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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-20 · 205 added, 193 removed, 328 unchanged (55% of the section changed)

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Company Background

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 the allocation of resources.

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

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

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

The Sherwin-Williams Company, founded in 1866, is 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 function in the same way it is internally organized for assessing performance and making decisions regarding the allocation of resources.

See Note 22 to the consolidated financial statements in Item 8 for additional information on the Company’s Reportable Segments.

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• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) increased 6.0% in the year to $4.492 billion or 19.4% of Net sales

During 2023, we executed on our strategy to provide differentiated solutions to enable our customers to increase their productivity and profitability.

Net sales grew to a record level, gross margin expanded due to moderating raw material costs and carryover price increases, and Net operating cash increased due to record Net income and improved working capital management.

This performance enabled us to continue to invest in our business through customer-focused innovation, complete the acquisition of SIC Holding GmbH, reduce short-term borrowings and long-term debt, and return capital to shareholders through dividends and share repurchases.

We enter 2024 with confidence, energy and a commitment to seize profitable growth opportunities in our targeted end-markets, although uncertainties do remain in the marketplace.

Within Paint Stores Group and Consumer Brands Group, we anticipate continued inflationary pressure in 2024 to impact consumer behavior in both the United States and Europe, particularly in housing markets.

While mortgage rates are expected to remain high compared to recent historical levels, we expect them to moderate and positively impact new and existing residential sales volume.

We also remain focused on gaining market share and leveraging our strategic investments to counteract forecasted declines in remodeling spend in 2024.

The outlook for the Performance Coatings Group is varied by end market and region with expected resilience in Automotive Refinish and tailwinds in Industrial Wood.

Demand softness is forecasted in General Industrial due to negative manufacturing trends in North America, Europe and Brazil and in Packaging due to expected flat-to-down volumes in the food and beverage industry.

As it relates to consolidated expenses, while we expect raw material costs to be down by a low-single digit percentage, certain other costs, such as wages, healthcare, energy and transportation are expected to increase.

Selling, general and administrative expenses are expected to increase moderately in 2024 to support targeted investments, but remain tightly controlled in non-customer facing functions.

Sherwin-Williams delivered strong 2024 results despite continued choppy macroeconomic conditions.

Full year Net sales grew to a record level, gross margin expanded and Diluted net income per share increased by a double-digit percentage.

We continued to generate strong cash flow from operations which was used for investment, an acquisition and returning cash to shareholders through dividends and repurchases of our common stock.

We enter 2025 with confidence in our differentiated strategy, Success by Design, that continues to deliver innovative and productive solutions for our customers.

Although we expect demand softness to persist in several end markets, we have significant above-market growth opportunities in each business.

We will continue to support our growth strategy by executing initiatives within our enterprise priorities, including talent, simplification, digitization, supply chain responsiveness and sustainability.

Within Paint Stores Group and Consumer Brands Group, we anticipate continued economic pressures to impact consumer behavior in both North America and Europe in 2025.

Our recent investments in sales reps, training and digital tools, coupled with home builder relationships are expected to drive above-market growth opportunities.

The outlook for the Performance Coatings Group is varied by end market and region with expected growth in Coil driven by significant new account wins and Packaging as we support customer conversions to our ValPure® coating which complies with European regulations.

Demand softness is forecasted in General Industrial due to negative manufacturing trends in North America and Europe and choppiness is expected in Automotive Refinish, Protective and Marine and Industrial Wood.

As it relates to consolidated expenses, we expect raw material and employee-related costs to be up by a low-single digit percentage, offset by cost saving simplification efforts across our supply chain such as capacity and productivity improvements.

Our capital deployment strategy remains balanced and consistent.

We have a strong liquidity position, with $210.4 million in cash and $3.274 billion of unused capacity under our credit facilities at December 31, 2024 and expect to end 2025 within our target debt-to-EBITDA leverage ratio of 2 to 2.5 times.

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

Long-term debt maturities due in 2025 are $1.050 billion and are expected to be refinanced at higher interest rates.

We have plans to continue to invest in the construction of new facilities, including our new global headquarters in downtown Cleveland, Ohio and new research and development center in the Cleveland suburb of Brecksville, and in the expansion of certain existing manufacturing and distribution facilities.

expand our footprint by opening 80 to 100 new stores in the United States and Canada in 2024, and pursue acquisitions that align with our long-term growth strategy.

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

Please see Item 1A Risk Factors in Part I of this Annual Report on Form 10-K for further information regarding the current and potential impact of macroeconomic conditions on the Company, including those relating to supply chain disruptions, raw material availability, foreign currency and inflation.

Together with the long-term debt maturities refinanced during 2024, Interest expense is expected to increase by approximately $40 million in 2025.

In addition, we expect to incur additional costs associated with the transition into our new global headquarters and research and development (R&D) center in 2025 of approximately $100 million, which includes approximately $80 million of Selling, general and administrative expenses and approximately $20 million of Interest expense.

Lastly, we plan to expand our footprint by opening 80 to 100 new stores in the United States and Canada in 2025, continue to evaluate acquisitions that align with our long-term growth strategy and return value to our shareholders through the payment of dividends and the reinvestment of excess cash for share repurchases of Company stock.

See Item 1A Risk Factors for further information regarding the current and potential impact of general business and macroeconomic conditions, including inflation rates and interest rates, supply chain disruptions, raw material availability and fluctuations in foreign currency.

RESULTS OF OPERATIONS

The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for the years ended December 31, 2024 and 2023.

For comparisons of the years ended December 31, 2022 and 2021, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed on February 22, 2023.

For comparisons of the years ended December 31, 2023 and 2022, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed on February 20, 2024.

Year Ended December 31,

2023 2022 $ Change % Change Currency Impact Acquisitions and Divestitures Impact

2024 2023 $ Change % Change Currency Impact Acquisition and Divestiture Impact

Paint Stores Group $ 13,188.0 $ 12,839.5 $ 348.5 2.7 % — % — %

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Total $ 23,098.5 $ 23,051.9 $ 46.6 0.2 % (0.7) % 0.1 %

Consolidated Net sales for 2023 increased 4.1% primarily due to selling price increases, volume growth due to higher architectural sales volume in the Paint Stores Group and a 1.0% net increase from the impact of acquisitions and divestitures completed during the past twelve months, partially offset by sales volume decreases in the Consumer Brands and Performance Coatings Groups.

Net sales of all consolidated foreign subsidiaries increased 3.1% to $4.428 billion for 2023 versus $4.294 billion for 2022 due primarily to growth in the Europe and Latin America regions, partially offset by lower net sales in the Asia region as a result of the divestiture of the China architectural business.

Net sales of all operations other than consolidated foreign subsidiaries increased 4.3% to $18.624 billion for 2023 versus $17.855 billion for 2022.

Net sales in the Paint Stores Group increased 7.3% primarily due to mid-single digit sales volume growth and selling price increases, which impacted net sales by a low-single digit percentage.

Consolidated Net sales for 2024 increased 0.2% primarily due to higher sales in the Paint Stores Group.

This increase was partially offset by lower sales in the Consumer Brands and Performance Coatings Groups.

Net sales of all consolidated foreign subsidiaries decreased to $4.426 billion in 2024 compared to $4.428 billion in 2023 primarily due to unfavorable currency translation impact in Latin America and lower Net sales in Asia as a result of the divestiture of the China architectural business, partially offset by higher Net sales in Europe as a result of acquisitions.

Net sales of all operations other than consolidated foreign subsidiaries increased to $18.673 billion for 2024 compared to $18.624 billion for 2023.

Net sales in the Paint Stores Group increased 2.7% primarily due to sales volume growth and selling price increases, which both impacted Net sales by a low-single digit percentage.

Net sales from stores in the Paint Stores Group open for more than twelve calendar months increased 1.7% in the year over the prior year comparable period.

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The Paint Stores Group’s objective is to expand its store base by an approximate average of 2% each year, primarily through organic growth.

Sales of products other than paint increased approximately 5.0% over last year.

Sales of products other than paint increased 0.6% over last year.

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

Net sales in the Consumer Brands Group decreased 0.7% in 2023 primarily due to a low-single digit sales volume decrease and a 1.9% decrease from the impact of divestitures, partially offset by selling prices increases, which impacted net sales by a mid-single digit percentage.

Net sales in the Performance Coatings Group increased 0.7% in 2023 primarily due to selling price increases, which impacted net sales by a mid-single digit percentage, and a 4.1% increase from the impact of acquisitions completed during the past twelve months, partially offset by a high-single digit sales volume decrease.

In 2023, the Performance Coatings Group added 5 net new branches, increasing the total to 322 branches open in the United States, Canada, Mexico, South America, Europe and Asia.

Net sales in the Administrative segment, which primarily consists of external leasing revenue, remained flat in 2023.

Net sales in the Consumer Brands Group decreased 7.7% in 2024 primarily due to a low-single digit percentage sales volume decline primarily due to soft DIY demand in North America, 2.9% unfavorable foreign currency translation driven by Latin America and the impact from divestitures in the prior year.

In 2024, the Consumer Brands Group opened 18 new stores and closed 2 locations for a net increase of 16 new stores.

The total number of stores in operation at December 31, 2024 was 334 in Latin America.

Net sales in the Performance Coatings Group decreased 0.7% in 2024 primarily due to selling price decreases, largely attributable to product mix, which impacted Net sales by a low-single digit percentage and unfavorable foreign currency translation.

These decreases were partially offset by low-single digit volume growth, inclusive of the acquisition of SIC Holding GmbH in 2023 and the acquisition of a metal packaging coatings business in 2024.

In 2024, the Performance Coatings Group added 2 net new branches, increasing the total to 324 branches.

Net sales in the Administrative function, which primarily consists of external leasing revenue, increased by an insignificant amount in 2024.

Income Before Income Taxes

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

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

Year Ended December 31,

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Selling, general and administrative expenses (SG&A) 7,422.1 32.1 % 7,065.4 30.6 %

Other general expense (income) - net 67.1 0.3 % (24.9) (0.1) %

Other general (income) expense - net (38.8) (0.1) % 67.1 0.3 %

Impairment — — % 57.9 0.3 %

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Interest income (11.0) — % (25.2) (0.1) %

Other expense (income) - net 65.5 0.3 % 47.0 0.1 %

Other (income) expense - net (44.7) (0.2) % 65.5 0.3 %

Income before income taxes $ 3,451.8 14.9 % $ 3,109.9 13.5 %

Consolidated Cost of goods sold decreased $530.0 million, or 4.1%, in 2023 compared to the same period in 2022 primarily due 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 expenses.

In 2023, certain manufacturing and distribution costs (excluding raw materials) incurred within the Consumer Brands Group were in excess of the Company’s standard conversion cost estimates established at the beginning of the year.

Consistent with prior years, these expenses were related to supply chain inefficiencies and remained within the manufacturing and distribution operations of the Consumer Brands Group.

Consolidated Gross profit increased $1.433 billion, or 15.4%, in 2023 compared to the same period in 2022.

Consolidated Gross profit as a percent to consolidated Net sales increased to 46.7% in 2023 from 42.1% 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 volumes in the Consumer Brands and Performance Coatings Groups.

The Paint Stores Group’s gross profit for 2023 increased $908.6 million compared to the same period in 2022 primarily due to sales volume growth, selling price increases and moderating raw material costs.

Consolidated Cost of goods sold decreased $390.4 million, or 3.2%, in 2024 compared to the same period in 2023 primarily due to lower sales volume in the Consumer Brands Group and moderating raw material costs, partially offset by higher sales volumes in the Paint Stores and Performance Coatings Groups.

Consolidated Gross profit increased $437.0 million, or 4.1%, in 2024 compared to the same period in 2023 primarily due to higher sales volumes in the Paint Stores and Performance Coatings Groups and moderating raw material costs, partially offset by lower sales volume in the Consumer Brands Group.

Consolidated Gross profit as a percent to consolidated Net sales increased to 48.5% in 2024 from 46.7% in 2023 for these same reasons.

The Paint Stores Group’s Gross profit for 2024 increased $242.1 million compared to the same period in 2023 primarily due to higher Net sales driven by sales volume growth, selling price increases and moderating raw material costs.

The Paint Stores Group’s Gross profit as a percent of Net sales increased for these same reasons.

The Consumer Brands Group’s gross profit increased $139.3 million in 2023 compared to the same period in 2022 due primarily to selling price increases and moderating raw material costs, partially offset by a sales volume decrease and increases in wages and other employee-related expenses in manufacturing and distribution operations.

The Consumer Brands Group’s Gross profit increased $181.1 million in 2024 compared to the same period in 2023 primarily due to higher fixed cost absorption in the manufacturing and distribution operations within the segment and moderating raw material costs, partially offset by lower Net sales.

The Consumer Brands Group’s Gross profit as a percent of Net sales increased for these same reasons.

The Performance Coatings Group’s gross profit increased $402.2 million compared to the same period in 2022 due primarily to higher selling prices, moderating raw material costs and the impact of acquisitions, partially offset by lower sales volume and increases in wages and other employee-related expenses.

The Performance Coatings Group’s Gross profit increased $13.6 million compared to the same period in 2023 primarily due to moderating raw material costs, partially offset by lower Net sales.

The Performance Coatings Group’s Gross profit as a percent of Net sales increased for these same reasons.

Consolidated SG&A increased by $733.8 million compared to the same period in 2022 primarily due to increased employee-related expenses, including incentive-based compensation expense, expenses to support higher sales levels and net new store openings.

Consolidated SG&A increased by $356.7 million, or 5.0%, in 2024 compared to the same period in 2023 primarily due to investments in long-term growth strategies, including expenses to support net new store openings and digital technologies and higher employee-related costs.

As a percent of Net sales, SG&A increased 150 basis points compared to the same period in 2023 for these same reasons.

The Paint Stores Group’s SG&A increased $401.4 million for the year due primarily to higher employee-related expenses, increased spending from new store openings, higher costs to serve customers, increased investments in technologies and costs to support higher sales levels, including the hiring of additional sales representatives.

The Consumer Brands Group’s SG&A increased $64.5 million for the year primarily due to higher employee-related expenses and increased spending to support higher sales levels in Latin America.

The Performance Coatings Group’s SG&A increased by $139.9 million for the year primarily due to higher employee-related expenses, costs from acquisitions and investments in technology.

The Administrative segment’s SG&A increased $128.0 million primarily due to higher employee-related expenses, including stock-based and other incentive compensation, as well as increased expenses related to technology and systems.

Other general expense (income) - net changed by $92.0 million from income of $(24.9) million in 2022 to an expense of $67.1 million in 2023.

The change was primarily attributable to an increase in provisions for environmental matters - net due to new information which impacted the estimate of required remediation at certain Major Sites and other Company locations.

In addition, the Company incurred a modest loss on the sale or disposition of assets versus a gain in the prior year.

These decreases were offset by a gain on the sale of a non-core domestic aerosol business in 2023.

The Paint Stores Group’s SG&A increased $194.1 million or 4.6% for the year primarily due to higher employee-related costs and investments in long-term growth initiatives, including increased spending from net new store openings and costs to support higher sales.

The Consumer Brands Group’s SG&A decreased $19.2 million or 2.2% for the year primarily due to effective cost control in managing the operations of the business, partially offset by higher employee-related costs.

The Performance Coatings Group’s SG&A increased by $27.5 million or 1.9% for the year primarily due to investments in long-term initiatives and higher employee-related costs.

The Administrative function’s SG&A increased $154.3 million or 27.7% primarily due to higher employee-related costs and increased expenses related to digital technologies and systems.

Other general (income) expense - net changed by $105.9 million from expense of $67.1 million in 2023 to income of $38.8 million in 2024.

The change was primarily attributable to a decrease in provisions for environmental matters, net in the Administrative function and increased net gains on sale or disposition of assets.

This activity was partially offset by the non-recurring gain recognized in 2023 related to the divestiture of a non-core domestic aerosol business.

See Note 19 to the consolidated financial statements in Item 8 for additional information.

For information on impairment considerations, see Note 7 to the Consolidated Financial Statements in Item 8.

Interest expense increased $26.7 million in 2023 compared to 2022 primarily due to higher interest rates, partially offset by a decrease in outstanding debt.

There was no impairment in 2024.

Asset impairment of $34.0 million related to the divestiture of the China architectural business and impairment related to trademarks of $23.9 million primarily related to a trademark in Europe were recorded in 2023.

For information on impairment considerations, see Notes 3 and 6 to the consolidated financial statements in Item 8.

Interest expense decreased $1.8 million in 2024 compared to 2023 primarily due to a decrease in long-term debt, partially offset by higher interest expense as a result of an increase in short-term borrowings.

See Note 7 to the consolidated financial statements in Item 8 for additional information on the Company’s outstanding debt.

Other expense (income) - net increased $18.5 million in 2023 compared to 2022 primarily due to the significant devaluation of the Argentine Peso in December 2023 as part of economic reforms implemented by the government of Argentina.

As a result of these actions in Argentina, the Company incurred a loss of $41.8 million.

In addition, the Company incurred a loss on the extinguishment of its Debentures due 2027 and 2097 of $12.8 million.

These increases were partially offset by gains on investments held in the Administrative segment and miscellaneous pension and benefit income.

See Note 20 to the Consolidated Financial Statements in Item 8 for additional information related to Other expense (income) - net.

The following table presents income before income taxes by segment and as a percentage of net sales by segment:

Other (income) expense - net changed by $110.2 million from expense of $65.5 million in 2023 to income of $44.7 million in 2024 primarily due to lower foreign currency transaction related losses in 2024 compared to 2023 and an increase in miscellaneous income.

The foreign currency transaction related losses in 2023 included a $41.8 million unfavorable impact from the significant devaluation of the Argentine peso in December 2023 as part of economic reforms implemented by the government of Argentina.

In addition, a $12.8 million loss on extinguishment of debt was recognized in 2023.

This activity was partially offset by a decrease in miscellaneous pension income and investment gains.

See Note 19 to the consolidated financial statements in Item 8 for additional information related to Other (income) expense - net.

The following table presents Income before income taxes by segment and as a percent of Net sales by segment:

Year Ended December 31,

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Consumer Brands Group 589.9 309.3 280.6 90.7 %

309.3 314.2 (4.9) (1.6) %

Performance Coatings Group 1,027.9 991.6 36.3 3.7 %

991.6 734.9 256.7 34.9 %

Administrative (1,068.6) (1,051.8) (16.8) (1.6) %

$ 3,109.9 $ 2,573.1 $ 536.8 20.9 %

Income Before Income Taxes as a % of Net Sales:

Total $ 3,451.8 $ 3,109.9 $ 341.9 11.0 %

Income Before Income Taxes as a percent of Net sales:

Paint Stores Group 22.0 % 22.3 %

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Performance Coatings Group 15.1 % 14.5 %

14.5 % 10.8 %

Administrative nm nm

13.5 % 11.6 %

Total 14.9 % 13.5 %

nm - not meaningful

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The effective income tax rate for 2024 was 22.3% compared to 23.2% in 2023.

The increase in the effective rate was primarily due to an unfavorable change in the jurisdictional mix of earnings.

The decrease in the effective rate was primarily due to a more favorable impact of tax benefits related to employee share-based payments.

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

See Note 20 to the consolidated financial statements in Item 8 for additional information.

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Diluted net income per share for 2024 increased to $10.55 per share from $9.25 per share in 2023.

Diluted net income per share in 2023 included acquisition-related amortization expense of $0.78 per share, severance and other expense of $0.04 per share, expenses related to the divestiture of the China architectural business of $0.11 per share, impairment related to trademarks of $0.07 per share and expense related to the devaluation of the Argentine Peso of $0.16 per share.

Currency translation rate changes decreased diluted net income per share by $0.06 per share for 2024.

Diluted net income per share in 2024 included acquisition-related amortization expense of $0.78 per share.

Diluted net income per share for 2023 included acquisition-related amortization expense of $0.78 per share, severance and other expense of $0.04 per share, expenses related to the divestiture of the China architectural business of $0.11 per share, impairment related to trademarks of $0.07 per share and expense related to the devaluation of the Argentine peso of $0.16 per share.

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

Currency translation rate changes increased diluted net income per share in the year by $0.05 per share.

Diluted net income per share in 2022 included acquisition-related amortization expense of $0.81 per share, severance and other expense of $0.15 per share and impairment

related to the Restructuring Plan of $0.05 per share.

Refer to Notes 3, 4, 7 and 20 to the Consolidated Financial Statements in Item 8 for additional information.

See Notes 3, 6 and 19 to the consolidated financial statements in Item 8 for additional information.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

The Company’s financial condition, liquidity and cash flow continued to be strong in 2023.

The Company generated $3.522 billion in Net operating cash, primarily due to higher net income and improved working capital management.

This strong cash generation enabled the Company to invest $1.011 billion in capital expenditures and approximately $265 million in the acquisition of SIC Holding, reduce short-term borrowings and long-term debt by $718.8 million and return $2.056 billion to shareholders in the form of cash dividends and share repurchases during the year.

During 2023, the Company generated EBITDA of $4.150 billion and Adjusted EBITDA of $4.239 billion.

See the Non-GAAP Financial Measures section for the definitions and calculations of EBITDA and Adjusted EBITDA.

The Company’s financial condition, liquidity and cash flow remained strong in 2024.

The Company generated $3.153 billion in Net operating cash and invested $1.014 billion in capital expenditures and approximately $80 million in the acquisition of a metal packaging coatings business.

The Company also returned cash of $2.462 billion to shareholders in the form of cash dividends and share repurchases during the year.

The Company’s EBITDA increased 8.2% to $4.492 billion.

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

As of December 31, 2024, the Company had Cash and cash equivalents of $210.4 million and total debt outstanding of $9.888 billion.

Total debt, net of Cash and cash equivalents, was $9.574 billion and was 2.3 times the Company’s Adjusted EBITDA in 2023.

Total debt, net of Cash and cash equivalents, was $9.678 billion and was 2.2 times the Company’s EBITDA in 2024.

Net Working Capital

Net working capital, defined as Total current assets less Total current liabilities, decreased $1.061 billion to a deficit of $1.114 billion at December 31, 2023 from a deficit of $53.0 million at December 31, 2022.

The net working capital decrease was primarily due to an increase in the Current portion of long-term debt and a decrease in current assets, particularly Inventories, partially offset by a decrease in Short-term borrowings.

Comparing current asset balances at December 31, 2023 to December 31, 2022, Accounts receivable decreased $95.7 million, Inventories decreased $296.7 million due to lower inventory levels and moderating raw material costs and Other current assets decreased $80.4 million, primarily related to prepaid expenses and refundable income taxes.

These decreases were partially offset by an increase in Cash and cash equivalents of $78.0 million.

Current liability balances increased $666.2 million at December 31, 2023 compared to December 31, 2022 primarily due an increase in the Current portion of long-term debt of $1.098 billion, an increase in Other Accruals of $191.2 million, primarily related to liabilities from contracts with customers, environmental-related liabilities and miscellaneous other current liabilities, and an increase in Compensation and taxes withheld of $78.2 million.

These increases were partially offset by a decrease in Short-term borrowings of $603.9 million and Accounts payable of $121.5 million.

Net working capital, defined as Total current assets less Total current liabilities, decreased $293.9 million to a deficit of $1.408 billion at December 31, 2024 compared to a deficit of $1.114 billion at December 31, 2023.

The net working capital decrease is due to an increase in Short-term borrowings and a decrease in current assets, particularly Accounts receivable, net and Cash and cash equivalents, partially offset by an increase in Other current assets and a decrease in Accounts payable.

Current asset balances decreased $112.1 million at December 31, 2024 compared to December 31, 2023 primarily due to a decrease in Accounts receivable, net of $79.1 million, a decrease in Cash and cash equivalents of $66.4 million and a decrease in Inventories of $41.7 million.

These decreases were partially offset by an increase in Other current assets of $75.1 million, primarily related to prepaid expenses.

Current liability balances increased $181.8 million at December 31, 2024 compared to December 31, 2023 primarily due to an increase in Short-term borrowings of $288.2 million and an increase in Other accruals of $30.7 million primarily related to liabilities related to insurance, investments in U.S.

affordable housing and historic renovation real estate partnerships and contracts with customers, partially offset by a decrease in short-term environmental liabilities.

These increases were partially offset by a decrease in Accounts payable of $61.8 million, a decrease in Current portion of long-term debt of $49.6 million and a decrease in Accrued taxes of $23.1 million.

As a result of the net effect of these changes, the Company’s current ratio decreased to 0.79 at December 31, 2024 from 0.83 at December 31, 2023.

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Accounts receivable days outstanding was 58 days in 2024 and 2023.

In 2023, provisions for the allowance for current expected credit losses increased $3.0 million, or 5.3%.

In 2024, the allowance for current expected credit losses increased $0.8 million, or 1.3%.

Inventories as a percent of Net sales decreased to 9.9% in 2024 from 10.1% in 2023.

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Property, Plant and Equipment

Net property, plant and equipment increased $629.8 million to $2.837 billion at December 31, 2023 due primarily to capital expenditures of $1.011 billion, partially offset by depreciation expense of $292.3 million, sale or disposition of assets with remaining net book value of $88.0 million, and currency translation and other adjustments of $(0.5) million.

During 2023, the Company closed on a transaction to sell and subsequently lease back its current headquarters and research and development center.

Property, plant and equipment, net increased $696.4 million to $3.533 billion at December 31, 2024 primarily due to capital expenditures of $1.014 billion and assets acquired through a business combination of $32.9 million, partially offset by depreciation expense of $297.4 million and foreign currency translation and other adjustments of $52.6 million.

During 2023, the Company closed on a transaction to sell and subsequently lease back its current global headquarters and R&D center.

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

Capital expenditures during 2023 in the Paint Stores Group were primarily attributable to the opening of new paint stores and renovations and improvements in existing stores.

In the Consumer Brands Group and the Performance Coatings Group, capital expenditures during 2023 were primarily related to ongoing environmental compliance measures, manufacturing capacity expansion, operational efficiencies and maintenance projects at sites currently in operation.

The Administrative segment incurred capital expenditures primarily related to construction activities associated with the new headquarters and research and development center.

Construction of the new headquarters and research and development center is expected to be completed in 2024 at the earliest.

In 2024, the Company expects to spend approximately the same as 2023 for capital expenditures, which it will fund primarily through the generation of operating cash.

Core capital expenditures are targeted to be less than 2% of Net sales in 2024 and are expected to be for investments in various productivity improvement and maintenance projects at existing manufacturing, distribution and research and development facilities and new store openings.

Additionally, the Company will continue to

construct its new headquarters and research and development center.

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

Capital expenditures during 2024 included expenditures related to construction activities associated with the new global headquarters and R&D center in the Administrative function.

Construction of the new global headquarters and R&D center is expected to be complete in 2025.

Also included in 2024 capital expenditures were expenditures related to manufacturing capacity expansion, operational efficiencies and maintenance projects in the Consumer Brands and Performance Coatings Groups and the opening of new paint stores and renovation and improvements in existing stores in the Paint Stores Group.

In 2025, the Company expects to spend slightly less than 2024 for capital expenditures, which it will fund primarily through the generation of operating cash.

Core capital expenditures are expected to be for investments in various productivity improvement and maintenance projects at existing manufacturing, distribution and research and development facilities and new store openings.

Additionally, the Company expects to complete construction of its new global headquarters and R&D center.

Refer to the Real Estate Financing section herein for further information on the financing transaction for the new global headquarters.

Real Estate Financing

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

As part of the terms of the transaction, the Company is contractually obligated for completing the construction of the building and related improvements at the new headquarters.

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

As part of the terms of the transaction, the Company is contractually obligated for completing the

construction of the building and related improvements at the new global headquarters.

Construction is expected to complete in 2025.

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

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

The Company expects to receive proceeds approximating $800 million to $850 million on an incremental basis until the completion of construction.

The Company expects to receive total proceeds approximating $800 million to $850 million, with final proceeds expected in the first quarter of 2025.

The initial lease term includes the construction period and extends for 30 years thereafter, and the Company has the right and option to extend the lease term.

The lease payment amounts during the construction period are dependent upon the timing and amount of total reimbursement of construction and other costs received by the Company.

Lease payments over the next twelve months, which is the remaining estimated construction period, are expected to be approximately $40 million.

Lease payments over the next twelve months are expected to be approximately $50 million.

The amount of the lease payments during the initial 30 year lease term will be calculated upon completion of the construction period and receipt of total reimbursement of construction and other costs.

Once determinable, this is expected to result in a significant increase in the Company’s long-term contractual obligations.

In 2023 and 2022, the Company received $305.0 million and $210.0 million, respectively, pursuant to the transaction.

The following table summarizes the activity related to this transaction and the corresponding balances recognized in the Consolidated Balance Sheets.

2024 2023 2022

Proceeds received $ 244.2 $ 305.0 $ 210.0

Capitalized interest 45.2 23.8

Short-term liability $ 49.7 $ 39.9 $ 20.0

Long-term liability 715.9 475.9 187.0

Total liability $ 765.6 $ 515.8 $ 207.0

The net proceeds from this transaction and other real estate financing transactions are recognized as proceeds from real estate financing transactions within the Financing Activities section of the Statements of Consolidated Cash Flows.

The corresponding financing obligation for the new headquarters was $515.8 million and $207.0 million at December 31, 2023 and 2022, respectively, on the Consolidated Balance Sheets.

The short-term portion of the liability recorded in Other accruals was $39.9 million and $20.0 million at December 31, 2023 and 2022, respectively.

During 2023, $23.8 million of interest was capitalized with the long-term portion of the liability in Other long-term liabilities.

The Company will continue to recognize the related assets within Property, plant and equipment, net on the Consolidated Balance Sheets under US GAAP.

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The Company will also allocate payments between interest and repayment of the financing liability over the life of the agreement.

Refer to Note 11 to the Consolidated Financial Statements within Item 8 for further information.

See Note 10 to the consolidated financial statements within Item 8 for further information.

Goodwill and Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired in business combinations, increased $42.8 million in 2023, primarily due to foreign currency translation rate fluctuations and purchase accounting allocations of $8.3 million.

Intangible assets decreased $121.5 million in 2023 primarily due to amortization of finite-lived intangible assets of $325.0 million, dispositions of $83.4 million and trademark impairment charges of $30.9 million, partially offset by purchase accounting allocations of $306.7 million and foreign currency translation rate fluctuations.

See Note 3 to the Consolidated Financial Statements in Item 8 for additional information related to acquisitions and divestitures.

See Note 7 to the Consolidated Financial Statements in Item 8 for a description of goodwill, identifiable intangible assets and asset impairments and summaries of the remaining carrying values of goodwill and intangible assets.

Goodwill, which represents the excess of cost over the fair value of net assets acquired in business combinations, decreased $45.9 million to $7.580 billion at December 31, 2024, due to foreign currency translation rate fluctuations of $94.1 million, partially offset by purchase accounting allocations of $48.2 million.

Intangible assets decreased $347.3 million to $3.533 billion at December 31, 2024 due to amortization of finite-lived intangible assets of $326.7 million and foreign currency translation rate fluctuations and other adjustments of $75.9 million, partially offset by purchase accounting allocations of $28.0 million and capitalization of software of $27.3 million.

See Note 3 to the consolidated financial statements in Item 8 for additional information related to acquisitions.

See Note 6 to the consolidated financial statements in Item 8 for a description of goodwill, intangible assets, historical impairments and summaries of the remaining carrying values of goodwill and intangible assets.

Other assets increased $420.7 million to $1.632 billion at December 31, 2024.

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

See Note 1 to the Consolidated Financial Statements in Item 8 for additional information.

The increase was primarily due to an increase in finance lease right-of-use (ROU) assets of $187.5 million, largely related to a new finance lease which commenced during 2024, an increase in assets related to contracts with customers and investments in U.S.

affordable housing and historic renovation real estate partnerships.

See Notes 1, 9 and 18 to the consolidated financial statements in Item 8 for additional information.

Debt (including Short-term borrowings)

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Total debt outstanding $ 9,888.4 $ 9,850.9

Total debt outstanding, including Short-term borrowings, decreased by $718.8 million to $9.851 billion in 2023.

Total debt outstanding, including Short-term borrowings, increased by $37.5 million to $9.888 billion in 2024.

Short-term borrowings are primarily comprised of amounts outstanding under the Company’s domestic commercial paper program and various foreign credit facilities.

The Company’s Long-term debt primarily consists of senior notes.

The Company targets Net

debt, which is total debt outstanding, net of Cash and cash equivalents, to be 2.0 to 2.5 times EBITDA.

The Company targets Net debt, which is total debt outstanding, net of Cash and cash equivalents, to be 2.0 to 2.5 times EBITDA.

At December 31, 2024, Net debt was $9.678 billion and was 2.2 times the Company’s EBITDA in 2024.

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

In August 2024, the Company repaid principal of $600.0 million related to the Company’s 4.05% senior notes due August 8, 2024 using commercial paper and subsequently issued $400.0 million of 4.55% senior notes due 2028 and $450.0 million of 4.80% senior notes due 2031 in a public offering.

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

The newly issued senior notes contain customary qualitative covenants as defined in their respective agreements.

During the second quarter of 2024, the Company repaid the principal of $500.0 million related to its 3.125% senior notes due June 1, 2024 using commercial paper.

In December 2023, the Company exercised its call provision to make-whole the entire outstanding $119.4 million aggregate principal amount of its 7.38% Debentures due 2027 and the entire outstanding $3.5 million aggregate principal amount of its 7.45% Debentures due 2097.

The retirement of the Debentures resulted in a loss of $12.8 million recorded in Other general expense (income) - net.

The retirement of the Debentures resulted in a loss of $12.8 million recorded in Other general (income) expense - net.

See Note 19 to the consolidated financial statements in Item 8 for additional information.

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Defined Benefit Pension and Other Postretirement Benefit Plans

In accordance with the accounting prescribed by the Retirement Benefits Topic of the ASC, the Company’s total liability for unfunded or underfunded defined benefit pension plans increased $10.5 million to $69.0 million primarily due to changes in actuarial assumptions.

The Company’s liability for other postretirement benefits decreased $6.6 million to $147.2 million at December 31, 2023 due primarily to changes in the actuarial assumptions.

The assumed discount rate used to determine the projected benefit obligation for the domestic defined benefit pension plan decreased to 5.1% at December 31, 2023 from 5.3% at December 31, 2022.

The assumed discount rate used to determine the projected benefit obligation for foreign defined benefit pension plans decreased to 4.8% at December 31, 2023 from 5.1% at December 31, 2022.

The assumed discount rate used to determine the projected benefit obligation for other postretirement benefit obligations decreased to 5.0% at December 31, 2023 from 5.2% at December 31, 2022.

The decrease in the discount rates was primarily due to lower interest rates.

In deciding on the rates of compensation increases, management considered historical Company increases as well as expectations for future increases.

In accordance with the accounting prescribed by the Retirement Benefits Topic of the ASC, the Company’s total liability for unfunded or underfunded defined benefit pension plans decreased $1.2 million to $67.8 million primarily due to changes in actuarial assumptions.

The Company’s liability for other postretirement benefits decreased $12.1 million to $135.1 million at December 31, 2024 primarily due to benefits paid and changes in actuarial assumptions.

The assumed discount rate used to determine the projected benefit obligation for the domestic defined benefit pension plan increased to 5.8% at December 31, 2024 from 5.1% at December 31, 2023.

The assumed discount rate used to determine the projected benefit obligation for foreign defined benefit pension plans increased to 5.5% at December 31, 2024 from 4.8% at December 31, 2023.

The assumed discount rate used to determine the projected benefit obligation for other postretirement benefit obligations increased to 5.6% at December 31, 2024 from 5.0% at December 31, 2023.

The increase in the discount rates was primarily due to higher interest rates.

In determining the rates of compensation increases, management considered historical Company increases as well as expectations for future increases.

The rate of compensation increases used to determine the projected benefit obligation at December 31, 2024 was 3.0% for the domestic pension plan and 3.3% for foreign pension plans, which was comparable to the rates used in the prior year.

In establishing the expected long-term rate of return on plan assets, management considered the historical rates of return, the nature of investments and an expectation for future investment strategies.

The expected long-term rate of return on assets for the domestic defined benefit pension plan was 6.3% at December 31, 2023 and 2022.

The expected long-term rate of return on assets for the foreign defined benefit pension plans decreased to 4.8% at December 31, 2023 from 5.5% at December 31, 2022.

The expected long-term rate of return on assets for the domestic defined benefit pension plan was 6.5% and 6.3% at December 31, 2024 and 2023, respectively.

The expected long-term rate of return on assets for the foreign defined benefit pension plans was 4.8% at December 31, 2024 and 2023.

In developing the assumed health care cost trend rates, management considered industry data, historical Company experience and expectations for future health care costs.

The assumed health care cost trend rates used to determine the projected benefit obligation for other postretirement benefit obligations at December 31, 2023 were 6.0% and 9.0% for medical and prescription drug cost increases, respectively, both decreasing gradually to 4.5% in 2032.

The assumed health care cost trend rates used to determine the projected benefit

obligation for other postretirement benefit obligations at December 31, 2024 were 6.5% and 11.8% for medical and prescription drug cost increases, respectively, both decreasing gradually to 4.5% in 2034.

The assumed health care cost trend rates for medical and prescription costs used to determine the projected benefit obligation for other postretirement benefit obligations at December 31, 2023 were 6.0% and 9.0%, respectively.

The respective year-end assumptions described above for the Company’s defined benefit plans are also used to determine expense for the next year.

Net pension cost in 2024 for the domestic pension plan and foreign pension plans is expected to be approximately $1.8 million and $4.4 million, respectively.

Net pension (credit) cost in 2025 for the domestic pension plan and foreign pension plans is expected to be approximately $(1.6) million and $5.3 million, respectively.

Net periodic benefit credit for other postretirement benefits in 2025 is expected to be approximately $9.7 million.

The credit for 2024 is primarily due to amortization of the impact of a plan amendment executed in 2022.

This credit is primarily due to the remaining amortization of the impact of a plan amendment executed in 2022.

This impact will be fully amortized in 2025.

See Note 8 to the consolidated financial statements in Item 8 for additional information on the Company’s obligations and funded status of its defined benefit pension plans and other postretirement benefits.

Deferred Income Taxes

Deferred income taxes at December 31, 2023 increased $1.5 million from the prior year primarily due to an increase in deferred tax liabilities from acquired intangible assets, partially offset by the amortization of intangible assets in the current year.

See Notes 3 and 21 to the Consolidated Financial Statements in Item 8 for additional information on deferred taxes.

Deferred income taxes at December 31, 2024 decreased $75.6 million to $607.5 million at December 31, 2024 primarily due to amortization of intangible assets in the current year.

See Note 20 to the consolidated financial statements in Item 8 for additional information on deferred taxes.

Other Long-Term Liabilities

Other long-term liabilities increased $301.6 million during 2023 due primarily to liabilities associated with real estate financing transactions and an increase in long-term commitments related to investments in U.S.

affordable housing and historic

renovation real estate partnerships, partially offset by the impact of expected settlements related to tax positions over the next twelve months as disclosed in Note 21 to the Consolidated Financial Statements in Item 8.

Other long-term liabilities increased $401.4 million to $2.309 billion at December 31, 2024 primarily due to liabilities associated with real estate financing transactions, finance leases and commitments related to investments in U.S.

affordable housing and historic renovation real estate partnerships, partially offset by the impact of expected settlements related to tax positions over the next twelve months.

See Notes 1, 9, 10 and 20 to the consolidated financial statements in Item 8.

Environmental Matters

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

During 2023, environmental-related liabilities increased $28.5 million to $318.9 million at December 31, 2023 primarily due to new information which impacted the estimate of required remediation at certain Major Sites and other Company locations.

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

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Operating leases 2,289.1 540.4 845.6 489.8 413.3

Finance leases 629.7 9.1 16.6 17.4 586.6

Short-term borrowings 662.4 662.4

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Total contractual cash obligations $ 18,338.6 $ 3,227.2 $ 3,486.3 $ 2,348.7 $ 9,276.4

(1) Excludes real estate financing transactions related to the new headquarters.

(1) Excludes real estate financing transactions related to the new global headquarters.

Refer to “Real Estate Financing” section herein for further information.

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affordable housing and historic renovation real estate partnerships and various other contractual obligations.

Additionally, the Company has an obligation with respect to an agreement signed in February 2025 to acquire the Brazilian decorative paints business of BASF SE, which is excluded from the preceding table.

The timing and amount of this obligation is uncertain as the transaction is expected to close in the second half of 2025 and is subject to customary closing conditions, including Brazilian regulatory approval and post-closing adjustments.

Refer to Note 3 to the consolidated financial statements in Item 8 for further information.

Amount of Commitment Expiration Per Period

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The increase was primarily attributable to the generation of $2.681 billion of Net income and benefits from stock option exercises and the recognition of stock-based compensation expense of $367.5 million.

This was partially offset by the repurchase of $1.432 billion in Treasury stock and the payment of $623.7 million in cash dividends.

This was partially offset by the repurchase of $1.739 billion in Treasury stock, the payment of $723.4 million in cash dividends and a decrease in AOCI of $250.9 million mainly due to foreign currency translation adjustments.

See the Statements of Consolidated Shareholders’ Equity and Statements of Consolidated Comprehensive Income in Item 8 for additional information.

The Company purchased 5.2 million shares of its common stock for treasury purposes through open market purchases during 2024.

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

The Company acquires its common stock for general corporate purposes, and depending on its cash position and market

conditions, it may acquire shares in the future.

The Company had remaining authorization from its Board of Directors at December 31, 2024 to purchase 34.4 million shares of its common stock.

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This quarterly dividend, if approved in each of the remaining quarters of 2025, would result in an annual dividend for 2025 of $3.16 per share, or a 30% payout of 2024 diluted net income per share.

Net operating cash increased $1.602 billion in 2023 to a cash source of $3.522 billion from a cash source of $1.920 billion in 2022 due primarily to improved working capital management and higher net income.

Net operating cash increased as a percent to Net sales to 15.3% in 2023 compared to 8.7% in 2022.

Net investing cash usage decreased $568.3 million to a usage of $1.039 billion in 2023 from a usage of $1.608 billion in 2022 due primarily 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 operating cash decreased $368.7 million in 2024 to a cash source of $3.153 billion from a cash source of $3.522 billion in 2023 primarily due to higher cash requirements for working capital partially offset by higher Net income.

Net operating cash decreased as a percent of Net sales to 13.7% in 2024 compared to 15.3% in 2023.

Net investing cash usage increased $157.0 million to a usage of $1.196 billion in 2024 from a usage of $1.039 billion in 2023 primarily due to an increase in cash used for capital expenditures, proceeds from the divestiture of a business in 2023 and reduced proceeds from the sale of assets, partially offset by lower cash used for acquisitions.

See Note 3 to the consolidated financial statements in Item 8 for additional information on acquisitions and divestitures.

Net financing cash usage increased $2.142 billion to a usage of $2.425 billion in 2023 from a usage of $282.4 million in 2022.

This increase was due primarily to proceeds from long-term debt in 2022 which did not occur in 2023, a net decrease in short-term borrowings and an increase in treasury stock purchases, partially offset by lower payments of long-term debt and higher proceeds from real estate financing transactions.

See Note 12 to the Consolidated Financial Statements in Item 8 for information concerning litigation.

Net financing cash usage decreased $407.5 million to a usage of $2.017 billion in 2024 from a usage of $2.425 billion in 2023.

This decrease was primarily due to a net increase in short-term borrowings, proceeds from long-term debt in 2024 and higher proceeds from stock options exercised, partially offset by an increase in payments of long-term debt, treasury stock purchases and payment of cash dividends.

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

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The covenant states the Company’s consolidated leverage ratio is not to exceed 3.75 to 1.00;

however, the Company may elect to temporarily increase the leverage ratio to 4.25 to 1.00 for a period of four consecutive fiscal quarters immediately following the consummation of a qualifying acquisition, as defined in the credit agreement dated August 30, 2022.

The leverage ratio is defined as the ratio of total indebtedness (the sum of Short-term borrowings, Current portion of long-term debt and Long-term debt) at the reporting date to consolidated “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA), as defined in the credit agreement, for the 12-month period ended on the same date.

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

The reader should refer to the determination of Net income and Net operating cash in accordance with US GAAP disclosed in the Statements of Consolidated Income and Statements of Condensed Consolidated Cash Flows in Item 8.

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

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Adjusted EBITDA $ 4,491.5 $ 4,239.1

Free Cash Flow

Free cash flow is a non-GAAP financial measure defined as Net operating cash, as shown in the Statements of Consolidated Cash Flows, less the amount reinvested in the business for capital expenditures and the return on investment to its shareholders by the payments of cash dividends.

Management considers free cash flow to be a useful tool in its determination of appropriate uses of the Company’s Net operating cash.

The reader is cautioned that the free cash flow measure should not be compared to other entities unknowingly as it may not be comparable and it does not consider certain non-discretionary cash flows, such as mandatory debt and interest payments.

Free Cash Flow After Dividends

Free cash flow after dividends is a non-GAAP financial measure defined as Net operating cash, as shown in the Statements of Consolidated Cash Flows, less the amount reinvested in the business for capital expenditures and the return on investment to its shareholders by the payments of cash dividends.

Management considers Free cash flow after dividends to be a useful tool in its determination of appropriate uses of the Company’s Net operating cash.

The reader is cautioned that the Free cash flow after dividends measure should not be compared to other entities unknowingly as it may not be comparable and it does not consider certain non-discretionary cash flows, such as mandatory debt and interest payments.

The amount shown below should not be considered an alternative to Net operating cash or other cash flow amounts provided in accordance with US GAAP as disclosed in the Statements of Consolidated Cash Flows in Item 8.

The following table summarizes free cash flow as calculated by management for the years indicated below:

The following table summarizes Free cash flow after dividends as calculated by management for the years indicated below:

Year Ended December 31,

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Cash dividends (723.4) (623.7)

Free cash flow $ 2,009.8 $ 656.9

Free cash flow after dividends $ 1,359.8 $ 2,009.8

Adjusted Diluted Net Income Per Share

Management of the Company believes that investors’ understanding of the Company’s operating performance is enhanced by the disclosure of diluted net income per share excluding Valspar acquisition-related amortization expense and certain other adjustments.

Management believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of diluted net income per share excluding Valspar acquisition-related amortization expense and certain other adjustments.

Valspar acquisition-related amortization expense is excluded from diluted net income per share due to its significance as a result of the purchase price assigned to finite-lived intangible assets at the date of acquisition and the related impact on underlying business performance and trends.

While these intangible assets contribute to the Company’s revenue generation, the related revenue is not excluded.

This adjusted earnings per share measurement is not in accordance with US GAAP.

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Diluted net income per share $ 10.55

Acquisition-related amortization expense (2)

$ 1.02 $ .24 .78

Adjusted diluted net income per share $ 11.33

December 31, 2023

Diluted net income per share $ 9.25

Items related to Restructuring Plan:

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Adjusted diluted net income per share $ 10.35

December 31, 2022

Diluted net income per share $ 7.72

Items related to Restructuring Plan:

Severance and other $ .18 $ .03 .15

Impairment .06 .01 .05

Total .24 .04 .20

Acquisition-related amortization expense (2)

Adjusted diluted net income per share $ 8.73

(1) The tax effect is calculated based on the statutory rate and the nature of the item, unless otherwise noted.

(2) Acquisition-related amortization expense consists of the amortization of intangible assets related to the Valspar acquisition and is included within Selling, general and administrative expenses.

(2) Acquisition-related amortization expense, which is included within Selling, general and administrative expenses, consists of the amortization of intangible assets related to the Valspar acquisition.

These intangible assets are primarily customer relationships and intellectual property and are being amortized over their remaining useful lives.

Adjusted Segment Profit

Management of the Company believes that investors’ understanding of the Company’s operating performance is enhanced by the disclosure of segment profit excluding Valspar acquisition-related amortization expense and certain other adjustments.

Management believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of Segment profit excluding Valspar acquisition-related amortization expense and certain other adjustments.

Valspar acquisition-related amortization expense is excluded from Segment profit due to its significance as a result of the purchase price assigned to finite-lived intangible assets at the date of acquisition and the related impact on underlying business performance and trends.

While these intangible assets contribute to the Company’s revenue generation, the related revenue is not excluded.

This Adjusted segment profit measurement is not in accordance with US GAAP.

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Year Ended December 31, 2024

Paint Stores Group Consumer Brands

Group Consumer Brands

Group Performance Coatings

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Income before income taxes $ 2,902.6 $ 589.9 $ 1,027.9 $ (1,068.6) $ 3,451.8

as a % of Net sales 22.3 % 9.2 % 14.5 % 13.5 %

Items related to Restructuring Plan:

Severance and other 14.2 (0.2) 1.3 15.3

Impairment of assets related to

China divestiture 6.9 27.1 34.0

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

Total — 21.1 (0.2) 8.3 29.2

Impairment related to trademarks 23.9 23.9

Devaluation of the Argentine Peso 30.8 11.0 41.8

as a percent of Net sales 22.0 % 19.0 % 15.1 % nm 14.9 %

Acquisition-related amortization

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Adjusted segment profit $ 2,902.6 $ 653.7 $ 1,224.2 $ (1,068.6) $ 3,711.9

as a % of Net sales 22.3 % 13.5 % 17.5 % 15.1 %

as a percent of Net sales 22.0 % 21.0 % 18.0 % nm 16.1 %

Year Ended December 31, 2023

Paint Stores Group Consumer Brands

Group Consumer Brands

Group Performance Coatings

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Income before income taxes $ 2,860.8 $ 309.3 $ 991.6 $ (1,051.8) $ 3,109.9

as a % of Net sales 19.6 % 9.3 % 10.8 % 11.6 %

as a percent of Net sales 22.3 % 9.2 % 14.5 % nm 13.5 %

Items related to Restructuring Plan:

Severance and other 14.2 (0.2) 1.3 15.3

Impairment 15.5 15.5

Impairment of assets related to

China divestiture

6.9 27.1 34.0

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

Total — 21.1 (0.2) 8.3 29.2

Impairment related to trademarks 23.9 23.9

Devaluation of the Argentine peso 30.8 11.0 41.8

Acquisition-related amortization

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Adjusted segment profit $ 2,860.8 $ 454.4 $ 1,199.2 $ (1,043.5) $ 3,470.9

as a % of Net sales 19.6 % 12.7 % 14.1 % 13.2 %

(1) Acquisition-related amortization expense consists of the amortization of intangible assets related to the Valspar acquisition and is included in Selling, general and administrative expenses.

as a percent of Net sales 22.3 % 13.5 % 17.5 % nm 15.1 %

nm -not meaningful

(1) Acquisition-related amortization expense, which is included within Selling, general and administrative expenses, consists of the amortization of intangible assets related to the Valspar acquisition.

These intangible assets are primarily customer relationships and intellectual property and are being amortized over their remaining useful lives.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Management believes that the following critical accounting policies and estimates have a significant impact on our consolidated financial statements.

Inventories are stated at the lower of cost or net realizable value with cost determined principally on the last-in, first-out (LIFO) method based on inventory quantities and costs determined during the fourth quarter.

Inventories are stated at the lower of cost or market with cost determined principally on the last-in, first-out (LIFO) method based on inventory quantities and costs determined during the fourth quarter and market representing current replacement cost, which is the cost to purchase or reproduce the inventory.

Market shall not exceed net realizable value and shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin.

Inventory quantities are adjusted throughout the year as formal cycle counts are completed, or during the fourth quarter as a result of annual physical inventory counts.

If inventories accounted for on the LIFO method are reduced on a year-over-year basis, then liquidation of certain quantities carried at costs prevailing in prior years occurs.

Management records the best estimate of net realizable value for obsolete and discontinued inventories based on historical experience and current trends through reductions to inventory cost by recording a provision included in Cost of goods sold.

If management estimates that the reasonable market value is below cost or determines that future demand was lower than current inventory levels, based on historical experience, current and projected market demand, current and projected volume trends and other relevant current and projected factors associated with the current economic conditions, a reduction in inventory cost to estimated net realizable value is provided for in the reserve for obsolescence.

Management records an estimate of the lower of cost or market whenever the utility of inventory is impaired by damage, deterioration, obsolescence, changes in price levels, or other causes based on historical experience and current trends through reductions to inventory cost by recording a provision included in Cost of goods sold.

If management estimates that the reasonable market value is below cost or determines that future demand was lower than current inventory levels, based on historical experience, current and projected market demand, current and projected volume trends and other relevant current and projected factors associated with the current economic conditions, a reduction in inventory cost to current market price is provided for in the reserve for obsolescence.

See Note 4 to the consolidated financial statements in Item 8 for more information regarding the impact of the LIFO inventory valuation and the reserve for obsolescence.

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The qualitative assessment is performed when deemed appropriate.

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

Management tests goodwill for impairment at the reporting unit level.

Per the Segment Reporting Topic of the ASC, a reporting unit is an operating segment or one level below the operating segment (component level) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of an operating segment having similar economic characteristics.

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The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business.

Operational management, considering industry and Company-specific historical and projected data, develops growth rates, sales projections and cash flow projections for each reporting unit.

Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and a low long-term growth rate.

Management, considering industry and Company-specific historical and projected data, develops growth rates, sales projections and cash flow projections for each reporting unit.

As an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow valuation model, the aggregate of all reporting units’ fair value is reconciled to the total market capitalization of the Company within a reasonable and supportable control premium.

The Company had seven components, some of which are aggregated due to similar economic characteristics, to form three reporting units (also the operating segments) with goodwill as of October 1, 2023, the date of the annual impairment test.

Company performed the optional qualitative impairment test as of October 1, 2023, and determined that there was no indication of impairment on a more likely than not basis in the Company’s three reporting units.

In accordance with the Goodwill and Other Intangibles Topic of the ASC, management tests indefinite-lived intangible assets for impairment at the asset level, as determined by appropriate asset valuations at acquisition.

The Company had seven components, some of which are aggregated due to similar economic characteristics, to form three reporting units (also the reportable operating segments) with goodwill as of October 1, 2024, the date of the annual impairment test.

The Company performed the optional qualitative impairment test as of October 1, 2024, and determined that there was no indication of impairment on a more likely than not basis in the Company’s reporting units.

Management tests indefinite-lived intangible assets for impairment at the asset level, as determined by appropriate asset valuations at acquisition.

Management utilizes the royalty savings method to determine the estimated fair value for each indefinite-lived intangible asset or trademark.

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The royalty rate is established by management and valuation experts and periodically substantiated by valuation experts.

Operational management, considering industry and Company-specific historical and projected data, develops growth rates and sales projections for each significant trademark.

Management, considering industry and Company-specific historical and projected data, develops growth rates and sales projections for each significant trademark.

Terminal value rate determination follows common methodology of capturing the present value of perpetual sales estimates beyond the last projected period assuming a constant WACC and a low long-term growth rate.

The royalty savings valuation methodology and calculations used in 2024 impairment testing are consistent with prior years.

The annual impairment review performed as of October 1, 2023 resulted in trademark impairment of $23.9 million in the Consumer Brands Group primarily related to a trademark in Europe.

No other impairments or risks for impairment were identified as a result of this review.

The Company performed the optional qualitative impairment test as of October 1, 2024, and determined that there was indication of impairment on a more likely than not basis in certain of the Company’s trademarks.

The resulting quantitative impairment test performed as of October 1, 2024 did not result in any trademark impairment.

The discounted cash flow and royalty savings valuation methodologies require management to make certain assumptions based upon information available at the time the valuations are performed from the perspective of a market participant.

Actual results could differ from these assumptions.

See Note 6 to the consolidated financial statements in Item 8 for a discussion of goodwill and intangible assets and the impairment tests performed in accordance with the Goodwill and Other Intangibles Topic of the ASC.

Valuation of Long-Lived Assets

In accordance with the Property, Plant and Equipment Topic of the ASC, if events or changes in circumstances indicate that the carrying value of long-lived assets, including Operating lease right-of-use assets, may not be recoverable or the useful life has changed, impairment tests are performed or the useful life is adjusted.

In accordance with the Property, Plant and Equipment Topic of the ASC, if events or changes in circumstances indicate that the carrying value of long-lived assets, including operating and finance lease right-of-use assets, may not be recoverable or the useful life has changed, impairment tests are performed or the useful life is adjusted.

Undiscounted cash flows are used to calculate the recoverable value of long-lived assets to determine if such assets are recoverable.

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Fair value approaches and changes in useful life are based on certain assumptions and information available at the time the valuation or determination is performed.

Actual results could differ from these assumptions.

Management believes the assumptions used are reflective of what a market participant would have used in calculating fair value or useful life considering the current economic conditions.

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Defined Benefit Pension and Other Postretirement Benefit Plans

To determine the Company’s ultimate obligation under its defined benefit pension plans and other postretirement benefit plans, management estimates the future cost of benefits and attributes that cost to the time period during which each covered employee works.

To determine the Company’s ultimate obligation under its defined benefit pension and other postretirement benefit plans, management estimates the future cost of benefits and attributes that cost to the time period during which each covered employee works.

To determine the obligations of the benefit plans, management uses actuaries to calculate such amounts using key assumptions which include discount rates, inflation rates, long-term investment returns, mortality, employee turnover, rate of compensation increases and medical and prescription drug costs.

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

Based on facts and circumstances, the expense amounts recorded in AOCI can also have accelerated amortization due to certain plan changes, including those that result in a

See Note 8 to the consolidated financial statements in Item 8 for information concerning the Company’s defined benefit pension plans and other postretirement benefit plans.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis