due primarily to higher employee-related costs, 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 $4.2 million in the second quarter compared to the same period last year due to higher employee-related costs, including in the Latin America region to support higher sales levels, and restructuring charges, partially offset by favorable currency translation rate changes and effective cost control in all other regions.

The Performance Coatings Group’s SG&A increased $32.2 million in the second quarter compared to the same period last year primarily due to costs to support higher sales levels and incremental costs from acquisitions.

The Administrative segment’s SG&A increased $17.6 million in the second quarter compared to the same period last year due primarily to higher employee-related costs.

In the second quarter of 2023, Other general (income) expense - net improved $36.9 million compared to the same period in 2022 due primarily to a gain on the divestiture of a business and an increase in gains from the sale and disposition of assets.

Three Months Ended September 30, 2023

Consolidated cost of goods sold decreased $257.5 million, or 7.4%, in the third quarter of 2023 compared to the same period in 2022 due primarily to lower sales volumes in the Consumer Brands and Performance Coatings Groups and moderating raw material costs, partially offset by the impacts of increases in wages and other employee-related costs.

In addition, lower fixed cost absorption in the Consumer Brands Group due to lower production volumes also increased Cost of goods sold.

Currency translation rate changes increased Cost of goods sold by an insignificant amount in the third quarter of 2023.

Consolidated gross profit increased $326.8 million in the third quarter of 2023 compared to the same period in 2022.

Consolidated gross profit as a percent of consolidated net sales increased in the third quarter to 47.7% compared to 42.8% during the same period in 2022.

Consolidated gross profit dollars increased primarily due to selling price increases in all Reportable Segments, moderating raw material costs and favorable currency translation rate changes, partially offset by lower sales volumes in the Consumer Brands and Performance Coatings Groups.

The Paint Stores Group’s gross profit in the third quarter was higher than the same period last year by $238.2 million due primarily to selling price increases and moderating raw material costs.

The Paint Stores Group’s gross profit as a percent of net sales increased in the third quarter compared to the same period in 2022 for these same reasons.

The Consumer Brands Group’s gross profit increased by $15.4 million in the third quarter compared to the same period last year due primarily to selling price increases and moderating raw material costs, partially offset by lower sales volume and increases in wages and other employee-related costs.

In addition, lower fixed cost absorption in the Consumer Brands Group due to lower production volumes also decreased gross profit.

The Consumer Brands Group’s gross profit as a percent of net sales increased in the third quarter compared to the same period in 2022 for these same reasons.

The Performance Coatings Group’s gross profit increased $80.9 million in the third quarter compared to the same period last year due primarily to selling price increases and moderating raw material costs, partially offset by lower sales volume and increases in wages and other employee-related costs.

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 for these same reasons.

Consolidated selling, general and administrative expenses (SG&A) increased $146.6 million in the third quarter versus the same period last year due primarily to increased employee-related costs, expenses to support higher sales levels and net new store openings, incremental SG&A from the acquisition of ICA and unfavorable currency translation rate changes, partially offset by lower SG&A from divestitures.

As a percent of net sales, consolidated SG&A increased 210 basis points in the third quarter compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $53.4 million in the third quarter compared to the same period last year due primarily to higher employee-related costs and investments in long-term growth initiatives, including increased spending from new store openings and costs to support higher sales levels.

The Consumer Brands Group’s SG&A increased $35.4 million in the third quarter compared to the same period last year due to higher employee-related costs and increased expenses to support manufacturing expansion, partially offset by lower SG&A from divestitures.

The Performance Coatings Group’s SG&A increased $42.3 million in the third quarter compared to the same period last year due primarily to higher employee-related costs and incremental costs from the acquisition of ICA.

The Administrative segment’s SG&A increased $15.5 million in the third quarter compared to the same period last year due primarily to higher employee-related costs and increased expenses related to technology and systems.

Other general expense (income) - net changed from income of $14.4 million in the third quarter of 2022 to expense of $61.9 million in the third quarter of 2023 primarily due to losses from the sale or disposition of assets in the third quarter of 2023 as compared to gains in the prior year as well as an increase in provisions for environmental matters.

See Note 16 of Item 1 for additional information.

For information on impairment, see Notes 4 and 7 of Item 1 and Note 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Interest expense increased $18.8 million in the second quarter compared to the same period last year due primarily to higher interest rates, offset by a decrease in outstanding debt.

Interest expense increased $0.7 million in the third quarter compared to the same period last year due primarily to higher interest rates, partially offset by a decrease in outstanding debt.

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

In the second quarter of 2023, Other (income) expense - net improved $21.3 million compared to the same period in 2022 primarily due to higher returns on investments held in the Administrative segment, offset by an increase in foreign currency transaction related losses.

In the third quarter of 2023, Other (income) expense - net improved $26.1 million compared to the same period in 2022 primarily due to a decrease in foreign currency translation losses and a miscellaneous pension credit.

See Note 16 of Item 1 for additional information.

Six Months Ended June 30, 2023

Consolidated cost of goods sold increased $20.7 million, or 0.3%, in the first six months of 2023 compared to the same period in 2022 primarily due to higher sales volume in the Paint Stores Group, partially offset by lower sales volume in the Performance Coatings Group and moderating raw material costs.

Currency translation rate changes decreased Cost of goods sold by an insignificant amount in the first six months of 2023.

Consolidated gross profit increased $791.3 million in the first six months of 2023 compared to the same period in 2022.

Consolidated gross profit as a percent of consolidated net sales increased in the first six months to 45.3% compared to 41.4% during the same period in 2022.

Consolidated gross profit dollars increased primarily due to selling price increases in each Reportable Segment, higher sales volume in the Paint Stores Group and moderating raw material costs, partially offset by lower sales volume in the Performance Coatings Group.

The Paint Stores Group’s gross profit in the first six months was higher than the same period last year by $500.3 million due primarily to selling price increases, higher sales volume and moderating raw material costs.

The Paint Stores Group’s gross profit as a percent of net sales increased in the first six months compared to the same period in 2022 for these same reasons.

The Consumer Brands Group’s gross profit increased by $72.0 million in the first six months compared to the same period last year due primarily due to selling price increases and moderating raw material costs, partially offset by increases in wages and other employee-related costs.

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

The Performance Coatings Group’s gross profit increased $234.4 million in the first six months compared to the same period last year due primarily to higher selling prices and moderating raw material costs, partially offset by lower sales volume and increases in wages and other employee related costs.

The Performance Coatings Group’s gross profit as a percent of net sales increased in the first six months compared to the same period last year for these same reasons.

Consolidated SG&A increased $369.9 million in the first six months versus the same period last year due primarily to higher employee-related costs, increased expenses to support net new store openings, investments in digital technologies and system upgrades and acquisitions, partially offset by favorable currency translation rate changes.

As a percent of net sales, consolidated SG&A increased 120 basis points in the first six months compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $249.1 million in the first six months compared to the same period last year due primarily to higher employee-related costs, increased spending from new store openings, higher costs to serve customers and investments in information systems.

The Consumer Brands Group’s SG&A increased $10.7 million in the first six months compared to the same period last year due to higher employee-related costs and restructuring charges, partially offset by favorable currency translation rate changes and other effective cost control measures.

The Performance Coatings Group’s SG&A increased $80.5 million in the first six months compared to the same period last year due primarily to higher employee-related costs, incremental costs from acquisitions and to support higher sales levels, offset by favorable currency translation rate changes.

The Administrative segment’s SG&A increased $29.6 million in the first six months compared to the same period last year due primarily to higher employee-related costs.

In the first six months of 2023, Other general (income) expense - net improved $28.9 million compared to the same period in 2022 due primarily to a gain on the divestiture of a business and higher gains from the sale and disposition of assets, partially offset by an increase in the provisions for environmental matters in the Administrative segment.

Nine Months Ended September 30, 2023

Consolidated cost of goods sold decreased $236.8 million, or 2.4%, in the first nine months of 2023 compared to the same period in 2022 due primarily to lower sales volumes in the Consumer Brands and Performance Coatings Groups and moderating raw material costs, partially offset by higher sales volume in the Paint Stores Group and the impacts of increases in wages and other employee-related costs.

Currency translation rate changes decreased Cost of goods sold by an insignificant amount in the first nine months of 2023.

Consolidated gross profit increased $1.118 billion in the first nine months of 2023 compared to the same period in 2022.

Consolidated gross profit as a percent of consolidated net sales increased in the first nine months to 46.1% compared to 41.9% during the same period in 2022.

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

The Paint Stores Group’s gross profit in the first nine months was higher than the same period last year by $738.5 million due primarily to selling price increases, higher sales volume and moderating raw material costs.

The Paint Stores Group’s gross profit as a percent of net sales increased in the first nine months compared to the same period in 2022 for these same reasons.

The Consumer Brands Group’s gross profit increased by $87.4 million in the first nine months compared to the same period last year due primarily due to selling price increases and moderating raw material costs, partially offset by lower sales volume and increases in wages and other employee-related costs.

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

The Performance Coatings Group’s gross profit increased $315.3 million in the first nine months compared to the same period last year due primarily to higher selling prices and moderating raw material costs, partially offset by lower sales volume and increases in wages and other employee-related costs.

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 for these same reasons.

Consolidated SG&A increased $516.5 million in the first nine months versus the same period last year due primarily to increased employee-related costs, expenses to support higher sales levels and net new store openings, partially offset by favorable currency translation rate changes.

As a percent of net sales, consolidated SG&A increased 160 basis points in the first nine months compared to the same period last year for these same reasons.

The Paint Stores Group’s SG&A increased $302.5 million in the first nine months compared to the same period last year due primarily to higher employee-related costs, increased spending from new store openings, higher costs to serve customers, increased investments in technologies and costs to support higher sales levels.

The Consumer Brands Group’s SG&A increased $46.1 million in the first nine months compared to the same period last year due to higher employee-related costs and restructuring charges, partially offset by other effective cost control measures.

The Performance Coatings Group’s SG&A increased $122.8 million in the first nine months compared to the same period last year due primarily to higher employee-related costs, costs from acquisitions and costs to support higher sales levels.

The Administrative segment’s SG&A increased $45.1 million in the first nine months compared to the same period last year due primarily to higher employee-related costs and increased expenses related to technology and systems.

Other general expense (income) - net changed from income of $7.5 million in the first nine months of 2022 to expense of $39.9 million in the first nine months of 2023 primarily due to an increase in provisions for environmental matters and lower gains from the sale or disposition of assets, partially offset by a gain on the divestiture of businesses.

See Note 16 of Item 1 for additional information.

For information on impairment, see Notes 3 and 6 of Item 1 and Note 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Interest expense increased $39.7 million in the first six months of 2023 compared to the same period last year due primarily to higher interest rates, offset by a decrease in outstanding debt.

Interest expense increased $40.4 million in the first nine months of 2023 compared to the same period last year due primarily to higher interest rates, partially offset by a decrease in outstanding debt.

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

In the first six months of 2023, Other (income) expense - net improved $40.8 million compared to the same period in 2022 primarily due to higher returns on investments held in the Administrative segment and a miscellaneous pension credit, offset by higher foreign currency transaction related losses.

In the first nine months of 2023, Other (income) expense - net improved $66.9 million compared to the same period in 2022 primarily due to higher returns on investments held in the Administrative segment, a miscellaneous pension credit and an increase in miscellaneous other income.

See Note 16 of Item 1 for additional information.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 % Change 2023 2022 % Change

14 unchanged sentences

Income Tax Expense

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

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 tax rate were consistent year over year.

The effective tax rate was 24.5% for the third quarter of 2023 compared to 21.9% for the third quarter of 2022, and 22.9% for the first nine months of 2023 compared to 21.4% for the first nine months of 2022.

The increase in the effective tax rate for the third quarter was primarily due to a $14.7 million discrete tax expense related to the divestiture of the China architectural business and an unfavorable change in the jurisdictional mix of earnings.

For the first nine months, the increase in the effective tax rate was primarily related to an unfavorable change in the jurisdictional mix of earnings.

The other significant components of the Company’s effective tax rate were consistent in both comparable periods.

See Note 17 of Item 1 for additional information.

Net Income Per Share

Diluted net income per share in the second quarter of 2023 increased 38.9% to $3.07 per share compared to $2.21 per share in the second quarter of 2022.

Diluted net income per share for the second quarter of 2023 and 2022 both included a $0.20 per share charge for acquisition-related amortization expense.

In addition, diluted net income per share for the second quarter of 2023 included a $0.05 per share impairment charge related to the pending divestiture of the China architectural business, as well as severance and other charges totaling $0.03 per share, offset by a $0.06 per share gain on the divestiture of a business.

Currency translation rate changes increased diluted net income per share by $0.02 in the second quarter of 2023.

Diluted net income per share for the first six months of 2023 increased 35.7% to $4.90 per share compared to $3.61 per share in the first six months of 2022.

Diluted net income per share for the first six months of 2023 included a $0.42 per share charge for acquisition-related amortization expense, a $0.05 per share impairment charge related to the pending divestiture of the China architectural business, as well as severance and other charges totaling $0.03 per share, offset by a $0.06 per share gain on the divestiture of a business.

Diluted net income per share for the first six months of 2022 included a $0.41 per share charge for acquisition-related amortization expense.

Currency translation rate changes increased diluted net income per share by $0.02 in the first six months of 2023.

Diluted net income per share in the third quarter of 2023 increased 12.6% to $2.95 per share compared to $2.62 per share in the third quarter of 2022.

Diluted net income per share included a $0.19 and $0.21 per share charge for acquisition-related amortization expense for the third quarter of 2023 and 2022, respectively.

In addition, diluted net income per share for the third quarter of 2023 included a $0.06 per share charge related to discrete income tax expense from the divestiture of the China architectural business.

Currency translation rate changes decreased diluted net income per share by $0.01 in the third quarter of 2023.

Diluted net income per share for the first nine months of 2023 increased 26.0% to $7.85 per share compared to $6.23 per share in the first nine months of 2022.

Diluted net income per share included a $0.60 and $0.61 per share charge for acquisition-related amortization expense for the first nine months of 2023 and 2022, respectively.

In addition, diluted net income per share for the first nine months of 2023 included a $0.11 per share charge related to the divestiture of the China architectural business and a $0.04 per share charge related to severance and other charges.

These charges were partially offset by a $0.06 per share gain related to the divestiture of a non-core domestic aerosol business.

Currency translation rate changes increased diluted net income per share by $0.01 in the first nine months of 2023.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

The Company’s financial condition and liquidity remained strong at June 30, 2023.

During the first six months of 2023, the Company generated $1.295 billion in net operating cash primarily as a result of higher profit and improved working capital management.

During the first six months of 2023, the Company’s EBITDA increased 29.5% to $2.161 billion.

The Company’s financial condition and liquidity remained strong at September 30, 2023.

During the first nine months of 2023, the Company generated $2.603 billion in net operating cash primarily as a result of higher profit.

In addition, the Company’s EBITDA increased 22.7% to $3.427 billion.

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

Cash and cash equivalents increased $10.6 million during the first six months of 2023.

Cash flow from operations allowed the Company to return $848.7 million to shareholders in the form of share buybacks and cash dividends during the first six months of 2023.

At June 30, 2023, the Company had cash and cash equivalents of $209.4 million and total debt outstanding of $10.401 billion.

Cash and cash equivalents increased $304.6 million during the first nine months of 2023.

Cash flow from operations allowed the Company to return $1.414 billion to shareholders in the form of share buybacks and cash dividends during the first nine months of 2023 and fund the acquisition of SIC Holding in October 2023.

See Note 3 in Item 1 for additional information on the Company’s acquisition of SIC Holding.

At September 30, 2023, the Company had cash and cash equivalents of $503.4 million and total debt outstanding of $9.936 billion.

Total debt, net of cash and cash equivalents, was $9.433 billion.

1 unchanged sentence

Net Working Capital

Net working capital, defined as Total current assets less Total current liabilities, increased $950.2 million to a surplus of $11.5 million at June 30, 2023 compared to a deficit of $938.7 million at June 30, 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 $91.1 million at June 30, 2023 compared to June 30, 2022 primarily due to an increase in Accounts receivable, net of $135.3 million due to higher net sales, an increase in Inventories of $27.4 million driven by higher inventory levels and moderating raw material costs, and an increase of $31.6 million in Other current assets as a result of the reclassification of assets held for sale (see Note 4 within Item 1), offset by a decrease in refundable income taxes and prepaid expenses.

These increases were partially offset by a decrease in Cash and cash equivalents of $103.2 million.

Current liability balances decreased $859.1 million at June 30, 2023 compared to June 30, 2022 primarily due to a decrease in short-term borrowings of $1.206 billion and a decrease in Accounts payable of $503.2 million primarily due to the timing of payments, partially offset by an increase in the current portion of long-term debt of $498.9 million and increases in Accrued taxes and Compensation and taxes withheld.

At June 30, 2023, the Company’s current ratio was 1.00 compared to 0.99 and 0.87 at December 31, 2022 and June 30, 2022, respectively.

Net working capital, defined as Total current assets less Total current liabilities, decreased $445.6 million to a deficit of $424.4 million at September 30, 2023 compared to a surplus of $21.2 million at September 30, 2022.

The net working capital decrease is primarily due to an increase in current liabilities, partially offset by an increase in current assets.

Current asset balances increased $81.6 million at September 30, 2023 compared to September 30, 2022 primarily due to an increase in Cash and cash equivalents of $372.9 million and Accounts receivable, net of $43.3 million as a result of higher net sales.

These increases were partially offset by a decrease in Inventories of $303.5 million driven by lower inventory levels and moderating raw material costs and a decrease of $31.1 million in Other current assets as a result of a decrease in refundable income taxes, miscellaneous other current assets and prepaid expenses, partially offset by an increase in the net investment hedge asset.

Current liability balances increased $527.2 million at September 30, 2023 compared to September 30, 2022 primarily due to an increase in the current portion of long-term debt of $1.098 billion, Accrued taxes of $174.5 million and Compensation and taxes withheld of $117.7 million.

These increases were partially offset by a decrease in short-term borrowings of $606.6 million and a decrease in Accounts payable of $383.6 million, primarily due to the timing of payments.

At September 30, 2023, the Company’s current ratio was 0.94 compared to 0.99 and 1.00 at December 31, 2022 and September 30, 2022, respectively.

Property, Plant and Equipment

Net property, plant and equipment increased $235.5 million in the first six months of 2023 and increased $480.6 million in the twelve months since June 30, 2022.

The increase in the first six months was primarily due to capital expenditures of $416.0 million and currency translation and other adjustments of $1.8 million, partially offset by depreciation expense of $146.1 million and the sale or disposition of fixed assets of $36.2 million.

Since June 30, 2022, the increase was primarily due to capital expenditures of $824.7 million and incremental assets recognized through acquisitions of $70.5 million, partially offset by depreciation expense of $279.8 million, currency translation and other adjustments of $87.8 million, which primarily includes government incentives associated with the construction of our new headquarters and research and development (R&D) center, and sale or disposition of fixed assets of $47.0 million.

Net property, plant and equipment increased $373.6 million in the first nine months of 2023 and increased $539.4 million in the twelve months since September 30, 2022.

The increase in the first nine months was primarily due to capital expenditures of $661.2 million, partially offset by depreciation expense of $218.0 million, the sale or disposition of fixed assets of $62.5 million and currency translation and other adjustments of $7.1 million.

Since September 30, 2022, the increase was primarily due to capital expenditures of $895.0 million and incremental assets recognized through acquisitions of $46.8 million, partially offset by depreciation expense of $287.2 million, the sale or disposition of fixed assets of $64.5 million and currency translation and other adjustments of $50.7 million, which primarily includes government incentives associated with the construction of our new headquarters and research and development (R&D) center.

The Company closed a transaction to sell its current headquarters and R&D center during the second quarter of 2023.

In connection with the sale, proceeds of $47.2 million were received and an immaterial gain was recognized.

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 manufacturing capacity expansion, operational efficiencies and maintenance projects in the Consumer Brands and Performance Coatings Groups.

Capital expenditures primarily represented expenditures in the Paint Stores Group associated with the opening of new paint stores, renovation and improvements in existing stores, and expenditures associated with manufacturing capacity expansion, operational efficiencies and maintenance projects in the Consumer Brands and Performance Coatings Groups.

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

1 unchanged sentence

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.

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.

3 unchanged sentences

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

During the six months ended 2023, the Company received $138.7 million pursuant to the transaction.

During the nine months ended 2023, the Company received $226.1 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 decreased $204.3 million from December 31, 2022 and increased $319.7 million from June 30, 2022 as compared to June 30, 2023.

The net decrease during the first six months of 2023 was primarily due to amortization of $166.7 million, reclassification to assets held for sale of $93.3 million (see Note 4 within Item 1) and impairment of trademarks of $6.9 million partially offset by purchase accounting allocations of $50.1 million and foreign currency translation and other adjustments of $12.5 million.

The net increase over the twelve month period from June 30, 2022 was primarily due to incremental goodwill and intangible assets recognized from acquisitions of $714.8 million and foreign currency translation and other adjustments of $47.9 million, partially offset by amortization of $327.3 million, reclassification to assets held for sale of $93.3 million and impairment of trademarks of $22.4 million.

See Note 7 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 and Note 4 for information on the impairment test performed as a result of the China architectural business classification change to held for sale.

Goodwill and intangible assets decreased $348.9 million from December 31, 2022 and decreased $40.2 million from September 30, 2022 as compared to September 30, 2023.

The net decrease during the first nine months of 2023 was primarily due to amortization of $250.2 million, dispositions of $93.1 million (primarily related to the divestiture of the China architectural business), foreign currency translation and other adjustments of $48.8 million and impairment of trademarks of $6.9 million, partially offset by purchase accounting allocations of $50.1 million.

The net decrease over the twelve month period from September 30, 2022 was primarily due to amortization of $329.5 million, dispositions of $91.8 million (primarily related to the divestiture of the China architectural business) and impairment of trademarks of $22.4 million, partially offset by incremental goodwill and intangible assets recognized from acquisitions of $303.9 million, foreign currency translation and other adjustments of $90.9 million and the capitalization of software of $8.7 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 and Note 3 for information on the impairment test performed as a result of the China architectural business classification change to held for sale as of the second quarter of 2023.

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 $95.6 million from December 31, 2022 and increased $195.1 million from June 30, 2022.

The increase in the first six months was primarily due to an increase in deposits and other assets related to contracts with customers.

The increase from June 30, 2022 was primarily due to an increase in non-traded investments, deposits and other assets related to contracts with customers.

Other assets increased $86.8 million from December 31, 2022 and increased $156.2 million from September 30, 2022.

The increase in the first nine months was primarily due to an increase in other assets related to contracts with customers, deposits, miscellaneous other assets and non-traded investments.

The increase from September 30, 2022 was primarily due to an increase in non-traded investments, other assets related to contracts with customers and deposits, partially offset by a decrease in miscellaneous other assets.

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

Debt (including Short-term borrowings)

June 30, December 31, June 30,

September 30, December 31, September 30,

2023 2022 2022

5 unchanged sentences

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

The Company had unused capacity under its various credit agreements of $3.342 billion at September 30, 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, 2022 and June 30, 2022.

Long-term liabilities for defined benefit pension and other postretirement benefit plans did not change significantly from December 31, 2022 and September 30, 2022 other than the Company’s long-term liability for other postretirement benefit plans which decreased $117.2 million from September 30, 2023 due primarily to a plan amendment and changes in actuarial assumptions.

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

Deferred Income Taxes

Deferred income taxes increased $29.3 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 quarter.

Compared to June 30, 2022, deferred income taxes decreased $43.1 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.

Deferred income taxes decreased $33.2 million from December 31, 2022 primarily due to amortization of acquisition-related intangible assets, the capitalization of research and development costs for income tax purposes and the divestiture of the China architectural business, partially offset by the incremental deferred tax liabilities recognized in connection with the acquisition of ICA.

Compared to September 30, 2022, deferred income taxes decreased $43.4 million primarily due to these same reasons.

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

6 unchanged sentences

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 six months of 2023.

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.

See Note 10 in Item 1 for further information on environmental-related long-term liabilities.

See Notes 9 and 16 in Item 1 for further information on environmental-related long-term liabilities.

Contractual Obligations, Commercial Commitments and Warranties

There have been no significant changes to the Company’s contractual obligations and commercial commitments in the first six 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.

There have been no significant changes to the Company’s contractual obligations and commercial commitments in the first nine 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.

1 unchanged sentence

Shareholders’ Equity

June 30, December 31, June 30,

September 30, December 31, September 30,

2023 2022 2022

Total shareholders’ equity $ 3,780.0 $ 3,102.1 $ 2,597.8

Shareholders’ equity increased $529.0 million during the first six months of 2023 as a result of net income of $1.271 billion, an increase in Other capital of $80.7 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $559.5 million of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $312.8 million.

Shareholders’ equity increased $1.407 billion since June 30, 2022 as a result of net income of $2.343 billion and an increase in Other capital of $164.3 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $739.7 million of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $624.2 million.

During the first six months of 2023, the Company purchased 2.30 million shares of its common stock for treasury purposes through open market purchases.

Shareholders’ equity increased $677.9 million during the first nine months of 2023 as a result of net income of $2.033 billion, an increase in Other capital of $140.0 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $971.0 million of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $468.4 million.

Shareholders’ equity increased $1.182 billion since September 30, 2022 as a result of net income of $2.419 billion and an increase in Other capital of $184.3 million primarily associated with stock-based compensation expense and stock option exercises, partially offset by $1.104 billion of Treasury stock activity primarily attributable to treasury stock repurchases and cash dividends paid on common stock of $624.0 million.

During the first nine months of 2023, the Company purchased 3.8 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 June 30, 2023 to purchase 42.9 million shares of its common stock.

The Company had remaining authorization at September 30, 2023 to purchase 41.4 million shares of its common stock.

In February 2023, the Company's Board of Directors increased the quarterly cash dividend from $0.60 per share to $0.605 per share.

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 six months ended June 30, 2023 was a cash source of $1.295 billion compared to a cash source of $639.7 million for the same period in 2022.

This quarterly dividend was approved in all subsequent quarters and 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 nine months ended September 30, 2023 was a source of $2.603 billion compared to a source of $1.279 billion for the same period in 2022.

The improvement in net operating cash was primarily due to higher net income and improved working capital management.

Net investing cash usage decreased $56.0 million in the first six months of 2023 to a usage of $417.9 million compared to a usage of $473.9 million for the same period in 2022 primarily due to lower cash used for acquisitions, proceeds from the divestiture of a business and an increase in proceeds from the sale of assets, partially offset by increased cash used for capital expenditures.

Net financing cash for the six months ended June 30, 2023 was a cash usage of $869.6 million compared to a cash usage of $8.0 million for the same period in 2022 primarily due to lower net proceeds from short-term borrowings, partially offset by lower repayments of long-term debt, lower treasury stock purchases and increased proceeds from real estate financing transactions.

In the twelve month period from July 1, 2022 through June 30, 2023, the Company generated net operating cash of $2.575 billion, used $1.552 billion in investing activities and used $1.144 billion in financing activities.

Net investing cash decreased $541.5 million in the first nine months of 2023 to a usage of $509.0 million compared to a usage of $1.051 billion for the same period in 2022 primarily due to lower cash used for acquisitions, proceeds from the divestiture of businesses and an increase in proceeds from the sale of assets, partially offset by increased cash used for capital expenditures.

Net financing cash increased $1.522 billion in the first nine months of 2023 to a usage of $1.785 billion compared to a usage of $263.6 million for the same period in 2022 primarily due to proceeds from long-term debt in the first nine months of 2022 which did not occur in the same current year period, a net decrease in short-term borrowings and an increase in treasury stock purchases.

These usages of cash were partially offset by lower payments of long-term debt and real estate financing proceeds received in the first nine months of 2023 which did not occur in the same prior year period.

In the twelve month period from October 1, 2022 through September 30, 2023, the Company generated net operating cash of $3.244 billion, used $1.066 billion in investing activities and used $1.804 billion in financing activities.

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

9 unchanged sentences

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

At June 30, 2023, the Company was in compliance with the covenant and expects to remain in compliance.

At September 30, 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.

8 unchanged sentences

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

Adjusted EBITDA is a non-GAAP financial measure defined as EBITDA that excludes certain adjustments, such as items related to the previously announced Restructuring Plan.

Adjusted EBITDA is a non-GAAP financial measure defined as EBITDA that excludes certain adjustments that do not recur during the normal course of business, such as items related to the previously announced Restructuring Plan.

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

The reader is cautioned that the Company’s EBITDA and Adjusted EBITDA should not be compared to other entities unknowingly.

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

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

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

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

Restructuring expense — — 9.6 —

Impairment of assets held for sale 34.0 — 34.0 —

Impairment of assets related to China divestiture — — 34.0 —

Gain on divestiture of domestic aerosol business — — (20.1) —

37 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 2. Management’s Discussion and Analysis