(dollars in millions, except as noted and per share data) BACKGROUNDThe 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 inNorth and South America with additional operations in theCaribbean region and throughoutEurope ,Asia andAustralia . The Company is structured into three reportable segments-The Americas Group ,Consumer Brands Group andPerformance 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 17 of Item 1 for additional information on the Company's Reportable Segments. SUMMARY • Consolidated net sales increased 2.6% in the quarter to$4.15 billion
• Net sales from stores in
months increased 7.4% in the quarter
• Diluted net income per share increased to
compared to
• First quarter 2020 includes charges for acquisition-related amortization expense of$0.62 per share; first quarter 2019 included charges of$0.63 per share for acquisition-related amortization expense,$0.08 per share for integration costs and$0.27 per share for pension settlement expense • Issued$500.0 million of 2.30% Senior Notes dueMay 2030 and$500.0 million
of 3.30% Senior Notes dueMay 2050 in a public offering. The net proceeds are primarily being used to redeem the 2.25% Senior Notes due 2020 and repurchase a portion of the 2.75% Senior Notes due 2022
OUTLOOK
On
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Please see Item 1A "Risk Factors" in Part II of this Quarterly Report on Form 10-Q for further information regarding the current and potential impact of the COVID-19 pandemic on the Company. RESULTS OF OPERATIONS The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The results of operations for the three months endedMarch 31, 2020 are not indicative of the results to be expected for the full year as business is seasonal in nature with the majority of Net sales for the Reportable Segments traditionally occurring during the second and third quarters. However, periods of economic downturn can alter the Company's seasonal patterns. The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for the three months endedMarch 31, 2020 and 2019.Net Sales Three Months Ended March 31, 2020 2019 ChangeNet Sales : The Americas Group$ 2,305.5 $ 2,154.9 7.0 % Consumer Brands Group 622.3 654.5 -4.9 % Performance Coatings Group 1,217.6 1,230.8 -1.1 % Administrative 1.3 0.7 85.7 % Total$ 4,146.7 $ 4,040.9 2.6 % Consolidated net sales increased in the first three months of 2020 due primarily to higher architectural paint sales volume in North American stores and increased sales in the packaging and coil divisions within ourPerformance Coatings Group across all regions, partially offset by impacts of COVID-19, continued demand softness in some end markets outside theU.S. and unfavorable currency translation rate changes. Currency translation rate changes decreased net sales by 1.4% in the first three months of 2020. Net sales of all consolidated foreign subsidiaries were down 6.6% to$827.8 million in the first three months compared to$886.0 million in the same period last year. The decrease in net sales for all consolidated foreign subsidiaries in the first three months was due primarily to impacts of COVID-19, continued demand softness in some end markets and unfavorable currency translation rate changes. Net sales of all operations other than consolidated foreign subsidiaries were up 5.2% to$3.319 billion in the first three months compared to$3.155 billion in the same period last year. Net sales inThe Americas Group increased in the first three months of 2020 due primarily to higher architectural paint sales volume across all end markets in North American stores, partially offset by unfavorable currency translation rate changes. Currency translation rate changes decreasedThe Americas Group net sales by 1.1% in the first quarter. Net sales from stores open for more than twelve calendar months in theU.S. andCanada increased 7.4% in the first three months compared to last year's comparable period. Sales of non-paint products increased 5.2% over last year's first three 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 of theConsumer Brands Group decreased in the first three months primarily due primarily to softer sales inAsia Pacific , partially due to impacts of COVID-19, and the planned exit of the ACE business, partially offset by higher volume sales through most of the group's North American retail customers. Net sales in thePerformance Coatings Group stated inU.S. dollars decreased in the first three months primarily due to softer end market demand in some businesses inAsia Pacific andEurope , partially due to impacts of COVID-19, and unfavorable currency translation rate changes, partially offset by increased sales in the packaging and coil divisions within ourPerformance Coatings Group across all regions. Currency translation rate changes decreasedPerformance Coatings Group net sales by 2.2%. Net sales in the Administrative segment, which primarily consist of external leasing revenue of excess headquarters space and leasing of facilities no longer used by the Company in its primary business, were essentially flat in the first three months. 23
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Income Before Income Taxes The following table presents the components of income before income taxes as a percentage of net sales: (millions of dollars, except % of sales data) Three Months Ended March 31, 2020 2019 % of external % of external sales sales Gross profit$ 1,889.7 45.6 %$ 1,735.1 42.9 % Selling, general and administrative expenses 1,307.6 31.5 % 1,244.0 30.8 % Other general expense (income) - net 3.7 0.1 % (0.5 ) - % Amortization 78.1 1.9 % 78.8 2.0 % Interest expense 86.2 2.1 % 91.0 2.3 % Interest and net investment income (0.6 ) - % (0.4 ) - % Other expense - net 22.4 0.5 % 23.3 0.6 % Income before income taxes$ 392.3 9.5 %$ 298.9 7.4 % Consolidated gross profit increased$154.6 million in the first three months of 2020 compared to the same period in 2019. Consolidated gross profit as a percent of consolidated net sales increased in the first three months of 2020 to 45.6%, compared to 42.9% during the same period in 2019. Consolidated gross profit dollars and percent improved as a result of higher paint sales volume in North American stores and selling price increases, partially offset by unfavorable currency translation rate changes.The Americas Group's gross profit in the first three months of 2020 was higher than last year by$142.4 million due to higher paint sales volume and selling price increases, partially offset by unfavorable currency translation rate changes.The Americas Group's gross profit as a percent of sales increased in the first three months of 2020 compared to the same period in 2019 for the same reasons.The Consumer Brands Group's gross profit decreased by$2.3 million in the first three months compared to the same period last year due primarily to lower sales volumes outside ofNorth America , partially offset by moderating raw material costs.The Consumer Brands Group's gross profit as a percent of sales increased in the first three months compared to the same period last year due to moderating raw material costs.The Performance Coatings Group's gross profit increased$11.2 million in the first three months compared to the same period last year, when stated inU.S. dollars, primarily due to moderating raw material costs, partially offset by unfavorable currency translation rate changes.The Performance Coatings Group's gross profit as a percent of sales increased in the first three months compared to the same period last year for these same reasons. Consolidated SG&A increased$63.6 million in the first three months of 2020 versus the same period last year due primarily to increased expenses to support higher sales levels inThe Americas Group , partially offset by decreases in information technology systems in the Administrative segment. As a percent of sales, consolidated SG&A increased primarily due to net new store openings and general comparable store expenses to support higher sales levels partially offset by good cost control.The Americas Group's SG&A increased$77.3 million in the first three months of 2020 due primarily to net new store openings and general comparable store expenses to support higher sales levels.The Consumer Brands Group's SG&A decreased$0.8 million in the first three months compared to the same period last year primarily due to currency translation rate changes and good cost control.The Performance Coatings Group's SG&A increased$0.8 million in the first three months compared to the same period last year primarily due to improvements to information technology systems, partially offset by currency translation rate changes. The Administrative segment's SG&A decreased$13.7 million in the first three months compared to the same period last year due primarily to decreased investments in information technology systems. Other general expense (income) - net increased$4.2 million in the first three months of 2020 compared to the same period in 2019 primarily due to increased environmental provisions in the Administrative segment. In the first three months of 2020, amortization of acquired intangibles was$50.2 million and$21.4 million for the Performance Coatings and Consumer Brands Groups, respectively. In the first three months of 2019, amortization of acquired intangibles was$50.9 million and$21.4 million for the Performance Coatings and Consumer Brands Groups, respectively. Other expense - net improved$0.9 million in the first three months of 2020 compared to the same period in 2019 primarily due to lower net expenses recorded in the Administrative segment. 24
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Consolidated income before income taxes increased
Three Months Ended March 31, 2020 2019 Change Income Before Income Taxes: The Americas Group$ 388.3 $ 331.1 17.3 % Consumer Brands Group 83.5 87.9 (5.0 )% Performance Coatings Group 113.7 98.7 15.2 % Administrative (193.2 ) (218.8 ) 11.7 % Total$ 392.3 $ 298.9 31.2 % Income Before Income Taxes as a % of Net Sales: The Americas Group 16.8 % 15.4 % Consumer Brands Group 13.4 % 13.4 % Performance Coatings Group 9.3 % 8.0 % Administrative nm nm Total 9.5 % 7.4 % nm - not meaningful Income Tax Expense The effective tax rate was 18.0% for the first three months of 2020 compared to 17.9% for the first three months of 2019. The effective tax rate was favorably impacted by tax benefits related to employee share based payments during the first quarter of 2020 and 2019. The significant components of the Company's tax rate were consistent year over year. See Note 15 of Item 1 for additional information. Net Income Per Share Diluted net income per share in the first three months of 2020 increased to$3.46 per share compared to$2.62 per share in the first three months of 2019. Diluted net income per share for the first three months of 2020 included a$0.62 per share charge for acquisition-related amortization expense. The first three months of 2019 included a$0.63 per share charge for acquisition-related amortization expense,$0.08 per share charge for integration costs and a$0.27 per share charge for pension plan settlement expense. Currency translation rate changes decreased diluted net income per share in the first three months by$0.05 per share. FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW Overview The Company's financial condition, liquidity and cash flow continued to be strong during the first three months of 2020 as net operating cash was$54.9 million , an improvement of$90.9 million from the prior year comparable period, primarily due to improved operating results as consolidated income before income taxes increased$93.4 million to$392.3 million in the current year or 9.5% of net sales. Cash and cash equivalents increased$76.7 million during the first three months of 2020. Cash flow from operations, increased short-term borrowings and net proceeds from issuance of long-term debt (after repayments) funded normal seasonal working capital increases, capital expenditures of$106.6 million and returned$1.013 billion to shareholders in the form of share buybacks and cash dividends during the first three months of 2020. AtMarch 31, 2020 , the Company's cash and cash equivalents were$238.5 million compared to$161.8 million and$94.4 million atDecember 31, 2019 andMarch 31, 2019 , respectively. 25
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Total debt atMarch 31, 2020 was$9.770 billion or 74.8% as a percentage of total capitalization compared to$8.685 billion or 67.8% atDecember 31, 2019 and$9.831 billion or 74.0% atMarch 31, 2019 . AtMarch 31, 2020 , the Company had remaining short-term borrowing ability of$2.507 billion . The Company continues to maintain sufficient short-term borrowing capacity at reasonable rates, and the Company has sufficient cash on hand and total available borrowing capacity to fund its current operating needs. In the twelve month period fromApril 1, 2019 throughMarch 31, 2020 , the Company generated net operating cash of$2.412 billion .Net Working Capital Net working capital, defined as total current assets less total current liabilities, decreased$106.8 million to a deficit of$292.2 million atMarch 31, 2020 compared to a deficit of$185.4 million atMarch 31, 2019 . The net working capital decrease is due to an increase in short-term borrowings, partially offset by increases in cash and cash equivalents, and decreases to other accruals. Comparing current asset balances atMarch 31, 2020 toMarch 31, 2019 , cash and cash equivalents increased$144.1 million , accounts receivable decreased$48.1 million , inventories decreased$38.6 million primarily due to the impact of foreign currency translation, and other current assets increased$55.4 million primarily related to refundable income taxes and prepaid expenses. Current liability balances increased atMarch 31, 2020 compared toMarch 31, 2019 primarily due to higher short-term borrowings of$226.7 million and current portion of long-term debt of$125.6 million , partially offset by lower accrued expenses. AtMarch 31, 2020 , the Company's current ratio was 0.94 compared to 1.02 and 0.96 atDecember 31, 2019 andMarch 31, 2019 , respectively.Goodwill and Intangible AssetsGoodwill and intangible assets decreased$195.2 million fromDecember 31, 2019 and decreased$539.4 million fromMarch 31, 2019 . The net decrease during the first three months of 2020 was primarily due to foreign currency translation of$117.1 million and amortization of$78.1 million . The net decrease over the twelve month period fromMarch 31, 2019 was primarily due to amortization of$312.1 million , impairment of indefinite-lived trademarks during the fourth quarter of 2019 of$122.1 million and foreign currency translation of$154.4 million , partially offset by acquisitions of$49.1 million . The fair value of the Company's acquired intangible assets may be impacted by the Company's ongoing integration efforts. During the first quarter of 2020, the Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic when evaluating whether an interim impairment trigger had occurred related to the Company's recognized goodwill and intangible assets. While the Company determined no impairment trigger occurred during the first quarter of 2020 and believes its assumptions and estimates of fair value related to reporting units and indefinite-lived trademarks are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results (including sales projections related to trademarks impaired during the fourth quarter of 2019) or other underlying assumptions could have a significant impact and future impairment charges could be required. See Note 6 in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 for more information concerning the Company's goodwill and intangible assets, including impairment testing of these assets. Other Assets Other assets atMarch 31, 2020 decreased$19.1 million in the first three months of 2020 and decreased$51.2 million from a year ago primarily due to decreases in deferred tax assets and other investments. Property, Plant and Equipment Net property, plant and equipment decreased$5.7 million in the first three months of 2020 and increased$66.5 million in the twelve months sinceMarch 31, 2019 . The decrease in the first three months was primarily due to depreciation expense of$66.5 million , unfavorable changes in currency translation rates of$42.3 million and sale or disposition of fixed assets of$3.5 million , partially offset by capital expenditures of$106.6 million . SinceMarch 31, 2019 , the increase was primarily due to capital expenditures of$383.4 million and acquisitions of$16.8 million , partially offset by depreciation expense of$263.9 million , sale or disposition of fixed assets of$38.1 million , and changes in currency translation rates of$31.7 million . Capital expenditures primarily represented expenditures associated with improvements and normal equipment replacement in manufacturing and distribution facilities in theConsumer Brands Group , normal equipment replacement in TheAmericas and Performance Coatings Groups, and aviation transportation and information systems hardware in the Administrative Segment. Debt InMarch 2020 , the Company issued$500.0 million of 2.30% Senior Notes dueMay 2030 and$500.0 million of 3.30% Senior Notes dueMay 2050 (collectively the "New Notes") in a public offering. The net proceeds from the issuance of the New Notes 26
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are primarily being used to repurchase a portion of the 2.75% Senior Notes due 2022 and redeem the 2.25% Senior Notes dueMay 2020 . The repurchase of the 2.75% Senior Notes due 2022 during the first quarter of 2020 resulted in a loss of$21.3 million recorded in Other expense - net. AtMarch 31, 2020 , the Company's outstanding debt was comprised of$8.719 billion of long-term debt primarily associated with senior notes,$775.0 million of borrowings outstanding on its revolving lines of credit and$217.9 million outstanding under its commercial paper program. The weighted average interest rates for the borrowings outstanding on the revolving line of credit and the commercial paper program were 2.7% and 2.5%, respectively, atMarch 31, 2020 . The Company had unused capacity under its various credit agreements of$2.507 billion atMarch 31, 2020 . Defined Benefit Pension and Other Postretirement Benefit Plans Long-term liabilities for postretirement benefits other than pensions did not change significantly fromDecember 31, 2019 andMarch 31, 2019 . See Note 8 in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 for more information concerning the Company's benefit plan obligations. Deferred Income Taxes Deferred income taxes atMarch 31, 2020 decreased$20.4 million in the first three months of 2020, and decreased$179.3 million from a year ago primarily due to amortization of acquisition-related intangible assets. Other Long-Term Liabilities Environmental-Related Liabilities The operations of the Company, like those of other companies in the same industry, are subject to various federal, state and local environmental laws and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that the Company conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs designed to protect the environment and promote continued compliance. 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 three months of 2020. 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 2020. See Note 8 for further information on environmental-related long-term liabilities. Contractual Obligations, Commercial Commitments and Warranties Short-term borrowings increased$846.8 million to$1.052 billion atMarch 31, 2020 from$204.7 million atDecember 31, 2019 . Total long-term debt increased$238.2 million to$8.719 billion atMarch 31, 2020 from$8.481 billion atDecember 31, 2019 , and decreased$287.8 million from$9.007 billion atMarch 31, 2019 . TheCalifornia litigation accrual decreased$59.6 million to$76.7 million ($12.0 million current and$64.7 million long-term) atMarch 31, 2020 from$136.3 million atMarch 31, 2019 as a result of the final court approved agreement to resolve the litigation and the initial payment of$25.0 million to the plaintiffs in accordance with the agreement inSeptember 2019 . See Note 9 for additional information. There have been no other significant changes to the Company's contractual obligations and commercial commitments in the first quarter of 2020 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 endedDecember 31, 2019 . Litigation See Note 9 for information concerning litigation. Shareholders' Equity Shareholders' equity decreased$834.2 million to$3.289 billion atMarch 31, 2020 from$4.123 billion atDecember 31, 2019 and decreased$171.0 million from$3.460 billion atMarch 31, 2019 . 27
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The decrease in Shareholders' equity for the first three months of 2020 resulted from$871.2 million ofTreasury stock activity primarily attributable to treasury stock repurchases, cash dividends paid on common stock of$122.9 million and an increase in Accumulated other comprehensive loss of$221.6 million , partially offset by net income of$321.7 million and an increase in other capital of$62.5 million . The decrease in Shareholders' equity sinceMarch 31, 2019 resulted from$1.349 billion ofTreasury stock activity primarily attributable to treasury stock repurchases, cash dividends paid on common stock of$438.9 million and an increase in Accumulated other comprehensive loss of$268.9 million , partially offset by net income of$1.618 billion and an increase in other capital of$269.9 million During the first three months of 2020, the Company purchased 1,700,000 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 atMarch 31, 2020 to purchase 6.75 million shares of its common stock. InFebruary 2020 , the Company's Board of Directors increased the quarterly cash dividend from$1.13 per common share to$1.34 per common share. This quarterly dividend, if approved in each of the remaining quarters of 2020, will result in an annual dividend for 2020 of$5.36 per common share or a 32.5% payout of 2019 diluted net income per common share. Net Investment Hedges InFebruary 2020 , the Company settled its$400.0 million U.S. Dollar to Euro cross currency swap contract entered into inMay 2019 to hedge the Company's net investment in its European operations. At the time of the settlement, an unrealized gain of$11.8 million , net of tax, was recognized in AOCI. InFebruary 2020 , the Company entered intotwo U.S Dollar to Euro cross currency swap contracts to hedge the Company's net investment in its European operations. The contracts have a notional value of$500.0 million and$244.0 million , respectively, and mature onJune 1, 2024 andNovember 15, 2021 , respectively. During the term of the$500.0 million contract, the Company will pay fixed-rate interest in Euros and receive fixed-rate interest inU.S. Dollars, thereby effectively converting a portion of the Company'sU.S. Dollar denominated fixed-rate debt to Euro denominated fixed-rate debt. During the term of the$244.0 million contract, the Company will pay floating-rate interest in Euros and receive floating-rate interest inU.S. Dollars. The fair value of the contracts are included in Other assets and Other liabilities on the balance sheet. See Note 13. The changes in fair value are recognized in the foreign currency translation adjustments component of AOCI. For the three months endedMarch 31, 2020 , a net unrealized loss of$1.5 million , net of tax, was recognized in AOCI. Cash Flow Net operating cash for the three months endedMarch 31, 2020 was a cash source of$54.9 million compared to a cash usage of$36.0 million for the same period in 2019. The improvement in net operating cash was primarily due to an increase in net income and improved working capital management, partially offset by an increase in cash requirements for long-term items. Net investing cash usage increased$25.7 million in the first three months of 2020 to a usage of$97.9 million from a usage of$72.2 million in 2019 primarily due to an increase in capital expenditures associated with the new global headquarters inOhio . Net financing cash increased$64.3 million to a source of$115.7 million in the first three months of 2020 from a source of$51.4 million for the same period in 2019 primarily due to the issuance of new long-term debt, an increase in short-term borrowings and the issuance of 100,000 shares of treasury stock (which were associated with the domestic defined benefit plan terminated in 2018), partially offset by treasury stock purchases, repayments of long-term debt and cash dividends. In the twelve month period fromApril 1, 2019 throughMarch 31, 2020 , the Company generated net operating cash of$2.412 billion , used$488.3 million in investing activities and used$1.782 billion in financing activities. Market Risk The Company is exposed to market risk associated with interest rate, foreign currency and commodity fluctuations. The Company occasionally utilizes derivative instruments as part of its overall financial risk management policy, but does not use derivative instruments for speculative or trading purposes. The Company believes it may be exposed to continuing market risk from foreign currency exchange rate and commodity price fluctuations. However, the Company does not expect that foreign currency exchange rate and commodity price fluctuations or hedging contract losses will have a material adverse effect on the Company's financial condition, results of operations or cash flows. 28
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Financial Covenant Certain borrowings contain a consolidated leverage covenant. The covenant states that the Company's leverage ratio is not to exceed 3.75 to 1.00. 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. Refer to the "Non-GAAP Financial Measures" section below for a reconciliation of EBITDA to Net income. AtMarch 31, 2020 , the Company was in compliance with the covenant and expects to remain in compliance. The Company's notes, debentures and revolving credit agreements contain various default and cross-default provisions. In the event of default under any one of these arrangements, acceleration of the maturity of any one or more of these borrowings may result. See Note 7 in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 for more information concerning the Company's debt and related covenant. Non-GAAP Financial Measures Management utilizes certain financial measures that are not in accordance withU.S. generally accepted accounting principles (US GAAP) to analyze and manage the performance of the business. The required disclosures for these non-GAAP measures are shown below. The Company provides such non-GAAP information in reporting its financial results to give investors additional data to evaluate the Company's operations. Management does not, nor does it suggest investors should, consider such non-GAAP measures in isolation from, or in substitution for, financial information prepared in accordance with US GAAP. EBITDA EBITDA is a non-GAAP financial measure defined as net income from continuing operations before income taxes and interest, depreciation and amortization. Management considers EBITDA useful in understanding the operating performance of the Company. The reader is cautioned that the Company's EBITDA should not be compared to other entities unknowingly. Further, 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 Consolidated Cash Flows in Item 1. The following table summarizes EBITDA as calculated by management for the periods indicated below: (millions of dollars) Three Months Ended March 31, 2020 2019 Net income$ 321.7 $ 245.2 Interest expense 86.2 91.0 Income taxes 70.6 53.7 Depreciation 66.5 64.7 Amortization 78.1 78.8 EBITDA$ 623.1 $ 533.4 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity withU.S. generally accepted accounting principles (US GAAP) requires management to make estimates and assumptions that affect amounts reported in the accompanying consolidated unaudited interim financial statements. These determinations were made based upon management's best estimates, judgments and assumptions that were believed to be reasonable under the circumstances, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. A comprehensive discussion of the Company's critical accounting policies, management estimates and significant accounting policies followed in the preparation of the financial statements is included in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 . There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year endedDecember 31, 2019 . 29
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report constitute "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements are based upon management's current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and the costs and potential liability for environmental-related matters and the lead pigment and lead-based paint litigation. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as "believe," "expect," "may," "will," "should," "project," "could," "plan," "goal," "potential," "seek," "intend" or "anticipate" or the negative thereof or comparable terminology. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from such statements and from our historical results and experience. These risks, uncertainties and other factors include such things as: • general business conditions, strengths of retail and manufacturing
economies and growth in the coatings industry; • changes in general domestic and international economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions, and changing government policies, laws and regulations;
• changes in raw material and energy supplies and pricing;
• changes in our relationships with customers and suppliers;
• our ability to successfully integrate past and future acquisitions into our existing operations, as well as the performance of the businesses acquired; • competitive factors, including pricing pressures and product innovation and quality;
• our ability to attain cost savings from productivity initiatives;
• risks and uncertainties associated with our expansion into and our operations inAsia ,Europe ,South America and other foreign markets, including general economic conditions, inflation rates, recessions, foreign currency exchange rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest and other external economic and political factors; • the achievement of growth in foreign markets, such asAsia ,Europe andSouth America ; • increasingly stringent domestic and foreign governmental regulations, including those affecting health, safety and the environment; • inherent uncertainties involved in assessing our potential liability for environmental-related activities; • other changes in governmental policies, laws and regulations, including changes in tariff policies, as well as changes in accounting policies and standards and taxation requirements (such as new tax laws and new or revised tax law interpretations); • the nature, cost, quantity and outcome of pending and future litigation and other claims, including the lead pigment and lead-based paint litigation, and the effect of any legislation and administrative regulations relating thereto; • adverse weather conditions or impacts of climate change, natural disasters and public health crises, including the COVID-19 pandemic; and • the duration, severity and scope of the COVID-19 pandemic and the actions implemented by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19, which may exacerbate one or more of the aforementioned and/or other risks, uncertainties and factors more fully described in the Company's reports filed with theSecurities and Exchange Commission .
Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.
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