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Dynamic quotes 
OFFON

THE SHERWIN-WILLIAMS COMPANY

(SHW)
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SHERWIN WILLIAMS CO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/26/2021 | 03:18pm EST
(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 18 of Item 1 for additional information on the
Company's Reportable Segments.
SUMMARY
•Consolidated net sales increased 0.5% in the quarter to $5.147 billion
•Net sales from stores in U.S. and Canada open more than twelve calendar months
decreased 2.8% in the quarter
•Raw material availability issues negatively impacted quarter sales by an
estimated high single digit percentage
•Diluted net income per share decreased 26.3% to $1.88 per share in the quarter
•Generated net operating cash of $2.051 billion in the first nine months of the
year, or 13.5% of sales
OUTLOOK
While the Company has delivered a solid performance during the first nine months
of 2021, many uncertainties remain, including the extent and duration of raw
material inflation and supply chain constraints, as well as changes in demand
for our products due to the impacts of the COVID-19 pandemic. Despite the
uncertainties, our businesses continue to be well-positioned, and we have
confidence in our long-term outlook.
The COVID-19 pandemic continues to evolve and disrupt normal activities in many
segments of the global economy. We continue to work with government and health
authorities to operate our business, including our company-operated stores,
manufacturing plants and other facilities. We also continue to follow
recommended actions of government authorities and health officials in order to
protect the health and well-being of our employees, customers and their families
worldwide.
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 pandemic through collaboration with employees,
customers, suppliers, government authorities, health officials and other
business partners. Please see Part II, Item 1A. Risk Factors in this Quarterly
Report on Form 10-Q for further information regarding the current and potential
impact of the COVID-19 pandemic on the Company.
In February 2021, Winter Storm Uri had a broad impact on the industry's raw
material supply chain. While the storm had limited direct impact to the
Company's production facilities, the disruption to the supply chain created an
economic environment with tight supply fundamentals and higher raw material
inflation that is ongoing. In August 2021, Hurricane Ida further disrupted the
industry's raw material supply chain.
The Company continues to work diligently to collaborate across its businesses
and with its customers and suppliers to meet robust demand and minimize any
impact on production or sales levels as a result of the global supply chain
disruptions while providing differentiated solutions and excellent service to
our customers. As a result, the Company expects to ship all production for the
remainder of 2021 and as raw material availability improves will build inventory
in 2022.
Overall, we remain disciplined in our capital allocation approach, focused on
driving value for our customers and returns to our shareholders. We will also
continue to pursue business acquisitions and transactions that fit our strategy,
and we expect to use any excess cash to make open market purchases of our common
stock. We have a strong liquidity position, with $313.3 million in cash and
$2.805 billion of unused capacity under our credit facilities at September 30,
2021. We are in compliance with bank covenants and expect to remain in
compliance.
                                       26
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RESULTS OF OPERATIONS
The Company has historically experienced, and expects to continue to experience,
variability in quarterly results. The results of operations for the three and
nine months ended September 30, 2021 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 and nine months ended
September 30, 2021 and 2020.
Net Sales
(dollars in millions)                                 Three Months Ended September 30,                                                     Nine Months Ended September 30,
                                       2021                   2020            $ Change            % Change                2021                2020              $ Change            % Change
The Americas Group             $    2,967.0               $ 2,978.3          $  (11.3)                 (0.4) %       $   8,563.5          $  7,807.5          $   756.0                   9.7  %
Consumer Brands Group                 646.7                   838.1            (191.4)                (22.8) %           2,156.3             2,440.6             (284.3)                (11.6) %
Performance Coatings Group          1,532.5                 1,305.3             227.2                  17.4  %           4,461.3             3,622.7              838.6                  23.1  %
Administrative                          0.5                     0.5                 -                     -  %               1.4                 2.1               (0.7)                (33.3) %
Total                          $    5,146.7               $ 5,122.2          $   24.5                   0.5  %       $  15,182.5          $ 13,872.9          $ 1,309.6                   9.4  %


Three Months Ended September 30, 2021
Consolidated net sales increased in the third quarter of 2021 primarily due to
selling price increases in all segments and slightly higher product sales volume
in the Performance Coatings Group, partially offset by lower sales volume in The
Americas Group and the Consumer Brands Group. Currency translation rate changes
increased net sales by 0.7% in the third quarter. Net sales of all consolidated
foreign subsidiaries increased 5.3% to $1.019 billion in the third quarter
compared to $967.6 million in the same period last year. The increase in net
sales for all consolidated foreign subsidiaries in the third quarter was due
primarily to higher sales volumes in most end markets and selling price
increases in the Performance Coatings Group and favorable currency translation,
partially offset by lower sales in the Consumer Brands Group. Net sales of all
operations other than consolidated foreign subsidiaries decreased 0.6% to $4.128
billion in the third quarter compared to $4.155 billion in the same period last
year.
Net sales in The Americas Group decreased in the third quarter due primarily to
lower sales volume of paint products as a result of raw material availability
challenges, partially offset by selling price increases in all end markets. Net
sales from stores open for more than twelve calendar months in the U.S. and
Canada decreased 2.8% in the third quarter compared to last year's comparable
period. Sales of non-paint products increased 3.8% compared to last year's third
quarter. A discussion of changes in volume versus pricing for sales of products
other than paint is not pertinent due to the wide assortment of general
merchandise sold.
Net sales of the Consumer Brands Group decreased in the third quarter due
primarily to lower sales volumes to all of the group's retail customers as a
result of raw material availability issues and the Wattyl divestiture, partially
offset by selling price increases. Currency translation rate changes increased
the Consumer Brands Group's net sales by 0.7% in the third quarter.
Net sales in the Performance Coatings Group stated in U.S. dollars increased in
the third quarter primarily due to higher sales in all end markets and selling
price increases. Currency translation rate changes increased the Performance
Coatings Group's net sales by 2.0% in the third quarter.
Nine Months Ended September 30, 2021
Consolidated net sales increased in the nine months of 2021 due primarily to
higher product sales volume in The Americas Group and the Performance Coatings
Group as well as selling price increases in all Reportable Segments, partially
offset by lower product sales volume in the Consumer Brands Group. Currency
translation rate changes increased net sales by 1.1% in the first nine months of
2021. Net sales of all consolidated foreign subsidiaries increased 22.8% to
$3.158 billion in the first nine months compared to $2.572 billion in the same
period last year. The increase in net sales for all consolidated foreign
subsidiaries in the first nine months was due primarily to higher sales volume
in most end markets and selling price increases in the Performance Coatings
Group, higher sales in The Americas Group and favorable currency translation.
Net sales of all operations other than consolidated foreign subsidiaries
increased 6.4% to $12.025 billion in the first nine months compared to $11.301
billion in the same period last year.
                                       27
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Net sales in The Americas Group increased in the first nine months due primarily
to higher product sales volume in all end markets excluding DIY, and selling
price increases. Net sales from stores open for more than twelve calendar months
in the U.S. and Canada increased 7.6% in the first nine months compared to last
year's comparable period. Sales of non-paint products increased 13.9% over last
year's first nine months. A discussion of changes in volume versus pricing for
sales of products other than paint is not pertinent due to the wide assortment
of general merchandise sold.
Net sales of the Consumer Brands Group decreased in the first nine months due
primarily to lower volume sales to most of the group's retail customers as DIY
demand returned to more normal levels, and the Wattyl divestiture, partially
offset by selling price increases. Currency translation rate changes increased
the Consumer Brands Group's net sales by 1.5% in the first nine months of 2021.
Net sales in the Performance Coatings Group stated in U.S. dollars increased in
the first nine months primarily due to higher sales volumes in most end markets
and selling price increases. Currency translation rate changes increased the
Performance Coatings Group's net sales by 3.2% in the first nine months of 2021.
Income Before Income Taxes
The following table presents the components of income before income taxes as a
percentage of net sales:
(dollars in millions)                              Three Months Ended September 30,                                                   Nine Months Ended September 30,
                                              2021                                      2020                                                2021                                    2020
                                                        % of Net                               % of Net                                             % of Net                                % of Net
                                                          Sales                                  Sales                                                Sales                                   Sales
Net sales                    $       5,146.7               100.0  %       $ 5,122.2               100.0  %                    $ 15,182.5               100.0  %       $ 13,872.9               100.0  %
Cost of goods sold                   3,007.1                58.4  %         2,666.9                52.1  %                       8,519.5                56.1  %          7,319.0                52.8  %
Gross profit                         2,139.6                41.6  %         2,455.3                47.9  %                       6,663.0                43.9  %          6,553.9                47.2  %
SG&A                                 1,368.9                26.6  %         1,406.8                27.5  %                       4,132.6                27.2  %          4,005.7                28.9  %
Other general (income)
expense - net                           (1.1)                  -  %            10.5                 0.2  %                         111.2                 0.7  %             13.1                 0.1  %
Amortization                            76.2                 1.5  %            78.7                 1.5  %                         233.2                 1.5  %            234.2                 1.7  %

Interest expense                        83.1                 1.6  %            83.3                 1.6  %                         249.8                 1.7  %            257.6                 1.8  %
Interest and net investment
income                                  (0.7)                  -  %            (1.4)                  -  %                          (1.9)                  -  %             (2.6)                  -  %
Other expense (income) - net             1.7                   -  %             1.8                   -  %                          (1.6)                  -  %             30.6                 0.2  %
Income before income taxes   $         611.5                11.9  %       $   875.6                17.1  %                    $  1,939.7                12.8  %       $  2,015.3                14.5  %


Three Months Ended September 30, 2021
Cost of goods sold increased $340.2 million, or 12.8%, in the third quarter of
2021 compared to the same period in 2020 primarily due to higher raw material
costs (including titanium dioxide and petrochemical feedstock sources) and
unfavorable currency translation rate changes, partially offset by lower sales
volumes as a result of raw material availability issues. Currency translation
rate changes increased Cost of goods sold by 1.0% in the third quarter of 2021.
Consolidated gross profit decreased $315.7 million in the third quarter of 2021
compared to the same period in 2020. Consolidated gross profit as a percent of
consolidated net sales decreased in the third quarter to 41.6%, compared to
47.9% during the same period in 2020. Consolidated gross profit dollars
decreased primarily due to lower sales volumes in The Americas Group and
Consumer Brands Group and higher raw material costs in each Reportable Segment,
partially offset by higher sales in the Performance Coatings Group. The gross
margin rate decreased primarily as a result of higher raw material costs in each
Reportable Segment.
The Americas Group's gross profit in the third quarter was lower than the same
period last year by $124.2 million due primarily to lower sales volume and
higher raw material costs, partially offset by selling price increases. The
Americas Group's gross profit as a percent of net sales decreased in the third
quarter compared to the same period in 2020 primarily due to higher raw material
costs. The Consumer Brands Group's gross profit decreased by $152.4 million in
the third quarter compared to the same period last year due primarily to lower
sales volume, higher raw material costs and supply chain inefficiencies. The
Consumer Brands Group's gross profit as a percent of net sales decreased in the
third quarter compared to the same period last year for these same reasons. The
Performance Coatings Group's gross profit decreased $31.3 million, when stated
in U.S. dollars, in the third quarter compared to the same period last year,
primarily due to higher raw material costs, partially offset by higher sales and
favorable currency translation rate changes. The Performance Coatings Group's
gross profit as a percent of net sales decreased in the third quarter compared
to the same period last year primarily due to higher raw material costs.
                                       28
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Consolidated selling, general and administrative expenses (SG&A) decreased $37.9
million in the third quarter versus the same period last year due primarily to
good cost control, partially offset by increased spending from new store
openings. As a percent of net sales, consolidated SG&A decreased 90 basis points
in the third quarter compared to the same period last year primarily due to good
cost control.
The Americas Group's SG&A decreased $1.7 million in the third quarter compared
to the same period last year due primarily to good cost control, partially
offset by investments in strategic growth initiatives including new store
openings. The Consumer Brands Group's SG&A decreased $28.0 million in the third
quarter compared to the same period last year due to good sales and marketing
cost control in line with a return to more normal DIY sales levels. The
Performance Coatings Group's SG&A increased $15.8 million in the third quarter
compared to the same period last year to support higher sales levels and
unfavorable currency translation rate changes. The Administrative segment's SG&A
decreased $24.0 million in the third quarter compared to the same period last
year due primarily to lower incentive compensation.
In the third quarter of 2021, Other general (income) expense - net improved
$11.6 million compared to the same period in 2020 primarily due to a decrease in
provisions for environmental matters in the Administrative segment. See Note 15
of Item 1 for additional information.
In the third quarter of 2021, amortization of acquired intangibles was $50.9
million and $19.4 million for the Performance Coatings and Consumer Brands
Groups, respectively. In the third quarter of 2020, amortization of acquired
intangibles was $50.5 million and $21.7 million for the Performance Coatings and
Consumer Brands Groups, respectively.
Nine Months Ended September 30, 2021
Cost of goods sold increased $1.201 billion, or 16.4%, in the first nine months
of 2021 compared to the same period in 2020 primarily due to higher raw material
costs (including titanium dioxide and petrochemical feedstock sources), higher
sales volumes and unfavorable currency translation rate changes. Currency
translation rate changes increased Cost of goods sold by 1.6% in the first nine
months of 2021.
Consolidated gross profit increased $109.1 million in the first nine months of
2021 compared to the same period in 2020. Consolidated gross profit as a percent
of consolidated net sales decreased in the first nine months of 2021 to 43.9%,
compared to 47.2% during the same period in 2020. Consolidated gross profit
dollars increased primarily due to higher sales in The Americas Group and the
Performance Coatings Group, partially offset by the impact of lower sales in the
Consumer Brands Group and higher raw material costs in each Reportable Segment.
The gross margin rate decreased primarily as a result of higher raw material
costs in each Reportable Segment.
The Americas Group's gross profit in the first nine months of 2021 was higher
than the same period last year by $246.4 million due primarily to higher sales
volume and selling price increases, partially offset by higher raw material
costs. The Americas Group's gross profit as a percent of net sales decreased in
the first nine months of 2021 compared to the same period in 2020 primarily due
to higher raw material costs. The Consumer Brands Group's gross profit decreased
by $235.2 million in the first nine months compared to the same period last year
due primarily to lower sales volume, higher raw material costs and supply chain
inefficiencies. The Consumer Brands Group's gross profit as a percent of net
sales decreased in the first nine months compared to the same period last year
for these same reasons. The Performance Coatings Group's gross profit increased
$102.0 million, when stated in U.S. dollars, in the first nine months compared
to the same period last year primarily due to higher sales volumes and selling
price increases, partially offset by higher raw material costs. The Performance
Coatings Group's gross profit as a percent of net sales decreased in the first
nine months compared to the same period last year due to higher raw material
costs.
Consolidated SG&A increased $126.9 million in the first nine months of 2021
versus the same period last year due primarily to increased spending from new
store openings, unfavorable currency translation rate changes and to support
higher sales levels, partially offset by good cost control. As a percent of net
sales, consolidated SG&A decreased 170 basis points in the first nine months
compared to the same period last year primarily due to good cost control and
higher sales.
The Americas Group's SG&A increased $153.6 million in the first nine months of
2021 due primarily to increased spending from new store openings and costs to
support higher sales levels. The Consumer Brands Group's SG&A decreased $56.1
million in the first nine months compared to the same period last year due to
good sales and marketing cost control in line with a return to more normal DIY
sales levels. The Performance Coatings Group's SG&A increased $63.5 million in
the first nine months compared to the same period last year to support higher
sales levels and unfavorable currency translation rate changes, partially offset
by good cost control. The Administrative segment's SG&A decreased $34.1 million
in the first nine months compared to the same period last year due primarily to
lower compensation, including incentive and stock-based compensation.
                                       29
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In the first nine months of 2021, Other general (income) expense - net declined
$98.1 million compared to the same period in 2020 primarily due to the
recognition of a $111.9 million loss on the Wattyl divestiture, partially offset
by a decrease in provisions for environmental matters in the Administrative
segment. See Note 15 of Item 1 for additional information.
In the first nine months of 2021, amortization of acquired intangibles was
$152.9 million and $61.0 million for the Performance Coatings and Consumer
Brands Groups, respectively. In the first nine months of 2020, amortization of
acquired intangibles was $150.6 million and $64.5 million for the Performance
Coatings and Consumer Brands Groups, respectively.
Other expense (income) - net improved $32.2 million in the first nine months of
2021 compared to the same period in 2020 primarily due to the $21.3 million loss
on extinguishment of debt recognized in the first nine months of 2020. See Note
15 of Item 1 for additional information.
The following table presents income before income taxes by segment and as a
percentage of net sales by segment:
(dollars in millions)                                Three Months Ended                                         Nine Months Ended
                                                       September 30,                                              September 30,
                                        2021              2020             % Change               2021               2020              % Change
Income Before Income Taxes:
The Americas Group                   $  631.5          $ 747.4                 (15.5) %       $ 1,838.8          $ 1,735.4                   6.0  %
Consumer Brands Group                    75.8            198.3                 (61.8) %           342.3              519.2                 (34.1) %
Performance Coatings Group              110.4            155.3                 (28.9) %           399.0              366.4                   8.9  %
Administrative                         (206.2)          (225.4)                  8.5  %          (640.4)            (605.7)                 (5.7) %
Total                                $  611.5          $ 875.6                 (30.2) %       $ 1,939.7          $ 2,015.3                  (3.8) %

Income Before Income Taxes
as a % of Net Sales:
The Americas Group                       21.3  %          25.1  %                                  21.5  %            22.2  %
Consumer Brands Group                    11.7  %          23.7  %                                  15.9  %            21.3  %
Performance Coatings Group                7.2  %          11.9  %                                   8.9  %            10.1  %
Administrative                                nm               nm                                       nm                 nm
Total                                    11.9  %          17.1  %                                  12.8  %            14.5  %

nm - not meaningful



Income Tax Expense
The effective tax rate was 17.9% for the third quarter of 2021 compared to 19.4%
for the third quarter of 2020, and 19.6% for the first nine months of 2021
compared to 19.4% for the first nine months of 2020. The effective tax rate was
favorably impacted by tax benefits related to employee share based payments
during 2021 and 2020. The other significant components of the Company's tax rate
were consistent year over year. See Note 16 of Item 1 for additional
information.
Net Income Per Share
Diluted net income per share in the third quarter of 2021 decreased to $1.88 per
share compared to $2.55 per share in the third quarter of 2020. Diluted net
income per share for the third quarter of 2021 and 2020 included a $0.21 per
share charge for acquisition-related amortization expense. Currency translation
rate changes increased diluted net income per share by $0.01 in the third
quarter.
Diluted net income per share in the first nine months of 2021 decreased to $5.82
per share compared to $5.87 per share in the first nine months of 2020. Diluted
net income per share for the first nine months of 2021 included a $0.34 per
share loss from the Wattyl divestiture (see Note 3 of Item 1) and included a
$0.64 per share charge for acquisition-related amortization expense. The first
nine months of 2020 included a $0.62 per share charge for acquisition-related
amortization expense. Currency translation rate changes decreased diluted net
income per share by $0.04 in the first nine months.
                                       30
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FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW
Overview
The Company's financial condition, liquidity and cash flow remained strong
during the first nine months of 2021. The Company generated $2.051 billion in
net operating cash despite ongoing and industry-wide raw material availability
issues which negatively impacted total sales and gross margins, and the normal
seasonal increase in working capital requirements. During the first nine months
of 2021, the Company's EBITDA decreased 3.1% to $2.623 billion. See the Non-GAAP
Financial Measures section below for the definition and calculation of EBITDA.
Cash and cash equivalents increased $86.7 million during the first nine months
of 2021. Cash flow from operations, proceeds from the Wattyl divestiture and
increased short-term borrowings funded normal seasonal working capital increases
and allowed the Company to return $2.519 billion to shareholders in the form of
share buybacks and cash dividends during the first nine months.
At September 30, 2021, the Company had cash and cash equivalents of $313.3
million and total debt outstanding of $8.976 billion. Total debt, net of cash
and cash equivalents, was $8.663 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.
Net Working Capital
Net working capital, defined as total current assets less total current
liabilities, decreased $1.917 billion to a deficit of $1.100 billion at
September 30, 2021 compared to a surplus of $817.3 million at September 30,
2020. The net working capital decrease is due to an increase in current
liabilities, partially offset by an increase in current assets.
Comparing current asset balances at September 30, 2021 to September 30, 2020,
cash and cash equivalents decreased $306.6 million, accounts receivable
increased $143.5 million due to higher sales, inventories increased $143.2
million due to higher raw material costs partially offset by lower inventory
quantities, and other current assets increased $222.7 million primarily related
to prepaid expenses and refundable income taxes.
Current liability balances increased $2.120 billion at September 30, 2021
compared to September 30, 2020 primarily due to a $709.2 million increase in
short-term borrowings and a $638.0 million increase in the current portion of
long-term debt. Excluding short-term borrowings and the current portion of
long-term debt, current liabilities increased $773.0 million primarily due to
the timing of payments related to accounts payable and accruals, including
compensation. At September 30, 2021, the Company's current ratio was 0.83
compared to 1.00 and 1.19 at December 31, 2020 and September 30, 2020,
respectively.
Property, Plant and Equipment
Net property, plant and equipment decreased $7.3 million in the first nine
months of 2021 and increased $47.2 million in the twelve months since
September 30, 2020. The decrease in the first nine months was primarily due to
depreciation expense of $199.8 million and the sale or disposition of fixed
assets of $50.0 million, partially offset by capital expenditures of $248.1
million. Since September 30, 2020, the increase was primarily due to capital
expenditures of $358.1 million and favorable changes in foreign currency
translation of $14.3 million, partially offset by depreciation expense of $267.8
million and sale or disposition of fixed assets of $62.5 million. Capital
expenditures primarily represented expenditures associated with improvements and
normal equipment replacement and additional capacity in manufacturing and
distribution facilities in the Consumer Brands Group, normal equipment
replacement in The Americas and Performance Coatings Groups, and information
systems hardware in the Administrative segment.
Goodwill and Intangible Assets
Goodwill and intangible assets decreased $455.2 million from December 31, 2020
and decreased $439.2 million from September 30, 2020. The net decrease during
the first nine months of 2021 was primarily due to dispositions of $168.0
million (primarily related to the Wattyl divestiture), amortization of $233.2
million and foreign currency translation of $69.9 million. The net decrease over
the twelve month period from September 30, 2020 was primarily due to
amortization of $312.4 million and dispositions of $168.0 million, partially
offset by foreign currency translation of $27.5 million.
The fair value of the Company's acquired intangible assets may be impacted by
the Company's ongoing integration efforts. See Note 6 in the Company's Annual
Report on Form 10-K for the year ended December 31, 2020 for more information
concerning the Company's goodwill and intangible assets, including impairment
testing of these assets.
                                       31
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Other Assets
Other assets at September 30, 2021 decreased $2.8 million in the first nine
months of 2021 and increased $80.3 million from a year ago. The decrease in the
first nine months was primarily due to the sale of investments to fund the
Company's domestic defined contribution plan and a decrease in deferred tax
assets, partially offset by other investments. The increase from September 30,
2020 was primarily due to an increase in other investments, partially offset by
a decrease in deposits. See Notes 13 and 19 in Item 1 for additional information
on the Company's investments.
Debt (including Short-term borrowings)
                                  September 30,       December 31,       September 30,
                                       2021               2020                2020
        Long-term debt           $      8,267.0      $     8,292.0      $      8,291.0
        Short-term borrowings             709.4                0.1                 0.2
        Total debt outstanding   $      8,976.4      $     8,292.1      $      8,291.2


The Company's long-term debt primarily consists of senior notes as disclosed in
Note 6 of the Company's Annual Report on Form 10-K for the year ended
December 31, 2020.
At September 30, 2021, the Company's short-term borrowings were comprised of
$694.9 million outstanding under its commercial paper program and $14.5 million
outstanding under various foreign programs. The weighted average interest rate
for the borrowings outstanding under the commercial paper program was 0.17% at
September 30, 2021. The Company had unused capacity under its various credit
agreements of $2.805 billion at September 30, 2021. See Note 6 in Item 1 for
additional information.
On September 15, 2021, the Company elected to exercise its optional redemption
rights to redeem the entire outstanding $400.0 million aggregate principal
amount of its 4.20% Senior Notes due 2022 and its 4.20% Notes due 2022 initially
issued by The Valspar Corporation (collectively, the 4.20% Senior Notes). The
Company redeemed the 4.20% Senior Notes on October 15, 2021 at a redemption
price equal to 100% of the principal amount, plus accrued interest.
On August 2, 2021, the Company entered into an amended and restated $625.0
million credit agreement, which amends and restates the five-year credit
agreement entered into in September 2017. This agreement, which was subsequently
amended, will be used for general corporate purposes. See Note 6.
On June 29, 2021, the Company and two of its wholly-owned subsidiaries,
Sherwin-Williams Canada, Inc. (SW Canada) and Sherwin-Williams Luxembourg S.à
r.l. (SW Luxembourg, together with the Company and SW Canada, the Borrowers),
entered into a new five-year $2.000 billion credit agreement (New Credit
Agreement). The New Credit Agreement may be used for general corporate purposes,
including the financing of working capital requirements. The New Credit
Agreement replaced the credit agreement dated July 19, 2018, as amended, which
was terminated effective June 29, 2021. The New Credit Agreement will mature on
June 29, 2026 and provides that the Company may request to extend the maturity
date of the facility for two additional one-year periods. In addition, the New
Credit Agreement provides that the Borrowers may increase the aggregate amount
of the facility to $2.750 billion, subject to the discretion of each lender to
participate in the increase, and the Borrowers may request letters of credit in
an amount of up to $250.0 million.
Defined Benefit Pension and Other Postretirement Benefit Plans
Long-term liabilities for defined benefit pension and other postretirement
benefit plans did not change significantly from December 31, 2020 and
September 30, 2020. See Note 7 in the Company's Annual Report on Form 10-K for
the year ended December 31, 2020 for more information concerning the Company's
benefit plan obligations.
Deferred Income Taxes
Deferred income taxes at September 30, 2021 decreased $44.6 million in the first
nine months of 2021, and decreased $155.2 million from a year ago, primarily due
to amortization of acquisition-related intangible assets and the disposition of
certain intangible assets in the Wattyl divestiture.
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
                                       32
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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 nine months of 2021. 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 2021. See Note 8 in Item 1 for further information on
environmental-related long-term liabilities.
Contractual Obligations, Commercial Commitments and Warranties
Except for the Specialty Polymers and Sika acquisition agreements disclosed in
Note 3 of Item 1, and the debt transactions discussed above and in Note 6 of
Item 1, there have been no other significant changes to the Company's
contractual obligations and commercial commitments in the first nine months of
2021 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, 2020.
Litigation
See Note 9 in Item 1 for information concerning litigation.
Shareholders' Equity
                                     September 30,       December 31,       September 30,
                                          2021               2020                2020
      Total shareholders' equity    $      2,690.3      $     3,610.8      $      4,207.3


Shareholders' equity decreased $920.5 million during the first nine months of
2021 as a result of $2.167 billion of Treasury stock activity primarily
attributable to treasury stock repurchases and cash dividends paid on common
stock of $442.9 million, partially offset by net income of $1.560 billion and an
increase in Other capital of $196.7 million primarily associated with
stock-based compensation expense and stock option exercises.
Shareholders' equity decreased $1.517 billion since September 30, 2020 as a
result of $3.242 billion of Treasury stock activity primarily attributable to
treasury stock repurchases and cash dividends paid on common stock of $563.1
million, partially offset by net income of $1.967 billion and an increase in
Other capital of $314.8 million primarily associated with stock-based
compensation expense and stock option exercises.
During the first nine months of 2021, the Company purchased 8.075 million shares
of its common stock for treasury purposes through open market purchases. The
Company acquires its common stock for general corporate purposes, and depending
on its cash position and market conditions, it may acquire additional shares in
the future. The Company had remaining authorization at September 30, 2021 to
purchase 50.575 million shares of its common stock.
In February 2021, the Company's Board of Directors increased the quarterly cash
dividend from $.4467 per share to $.55 per share. This quarterly dividend was
approved in all subsequent quarters and will result in an annual dividend for
2021 of $2.20 per share or a 29.9% payout of 2020 diluted net income per share.
Cash Flow
Net operating cash for the nine months ended September 30, 2021 was a cash
source of $2.051 billion compared to a cash source of $2.564 billion for the
same period in 2020. The decrease in net operating cash was primarily due to an
increase in cash requirements for working capital and a decrease in net income.
Net investing cash usage increased $50.1 million in the first nine months of
2021 to a usage of $226.7 million from a usage of $176.6 million in 2020
primarily due to an increase in capital expenditures and other investments,
partially offset by the proceeds received from the Wattyl divestiture in the
current year.
Net financing cash usage decreased $178.5 million in the first nine months of
2021 to a usage of $1.738 billion from a usage of $1.916 billion for the same
period in 2020 primarily due to decreased payments of long-term debt, partially
offset by increased treasury stock purchases and cash dividends paid.
                                       33
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In the twelve month period from October 1, 2020 through September 30, 2021, the
Company generated net operating cash of $2.896 billion, used $372.5 million in
investing activities and used $2.842 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.
See Note 12 in Item 1 for disclosures related to the $744.0 million of
outstanding U.S. Dollar to Euro cross currency swap contracts designed to hedge
the Company's net investment in its European subsidiaries.
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 September 30,
2021, 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 6 in the Company's Annual Report
on Form 10-K for the year ended December 31, 2020 for more information
concerning the Company's debt and related covenant.
                                       34

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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 and Adjusted EBITDA
EBITDA is a non-GAAP financial measure defined as net income before income taxes
and interest, depreciation and amortization. Adjusted EBITDA is a non-GAAP
financial measure that excludes the loss on the divestiture of Wattyl.
Management considers EBITDA and Adjusted EBITDA useful in understanding the
operating performance of the Company. The reader is cautioned that the Company's
EBITDA and Adjusted EBITDA should not be compared to other entities unknowingly.
Further, EBITDA and Adjusted EBITDA should not be considered alternatives to Net
income or Net operating cash as an indicator of operating performance or as a
measure of 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 Condensed Statements of Consolidated Cash Flows in Item
1.
The following table summarizes EBITDA and Adjusted EBITDA as calculated by
management for the periods indicated below:

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