(dollars in millions, except as noted and per share data)
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-The Americas Group,
Consumer Brands Group and Performance Coatings Group (collectively, the
"Reportable Segments")-and an Administrative segment in the same way it is
internally organized for assessing performance and making decisions regarding
allocation of resources. 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 U.S. and Canada open more than twelve calendar

months increased 7.4% in the quarter

• Diluted net income per share increased to $3.46 per share in the quarter

compared to $2.62 per share in the first quarter 2019




•         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 due May 2030 and $500.0 million

    of 3.30% Senior Notes due May 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 March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) to be a global pandemic and recommended containment and mitigation measures worldwide. While the response to the outbreak continues to rapidly evolve, it has led to stay-at-home orders and physical distancing guidelines, among other mandates, that have substantially disrupted normal activities in most segments of the global economy. We have worked with government and health authorities to continue to operate our business during this crisis, including our company-operated stores, manufacturing plants and other facilities, due to the essential nature of our products. We have adopted appropriately enhanced risk mitigation and safety practices, such as temporarily reducing store hours and closing sales floors to the general public in our company-operated stores, requiring our customers to order product online or by phone and to access products via curbside pickup or delivery, and implementing remote, alternate and flexible work arrangements where possible. We have endeavored to follow recommended actions of government authorities and health officials in order to protect our employees, customers and their families worldwide. We plan to continue to work with government authorities and health officials in implementing appropriate safety measures so that we may continue our operations, including the gradual re-opening of sales floors in our company-operated stores. While the COVID-19 pandemic did not have a material adverse effect on our consolidated financial results for the first quarter, we anticipate the impact of the rapid deterioration of the U.S and global economies will most likely continue and have an adverse impact on our business through the second quarter. The extent to which our operations will be impacted by the outbreak in the remaining quarters of 2020 depends largely on future developments, the duration, severity and scope of the pandemic, which remain uncertain. We have a strong liquidity position, with $238.5 million in cash and $2.51 billion of unused capacity under our credit facilities at March 31, 2020. The Company is in compliance with bank covenants and expects to remain in compliance. We will continue to evaluate and take action to preserve liquidity and generate cash flow during the crisis, including by limiting capital expenditures as much as possible, temporarily suspending share repurchases, reducing discretionary spending and reducing payroll costs. As the circumstances around the COVID-19 pandemic remain fluid, we continue to actively monitor the pandemic's impact to the Company worldwide including our financial position, liquidity, results of operations and cash flows, while managing our response to the crisis through collaboration with employees, customers, suppliers, government authorities, health officials and other business partners.



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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
ended March 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 ended March 31,
2020 and 2019.
Net Sales
                              Three Months Ended
                                  March 31,
                              2020          2019      Change
Net 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 our Performance
Coatings Group across all regions, partially offset by impacts of COVID-19,
continued demand softness in some end markets outside the U.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 in The 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 decreased The Americas Group net
sales by 1.1% in the first quarter. Net sales from stores open for more than
twelve calendar months in the U.S. and Canada 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 the Consumer Brands Group decreased in the first three months
primarily due primarily to softer sales in Asia 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 the Performance Coatings Group stated in U.S. dollars decreased in
the first three months primarily due to softer end market demand in some
businesses in Asia Pacific and Europe, 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 our Performance Coatings Group
across all regions. Currency translation rate changes decreased Performance
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.

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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 of North 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 in U.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 in The 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.

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Consolidated income before income taxes increased $93.4 million in the first three months of 2020 versus the same period last year primarily due to increased profit reported for The Americas Group and the Performance Coatings Group and reductions of general corporate expenses recorded in the Administrative segment. The following table presents income before income taxes by segment and as a percentage of net sales by segment:


                               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. At March 31, 2020, the
Company's cash and cash equivalents were $238.5 million compared to $161.8
million and $94.4 million at December 31, 2019 and March 31, 2019, respectively.

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Total debt at March 31, 2020 was $9.770 billion or 74.8% as a percentage of
total capitalization compared to $8.685 billion or 67.8% at December 31, 2019
and $9.831 billion or 74.0% at March 31, 2019. At March 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 from
April 1, 2019 through March 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 at
March 31, 2020 compared to a deficit of $185.4 million at March 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 at March 31, 2020 to March 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 at March 31, 2020 compared to March 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. At March 31, 2020, the Company's current ratio was 0.94 compared to
1.02 and 0.96 at December 31, 2019 and March 31, 2019, respectively.
Goodwill and Intangible Assets
Goodwill and intangible assets decreased $195.2 million from December 31, 2019
and decreased $539.4 million from March 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 from March 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 ended
December 31, 2019 for more information concerning the Company's goodwill and
intangible assets, including impairment testing of these assets.
Other Assets
Other assets at March 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 since March 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. Since March 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 the
Consumer Brands Group, normal equipment replacement in The Americas and
Performance Coatings Groups, and aviation transportation and information systems
hardware in the Administrative Segment.
Debt
In March 2020, the Company issued $500.0 million of 2.30% Senior Notes due May
2030 and $500.0 million of 3.30% Senior Notes due May 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 due May 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.
At March 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, at March 31, 2020.
The Company had unused capacity under its various credit agreements of $2.507
billion at March 31, 2020.
Defined Benefit Pension and Other Postretirement Benefit Plans
Long-term liabilities for postretirement benefits other than pensions did not
change significantly from December 31, 2019 and March 31, 2019. See Note 8 in
the Company's Annual Report on Form 10-K for the year ended December 31, 2019
for more information concerning the Company's benefit plan obligations.
Deferred Income Taxes
Deferred income taxes at March 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 at March 31,
2020 from $204.7 million at December 31, 2019. Total long-term debt increased
$238.2 million to $8.719 billion at March 31, 2020 from $8.481 billion at
December 31, 2019, and decreased $287.8 million from $9.007 billion at March 31,
2019.
The California litigation accrual decreased $59.6 million to $76.7 million
($12.0 million current and $64.7 million long-term) at March 31, 2020 from
$136.3 million at March 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 in September 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
ended December 31, 2019.
Litigation
See Note 9 for information concerning litigation.
Shareholders' Equity
Shareholders' equity decreased $834.2 million to $3.289 billion at March 31,
2020 from $4.123 billion at December 31, 2019 and decreased $171.0 million from
$3.460 billion at March 31, 2019.

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The decrease in Shareholders' equity for the first three months of 2020 resulted
from $871.2 million of Treasury 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 since March 31, 2019 resulted from $1.349
billion of Treasury 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 at March 31, 2020 to
purchase 6.75 million shares of its common stock.
In February 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
In February 2020, the Company settled its $400.0 million U.S. Dollar to Euro
cross currency swap contract entered into in May 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.
In February 2020, the Company entered into two 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 on June 1, 2024 and November 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 in U.S. Dollars, thereby
effectively converting a portion of the Company's U.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 in U.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 ended
March 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 ended March 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 in Ohio.
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 from April 1, 2019 through March 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.

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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. At March 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 ended December 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 with
U.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 with U.S. generally
accepted accounting principles (US GAAP) requires management to make estimates
and assumptions that affect amounts reported in the accompanying consolidated
unaudited interim financial statements. 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 ended December 31, 2019. There
have been no significant changes in critical accounting policies, management
estimates or accounting policies followed since the year ended December 31,
2019.

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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 in Asia, 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 as Asia, Europe and
       South 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 the Securities and Exchange Commission.

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