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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.11pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.12pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.10pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+1
claims+1
cyberattacks+1
alleged+1
Positive rising
advances+1
leading+1
great+1
Risk Factors (Item 1A)
9,655 words
ITEM 1A. RISK FACTORS
The risks described below and in other documents we file from time to time with the SEC could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. While we believe we have identified and discussed below the key risks affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, results of operations, cash flow, liquidity or financial condition in the future. Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.
ECONOMIC AND STRATEGIC RISKS
Adverse changes in general business and economic conditions in the United States and worldwide have in the past adversely affected and may in the future adversely affect our results of operations, cash flow, liquidity or financial condition.
We operate all over the world serving customers in more than 120 countries. Our business, operations and strategies are sensitive to global and regional business and economic conditions. changes in such conditions in the United States and worldwide have in the past impacted and may in the future reduce the demand for some of our products, impact our ability to predict and meet any future changes in the demand for our products and the ability of those with whom we do business to their obligations to us, each of which could affect our results of operations, cash flow, liquidity or financial condition. Changes in inflation rates, interest rates, tax rates, rates, labor costs, healthcare costs, conditions, geopolitical conditions, governmental policies, laws and regulations (including import and export requirements such as new or increased tariffs, sanctions, quotas or trade ), business due to cybersecurity , terrorist activity, armed and wars (including the ongoing between Russia and Ukraine), public health , pandemics, outbreaks of disease, events, weather conditions or natural (including those that may be related to climate change or otherwise), supply chain (including those caused by industry capacity constraints, labor , raw material availability and transportation and logistics and constraints) and other economic factors have in the past and could in the future affect demand for some of our products, our ability to predict and meet any future changes in the demand for our products, the availability, delivery or cost of raw materials, our ability to staff and maintain operations at affected facilities and our results of operations, cash flow, liquidity or financial condition and that of our customers, vendors and suppliers.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
restructuring+5
loss+3
claims+2
unfavorable+2
delayed+2
Positive rising
favorable+5
positive+4
benefit+3
opportunities+1
beautiful+1
MD&A (Item 7)
10,502 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in millions, except as noted and per share data)
Company Background
The Sherwin-Williams Company, founded in 1866, and its consolidated subsidiaries (collectively, the Company) are engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean region and throughout Europe, Asia and Australia.
The Company is structured into three reportable segments – Paint Stores Group, Consumer Brands Group and Performance Coatings Group (collectively, the Reportable Segments) – and an Administrative function, which is representative of the way it is internally organized for assessing performance and making decisions regarding the allocation of resources. See Note 22 to the consolidated financial statements in Item 8 for further information on the Company’s Reportable Segments.
Summary
• Consolidated Net sales increased 2.1% in the year to $23.574 billion
◦ Net sales from stores in the Paint Stores Group open more than twelve calendar months increased 1.7% in the year
• Diluted net income per share decreased 2.7% to $10.26 per share in the year compared to $10.55 per share in the full year 2024
◦ Adjusted diluted net income per share increased 0.9% to $11.43 per share in the year compared to $11.33 per share in the full year 2024
• Generated Net operating cash of $3.452 billion, or 14.6% of Net sales in the year
In particular, ongoing global inflation has impacted consumer and manufacturing behavior in recent years. We expect inflationary pressure to continue to impact consumer and manufacturing customer behavior during 2026, including in the United States housing market as a result of elevated mortgage rates and in global industrial markets as a result of softer demand. Such impacts could adversely affect the demand for some of our products and our results of operations, cash flow, liquidity or financial condition. In addition, market uncertainty and volatility in various geographies have been magnified as a result of shifts in U.S. and foreign trade, economic and other policies, and such shifts, including price increases on certain raw materials, and changes in the availability of, or tariffs on certain imported raw materials, could continue to adversely impact our results of operations, cash flow, liquidity or financial condition.
Protracted duration of economic downturns in cyclical segments of the economy has in the past and may in the future depress the demand for some of our products and adversely affect our sales, earnings, cash flow or financial condition.
Portions of our business involve the sale of paint, coatings and related products to segments of the economy that are cyclical in nature, particularly segments relating to construction, housing, manufacturing and oil production, refining, storage and transportation. Our sales to these segments are affected by the levels of discretionary consumer and business spending in these segments. During economic downturns in these segments, the levels of consumer and business discretionary spending have in the past decreased. A decrease in consumer and business discretionary spending has in the past and could in the future reduce the demand for some of our products and has in the past and could in the future adversely affect our sales, earnings, cash flow or financial condition.
Interest rates, in particular, drive shifts in consumer behavior with respect to the housing market, and have in the past adversely affected and may in the future adversely affect demand for new residential homes, existing home turnover and new non-residential construction. These shifts in consumer behavior have in the past adversely impacted and may in the future adversely impact demand for some of our products, and our results of operations, cash flow, liquidity or financial condition. Although the
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Federal Reserve cut interest rates in 2025, mortgage rates have remained high and we have not experienced meaningful positive impacts on demand for our products that serve these segments of the economy to date. Although changes in inflation, the interest rate environment and the mortgage market are difficult to predict, we expect the recent and continued combination of high interest rates and inflation to continue to impact consumer and manufacturing customer behavior in 2026. Any worsening in these segments will reduce the demand for some of our products and may adversely impact sales, earnings and cash flow.
In the U.S. construction and housing segments, labor markets are impacted by a number of factors, including high employment levels, unemployment programs and subsidies, immigration laws and volatility in general macroeconomic factors. We have in the past and may in the future see project backlogs in these segments due to contractors experiencing a shortage of skilled workers, resulting in an adverse effect on the growth rate of demand for our products. While we would typically expect to see higher demand for our products as project backlogs are reduced, inflation, interest rates, and other economic conditions may delay a recovery in demand, which may result in any such labor shortage and other conditions adversely impacting our sales, earnings, cash flow or financial condition.
OPERATIONAL RISKS
Unexpectedshortages and increases in the cost of raw materials and energy have in the past and may in the future adversely affect our earnings or cash flow.
We purchase raw materials (including petrochemical-derived resins, latex and solvents, titanium dioxide and various additives) and energy for use in the manufacturing, distribution and sale of our products. Factors such as political instability, higher tariffs, import/export restrictions, supply chain disruptions, adverse weather conditions and natural disasters (including those that may be related to climate change or otherwise), armed conflicts and wars, or public health crises have in the past adversely impacted, and may in the future adversely impact, the availability and cost of raw materials and fuel supplies, our ability to meet customer demands for some of our products, adequately staff and maintain operations at affected facilities and our costs generally. In addition, environmental regulations, including regulations related to climate change or otherwise, have in the past and may in the future negatively impact us or our suppliers in terms of availability and cost of raw materials, as well as sources and supply of energy.
Although raw materials and energy supplies (including oil and natural gas) are generally available from various sources in sufficient quantities, unexpectedshortages and increases in the cost of raw materials and energy, supplier capacity constraints, or any deterioration in our relationships with, or the financial viability of, our suppliers, may have an adverse effect on our earnings or cash flow. Although we generally have a number of suppliers, in some cases we have limited or single-sources of supply. We purchase raw materials globally from sources around the world, including in the Middle East, Central and South America and other areas that may be less politically stable than other areas. Wars, armed conflicts, political instability, civil disturbances and unrest, terrorist attacks and actions by governments in these areas (such as the ongoing conflict between Russia and Ukraine and any expansion or increase in the severity and intensity of the same) may decrease the supply and increase the price of raw materials that we use for our business, which could have a material adverse effect on our sales, earnings, cash flow or results of operations. For example, although we do not have significant operations in the region, in the past the conflict between Israel and Hamas has caused disruption, instability and volatility in supply chains and logistics, including shipping disruptions in the Red Sea and surrounding waterways.
In the event we experience supply chain disruptions from our suppliers, we may not be able to timely shift to internal production or secure alternate sources in order to prevent significant impacts to our business, or we may experience quality issues with raw materials and energy sourced from alternate sources. If we are unable to offset such disruptions through internal production or alternate sources, we may experience adverse impacts to our business, including adverse effects to our earnings and cash flow.
If the cost of raw materials and energy increases, we may not be able to offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the prices of our products. Following two years of historic inflation, certain raw material and energy prices decreased in 2023 and 2024, and remained flat in 2025, particularly resins and solvents derived from petrochemical feedstock sources such as propylene and ethylene. Ongoing global supply and demand dynamics drive the cost of raw materials and energy, which could continue to experience periods of volatility in the future and may adversely affect our earnings and cash flow.
Catastrophic events, adverse weather conditions and natural disasters (including those that may be related to climate change or otherwise) may temporarily reduce the demand for some of our products, impact our ability to meet the demand for our products or cause supply chain disruptions and increased costs, and could have a negative effect on our sales, earnings or cash flow.
Our business is seasonal in nature, with the second and third quarters typically generating a higher proportion of sales and earnings than other quarters. From time to time, catastrophic events, adverse weather conditions and natural disasters (including
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those that may be related to climate change or otherwise) have caused business disruptions and have had an adverse effect on our sales, manufacture and distribution of paint, coatings and related products. Our facilities and systems are not fully redundant and our disaster recovery planning may not be sufficient to meet business needs in the event of disruptions. In the event of catastrophic events, adverse weather conditions or a natural disaster causing significant damage to any one or more of our principal manufacturing or distribution facilities, we may not be able to provide the products needed to meet customer demand, which could have an adverse effect on our sales of certain paint, coatings and related products.
Also from time to time, the impact of these risks to our suppliers has had or may have an adverse effect on our sales, manufacture and distribution of certain of our products. Catastrophic events, adverse weather conditions or natural disasters and their impacts have in the past resulted, and may in the future result, in industry-wide supply chain disruptions, increased raw material and other costs and our hindered ability to manufacture the products needed to fully meet customer demand.
In any of these instances, an adverse effect on sales may cause a reduction in our earnings or cash flow.
Disruptions to our information technology systems, including due to digitization efforts or cybersecurity incidents, may interfere with our operating and financial processes, result in the compromise or loss of critical and confidential information and severelyharm our business.
We rely on information technology systems to conduct our business. Information technology systems are important to many of our business-critical operating and financial processes, including production planning, manufacturing, distribution, communication with our employees, customers and suppliers, sales and customer service, research and development, recording and processing transactions and the production of accurate and timely reports on our financial and operating results. In connection with our digitization initiative, we are engaged in a multi-year phased process to upgrade and harmonize certain components of our information technology systems, including our financial processing systems. We are making significant investments in this complex, enterprise-wide initiative. Planned implementations will lead to changes in our operating and financial processes as well as our internal control over financial reporting. Disruptions to our information technology systems could occur if we do not effectively design or implement these systems solutions, or otherwise fail to manage resulting changes in processes and controls. This could adversely affect our operations, negatively impact our financial reporting and the effectiveness of our internal control over financial reporting and have a material adverse effect on our business, results of operations and financial condition.
Some of the information technology systems we rely on are maintained or operated by third-party providers, including cloud-based systems. Cybersecurity incidents, threats and attacks are increasingly sophisticated, including due to advances in artificial intelligence (AI) capabilities, constantly evolving, and originate from many sources globally. In addition, often these incidents cannot be recognized or understood until the target has already been attacked. These risks are expected to continue to be magnified due to the increased reliance on information technology systems to conduct our business, including those used in furtherance of supporting remote and hybrid in-office work environments and managing our global operating and financial processes. Disruptions to these systems may impair our ability to conduct business and threaten the availability, confidentiality and integrity of our systems and information and have a material adverse effect on our business, results of operations and financial condition.
As part of our business, we collect and handle information about our business, customers, employees and suppliers. Despite the security measures we have in place, our facilities and systems, and those of third parties we rely on or do business with, may be vulnerable to, or affected by damage or interruption resulting from, cybersecurity issues, including cyber attacks (including AI-powered cyberattacks), security breaches, fraud (including through phishing or social engineering attempts), malware (including ransomware and other programs that operate with malicious intent), power outages, system failures, acts of vandalism, human or technical errors, or other similar events or disruptions.
Our information, facilities and systems and those hosted or supported by third parties on our behalf could also be impacted by the intentional or unintentionalimproper conduct of our employees, vendors or others who have access to and may mishandle or misappropriate information or access systems or facilities. Any such event involving the misappropriation, loss or other unauthorized disclosure of information or disruption of our systems, whether impacting us or third parties we rely on or do business with, could result in losses, damage our reputation or relationships with customers and suppliers, expose us to the risks of litigation, regulatory action and liability, including individual claims or consumer class actions, commercial litigation, administrative and civil or criminalinvestigations or actions, regulatory intervention and sanctions or fines, investigation and remediation costs, loss of intellectual property, release of confidential information, alteration or corruption of data or systems, costs related to remediation or the payment of ransom, and litigation and possible prolongednegative publicity, and disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.
We and third parties we rely on or do business with have experienced cybersecurity attacks and incidents in the past, some of which have resulted in unauthorized access to our information and systems and other disruptions to our business operations, and
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we could in the future experience similar incidents. Although we implement various controls to try to mitigate risks to our systems, information and other property, there can be no guarantee that the actions and controls we have implemented, or which we have caused third-party service providers to implement, will be sufficient to protect and mitigate risks to our systems, information or other property.
The domestic and international regulatory environment related to information security, data collection and transfer, digital marketing or telemarketing and privacy is increasingly rigorous and complex, with new and rapidly changing requirements applicable to our business, which often require changes to our business practices. Compliance with these requirements, including the European Union’s General Data Protection Regulation, China’s Personal Information Protection, Data Security and Cyber Security Laws, Brazil’s General Data Protection Law, the California Consumer Privacy Act as amended by the California Privacy Rights Act, other U.S. state privacy laws and a growing number of other international and domestic regulations, are costly and will result in additional costs in our efforts to continue to comply. These laws and regulations can provide for significant penalties for non-compliance, which could result in additional costs of compliance, enforcement actions, regulatory investigations and fines, individual or class action litigation, commercial litigation or reputational harm. Ongoing efforts to comply with these laws also may divert management and employee attention from other business and growth initiatives.
Our ability to attract, retain, develop and progress a qualified global workforce could adversely impact our business and impair our ability to meet our strategic objectives and the needs of our customers.
Our continued success depends in part on our ability to identify, attract and onboard qualified candidates with the requisite education, background, skills and experience and our ability to retain, develop, progress and engage qualified employees across our business, including our stores, fleet, manufacturing, research and development, information technology, corporate and other operations and functions. To the extent we are unable to remain competitive with our total rewards programs (which include compensation and benefits programs and practices), talent management strategy, workplace culture and strategies, initiatives, programs and practices that drive belonging and a positive employee experience, or if qualified candidates or employees become more difficult to attract or retain under reasonable terms, we have in the past and may in the future experience higher labor-related costs. If we are unable to attract, retain, develop and progress a qualified global workforce, this could adversely affect our business and future success and impair our ability to meet our strategic objectives and the needs of our customers.
A number of factors may adversely affect the labor force available to us or increase labor costs generally, including high employment levels, population migration, unemployment programs and subsidies, immigration laws and volatility in general macroeconomic factors impacting the labor market. Although we have not experienced any material labor shortage to date, over the past few years, we have experienced an increasingly competitive labor market and higher labor-related costs. A sustained labor shortage or increased turnover rates within our employee base (or within the employee base of key suppliers or third-party manufacturers), could negatively affect our supply chain or our ability to efficiently operate our manufacturing and distribution facilities and overall business.
Although we have an extensive customer base, the loss of any of our largest customers could adversely affect our sales, earnings or cash flow.
We have a large and varied customer base due to our extensive distribution platform. During 2025, no individual customer accounted for sales totaling more than ten percent of our sales. However, we have some customers that, individually, purchase a large amount of products from us. Although our broad distribution channels help to minimize the impact of the loss of any one customer or the loss of a significant amount of sales to any one customer, the loss of any of these large customers, or the loss of significant amount of sales to any of these large customers, could have an adverse effect on our sales, earnings or cash flow.
Increased competition or failure to keep pace with developments in key competitive areas of our business may reduce our sales, earnings or cash flow performance.
We face substantial competition from many international, national, regional and local competitors of various sizes in the manufacture, distribution and sale of our paint, coatings and related products. Some of our competitors operate more extensively in certain regions around the world and have greater financial or operational resources to compete in certain regions. They may secure better terms from certain vendors, adopt more aggressive pricing and devote more resources to certain product lines or parts of their business. Other competitors are smaller and may be able to offer more specialized products. Technology, product quality, product composition, raw material sourcing, product innovation and development (including relating to increased customer interest in the sustainability attributes of products and our related key strategies and initiatives for expanding our product offerings), breadth of product line, technical expertise, distribution, service and price are key competitive factors for our business. Competition in any of these areas, or failure to keep pace with developments in any of these areas, may reduce our sales and adversely affect our earnings or cash flow by resulting in decreased sales volumes, reduced prices and increased costs of manufacturing, distributing and selling our products.
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Our results of operations, cash flow or financial condition may be negatively impacted if we do not successfully integrate past and future acquisitions into our existing operations and if the performance of the businesses we acquire do not meet our expectations.
We have historically made strategic acquisitions of businesses in the paint and coatings industry and likely will acquire additional businesses in the future as part of our long-term growth strategy and initiatives. In October 2025, we completed our acquisition of Suvinil, a leading provider of architectural paints in Brazil, with annual sales of approximately $525 million. The success of the Suvinil acquisition, and other past and future acquisitions depends in large part on our ability to integrate the operations and personnel of the acquired companies and manage challenges that may arise as a result of the acquisitions, particularly when the acquired businesses operate in new or foreign markets. In the event we do not successfully integrate such past and future acquisitions into our existing operations so as to realize the expected return on our investment, our results of operations, cash flow or financial condition could be adversely affected.
Risks and uncertainties associated with our expansion into and our operations in South America, Asia, Europe and other foreign markets have in the past and could in the future adversely affect our results of operations, cash flow, liquidity or financial condition.
Net sales of our consolidated foreign subsidiaries totaled approximately 19.6%, 19.2% and 19.2% of our total consolidated Net sales in 2025, 2024 and 2023, respectively. Sales outside of the United States make up a significant part of our current business and future strategic plans. Our results of operations, cash flow, liquidity or financial condition have in the past and could in the future be adversely affected by a variety of domestic and international factors, including general economic conditions, political instability, inflation rates, recessions, sanctions, tariffs, foreign currency exchange rates, foreign currency exchange controls, interest rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest, armed conflicts and wars (including the ongoing conflict between Russia and Ukraine), difficulties in staffing and managing foreign operations and other economic and political factors. In addition, public health crises in foreign jurisdictions may temporarily reduce the demand for some of our products and adversely affect the availability and cost of raw materials. Our inability to successfully manage the risks and uncertainties relating to any of these factors could adversely affect our results of operations, cash flow, liquidity or financial condition.
In many foreign countries, it is not uncommon for others to engage in certain business practices we are prohibited from engaging in because of regulations applicable to us, such as the Foreign Corrupt Practices Act and the UK Bribery Act. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both U.S. and non-U.S. regulators, and an increase in criminal and civil proceedings brought against companies and individuals. Although we have internal control policies and procedures designed to promote compliance with these regulations, there can be no assurance our policies and procedures will prevent a violation of these regulations. Any violation could cause an adverse effect on our results of operations, cash flow or financial condition.
Policy changes affecting international trade have in the past and could in the future adversely impact the demand for our products and our competitive position.
International, national and regional laws, regulations and policies that have the effect of restricting global trade and markets and restricting the import and export of products, services and technology, or those of our customers, or for the benefit of favored industries or sectors, have in the past, and could in the future, interfere with our operations, supply chain, manufacturing costs and customer relationships and harm our business. Due to the global scope of our operations, changes in government policies on foreign trade and investment have and may continue to affect the demand for our products and services, impact the competitive position of our products or prevent us from being able to sell products in certain countries. Expanding export controls or limits on foreign investment, for example, has in the past and could in the future impact the global supply of raw materials. Government actions taken in connection with the United States-China trade conflict have in the past and could in the future impact business, including sales, imports and exports. Our business benefits from free trade agreements, including the United States-Mexico-Canada Agreement and EU-UK Trade and Cooperation Agreement. Efforts to withdraw from, or substantially modify such agreements, in addition to trends such as protectionism or nationalism and the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements, exchange controls or new barriers to entry, could have a material adverse effect on our results of operations, financial condition or cash flow and that of our customers, vendors and suppliers.
We may not achieve our strategies or expectations relating to sustainability considerations, which could expose us to potential liabilities, increased costs, reputational harm and other adverse effects on our business.
We have established strategies and expectations for our business relating to certain sustainability considerations, including regarding reducing greenhouse gas emissions, increasing use of electricity from renewable energy sources, reducing waste and improving safety performance. These strategies and expectations reflect our current business plans and aspirations, and there is no guarantee that they will be achieved. Our ability to achieve any such strategies or expectations is subject to numerous factors and conditions, many of which are outside of our control. Examples of such factors include, but are not limited to, evolving
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legal, regulatory and other standards, processes and assumptions; the pace of scientific and technological developments; increased costs; the availability of requisite suppliers, energy sources, or financing; and changes in carbon markets and carbon accounting rules. The pursuit of our strategies or expectations, failures or delays (whether actual or perceived) in achieving our strategies or expectations or changes to our strategies or expectations related to these matters could expose us to potential liabilities, increased costs, reputational harm and other adverse effects on our business.
Furthermore, many governments, regulators, investors, employees, customers, media outlets and other stakeholders are focused on sustainability considerations relating to businesses, including climate change and greenhouse gas emissions, natural capital circularity, human capital and belonging, and employee experience. Our business may face scrutiny from such stakeholders and if our strategies or expectations relating to sustainability considerations do not meet stakeholder expectations and standards (including with respect to establishing science-based targets), which continue to evolve and may differ across jurisdictions in which we operate, our business, financial condition, results of operations and reputation could be adversely impacted. Similarly, our failure or perceived failure to pursue or fulfill our strategies and expectations; comply with federal, state, or international ethical, environmental, or other standards, regulations, or expectations; adhere to public statements; satisfy new and emerging reporting standards; or meet evolving and varied stakeholder expectations within the timelines we announce, or at all, could have adverse operational, reputational, financial and legal impacts.
Our business, reputation, image and brands could be damaged by negative publicity.
Our reputation, image and recognized brands significantly contribute to our business and success, as they are critical to retaining and growing our customer base and our relationships with other stakeholders. Specifically, our ability to maintain a positive perception of us and our business, including through our guiding values, is of great importance. Significant negativeclaims or publicity involving us, our business or our products, services, culture, values, strategies and practices, including postings, articles, or comments on social media and the internet, undermine confidence in our Company, and could materially damage our reputation and image, even if such claims or publicity are inaccurate. Damage to our reputation and image could adversely impact our ability to attract new and retain existing customers, employees and other business and stakeholder relationships, and could adversely affect the demand for some of our products and adversely affect our sales, earnings, cash flow or financial condition.
Our business could be adversely affected by the infringement or loss of our intellectual property rights or by the theft or unauthorized use of our trade secrets or other confidential business information.
Our competitive position and the value of our products and brands could be reduced and our business adversely affected if we are unable to maintain or adequately protect our intellectual property. We have numerous patents, trade secrets, trademarks, trade names copyrights and know-how that are valuable to our business. Despite our efforts to protect such intellectual property and other proprietary information from unauthorized use or disclosure, third parties may attempt to disclose, obtain or use our trademarks or such other intellectual property and information without our authorization. We also face attempts, including through cybersecurity attacks and social engineering tactics, to gainunauthorized access to our systems for the purpose of improperly acquiring our trade secrets or confidential business information. In addition, advances in AI technology and increasingly widespread use of generative AI tools may increase the risk of unauthorized access to intellectual property, may increase the risk that existing intellectual property law may not provide adequate protection and may introduce potential liability from the use of AI tools. The theft or unauthorized use or publication of our trade secrets and other co nfidential business information as a result of such incidents could adversely affect the value of our investment in research and development and our business. Although we rely on the patent, trademark, trade secret and copyright laws of the United States and other countries to protect our intellectual property rights, the laws of some countries may not protect such rights to the same extent as the laws of the United States. Unauthorized use of our intellectual property by third parties, the failure of foreign countries to have laws to protect our intellectual property rights, or an inability to effectively enforce such rights in foreign countries could have an adverse effect on our business.
FINANCIAL RISKS
A weakening of global credit markets or changes to our credit ratings may adversely affect our results of operations, cash flow, liquidity or financial condition.
A weakening of global credit markets has in the past and could in the future adversely impact our Net sales, the collection of accounts receivable, funding for working capital needs, expected cash flow generation from current and acquired businesses, access to capital and our investments, which has in the past and could in the future adversely impact our results of operations, cash flow, liquidity or financial condition.
We finance a portion of our sales through trade credit. Credit markets remain tight, and some customers who require financing for their businesses have not been able to obtain, and may in the future have difficulty obtaining, necessary financing. A
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continuation or worsening of these conditions could limit our ability to collect our accounts receivable, which could adversely affect our results of operations, cash flow, liquidity or financial condition.
We generally fund a portion of our seasonal working capital needs and obtain funding for other general corporate purposes through short-term borrowings backed by our revolving credit facility and other financing facilities. If any of the banks in these credit and financing facilities are unable to perform on their commitments, such inability could adversely impact our cash flow, liquidity or financial condition, including our ability to obtain funding for working capital needs and other general corporate purposes.
Although we have available credit facilities to fund our current operating needs, we cannot be certain we will be able to replace our existing credit facilities or refinance our existing or future debt when necessary. Our cost of borrowing and ability to access the capital markets are affected not only by market conditions, but also by our debt and credit ratings assigned by the major credit rating agencies. Rating agencies regularly evaluate our business and could downgrade our credit rating based on a number of factors, including factors beyond our control, such as general business or economic conditions. Downgrades in these ratings likely would increase our cost of borrowing and could have an adverse effect on our access to the capital markets, including our access to the commercial paper market. An inability to access the capital markets with the same flexibility we have now and on terms commercially acceptable to us, or at all, could have a material adverse effect on our results of operations, cash flow, liquidity or financial condition.
We have goodwill and intangible assets recorded on our Consolidated Balance Sheets. We periodically evaluate the recoverability of the carrying value of our goodwill and intangible assets whenever events or changes in circumstances indicate such value may not be recoverable. An impairment assessment involves judgment as to assumptions regarding future sales and cash flow and the impact of market conditions on those assumptions. Future events, such as the integration or rebranding of trademarks acquired in acquisitions and changing market conditions may impact our assumptions and change our estimates of future sales and cash flow, including our ability to track trademark specific sales and cash flow, resulting in us incurring substantial impairment charges, which could adversely affect our results of operations or financial condition.
We hold investments in equity and debt securities in some of our defined benefit pension plans. A decrease in the value of plan assets resulting from a general financial downturn may cause a negative pension plan investment performance, which may adversely affect our results of operations, cash flow, liquidity or financial condition.
We require a significant amount of cash to service the substantial amount of debt we have outstanding. Our ability to generate cash depends on many factors beyond our control. We also depend on the business of our subsidiaries to satisfy our cash needs. If we cannot generate the required cash, we may not be able to make the necessary payments required under our indebtedness.
At December 31, 2025, we had total debt of approximately $10.871 billion, which is an increase of $982.9 million since December 31, 2024. We have the ability under our existing credit facilities and otherwise to incur substantial additional indebtedness in the future. Our ability to make payments on our debt, fund other liquidity needs and make planned capital expenditures will depend on our ability to generate cash in the future. Our historical financial results have been, and we anticipate our future financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general business, economic, financial, competitive, legislative, regulatory and other factors beyond our control, including supply chain disruptions, adverse weather conditions or natural disasters, armed conflicts and wars, changes in raw material and energy supplies, public health crises and pricing and related impacts. We cannot guarantee our business will generate sufficient cash flow from our operations or future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund other liquidity needs and make planned capital expenditures.
The degree to which we are leveraged could have important consequences for shareholders. For example, it could:
• require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other long-term growth initiatives and general corporate purposes;
• limit cash flow available to return to shareholders in the form of dividends and share repurchases;
• increase our vulnerability to adverse business, economic or industry conditions;
• limit our ability to obtain additional financing in the future to enable us to react to changes in our business or general business, economic or industry conditions; or
• place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default which, if not cured or waived, would have a material adverse effect on us.
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A significant portion of our operations are conducted through our subsidiaries. As a result, our ability to generate sufficient cash flow for our needs is dependent to some extent on the earnings of our subsidiaries and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us. Our subsidiaries are separate and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on our debt or to provide us with funds to meet our cash flow needs, whether in the form of dividends, distributions, loans or other payments. Further, any payment of dividends, loans or advances by our subsidiaries could be subject to statutory or contractual restrictions. Payments to us by our subsidiaries will also be contingent upon our subsidiaries’ earnings and business considerations. Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors. Even if we are a creditor of any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to that held by us. Finally, changes in the laws of foreign jurisdictions in which we operate have in the past and may in the future adversely affect the ability of some of our foreign subsidiaries to repatriate funds to us.
Fluctuations in foreign currency exchange rates and changing monetary policies could adversely affect our results of operations, cash flow, liquidity or financial condition.
Because of our international operations, we are exposed to risk associated with interest rates and value changes in foreign currencies, including as a result of inflation, central bank monetary policies, currency controls and other exchange restrictions, which may adversely affect our business. Historically, our reported Net sales, earnings, cash flow and financial condition have been subjected to fluctuations in foreign exchange rates. Our primary exchange rate exposure is with the euro, the Brazilian real, the Canadian dollar, the Mexican peso, the British pound, the Chinese yuan, the Chilean peso and the Argentine peso, each against the U.S. dollar. While we actively manage the exposure of our foreign currency risk as part of our overall financial risk management policy, we have in the past and may in the future experience losses from foreign currency exchange rate fluctuations and currency controls and restrictions, and such losses could adversely affect our sales, earnings, cash flow, liquidity or financial condition. Currency controls or restrictions may limit our ability to convert foreign currencies into U.S. dollars, or to remit dividends and other payments from our subsidiaries or businesses located in or conducted within a country imposing such controls or restrictions. For example, we experienced a loss of $41.8 million in 2023 as a result of the significant devaluation of the Argentine peso in December 2023 as part of economic reforms implemented by the government of Argentina, and we may experience similar losses in the future.
LEGAL AND REGULATORY RISKS
We are subject to a wide variety of complex U.S. and non-U.S. laws, rules and regulations, as well as compliance risks related to new and existing laws and regulations, compliance with which could increase our costs and could adversely affect our results of operations, cash flow or financial condition.
We maintain significant operations in the U.S. and outside of the U.S. We are subject to a wide variety of complex U.S. and non-U.S. federal, state and local laws, rules and regulations and legal compliance risks, including laws, rules and regulations involving securities, tax, employment and pensions, competition, environmental, export and trade, intellectual property, data privacy and cybersecurity and improper business practices, such as anti-bribery and corruption. We are affected by new laws and regulations and changes to existing laws and regulations, including interpretations by courts and regulators. We are also subject to compliance risks related to contract requirements and risks that any third-party we engage to do work on our behalf might conduct business in a manner that is inconsistent with our Code of Conduct or with legal requirements. Compliance with continuously evolving U.S. and non-U.S. federal, state and local laws, rules, regulations and related interpretations applicable to our business, may increase our costs or require significant capital investment, and our results of operations could be adversely impacted if these costs are greater than we have projected. If we are unable to comply with all of the laws, rules, regulations and interpretations applicable to us, we could become the subject of inquiries, reviews or investigations by regulators and related adverse outcomes of which could lead to enforcement actions, the imposition of fines or costs, requirements to suspend operations at certain facilities, the assertion of private litigationclaims and damages or damage to our reputation.
The domestic and international regulatory environment related to information security, data collection and transfer, digital marketing or telemarketing, and privacy is increasingly rigorous and complex, with new and rapidly changing requirements applicable to our business, which often require changes to our business practices. Compliance with these requirements, including the European Union’s General Data Protection Regulation, China’s Personal Information Protection, Data Security, and Cyber Security Laws, Brazil’s General Data Protection Law, the California Consumer Privacy Act as amended by the California Privacy Rights Act, other U.S. state privacy laws, and a growing number of other international and domestic regulations, are costly and will result in additional costs in our efforts to continue to comply. These laws and regulations can provide for significant penalties for non-compliance, which could result in additional costs of compliance, enforcement actions, regulatory investigations, and fines, individual or class action litigation, commercial litigation, or reputational harm. Ongoing efforts to comply with these laws also may divert management and employee attention from other business and growth initiatives.
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Although we believe we have adopted appropriate risk management and compliance programs to mitigate these risks, the global and diverse nature of our operations means compliance risks will continue to exist. We face liability and reputational risks even if we comply with all laws and regulations. Investigations, examinations and other proceedings, the nature and outcome of which cannot be predicted, likely will arise from time to time. These investigations, examinations and other proceedings could subject us to significant liability and require us to take significant accruals or pay significant settlements, fines and penalties, which could have a material adverse effect on our results of operations, cash flow or financial condition.
Increases in tax rates, or changes in tax laws or regulations, could increase our costs and could adversely affect our results of operations, cash flow or financial condition.
We are subject to tax laws and regulations in the U.S. and multiple jurisdictions outside of the U.S. We are affected by changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance. Economic and political conditions in the countries where we are subject to taxes, including in the U.S., have in the past and may in the future result in significant changes to tax laws or regulations. Our effective tax rates are affected by changes in our mix of earnings in countries with different tax rates, and changes in laws, regulations and interpretations regarding deferred tax assets and liabilities, among other things. If our effective tax rate were to increase, that could have an adverse effect on our results of operations, cash flow or financial condition. In addition, the increasingly complex global tax environment has in the past and may in the future result in higher compliance costs. In the ordinary course of our business, we are subject to examinations and investigations by various tax authorities and other regulators. In addition to existing examinations and investigations, there could be additional examinations and investigations in the future, and existing examinations and investigations could be expanded.
For non-income tax risks, we estimate material loss contingencies and accrue for such loss contingencies as required by U.S. generally accepted accounting principles based on our assessment of contingencies where liability is deemed probable and reasonably estimable in light of the facts and circumstances known to us at a particular point in time. Subsequent developments may affect our assessment and estimates of the loss contingency. In the event the loss contingency is ultimately determined to be significantly higher than currently accrued, the recording of the additional liability may result in a material adverse effect on our results of operations or financial condition for the annual or interim period during which such additional liability is accrued. In those cases where no accrual is recorded because it is not probable a liability has been incurred and cannot be reasonably estimated, any potential liability ultimately determined to be attributable to us may result in a material adverse effect on our results of operations, cash flow or financial condition for the annual or interim period during which such liability is accrued or paid. For income tax risks, we recognize tax benefits based on our assessment that a tax benefit has a greater than 50% likelihood of being sustained upon ultimate settlement with the applicable taxing authority that has full knowledge of all relevant facts. For those income tax positions where we determine there is not a greater than 50% likelihood such tax benefits will be sustained, we do not recognize a tax benefit in our financial statements. Subsequent events may cause us to change our assessment of the likelihood of sustaining a previously-recognized benefit which could result in a material adverse effect on our results of operations, cash flow or financial position for the annual or interim period during which such liability is accrued or paid.
We discuss risks and uncertainties with regard to income taxes in more detail in Note 20 to the consolidated financial statements in Item 8.
We are required to comply with, and may become subject to additional, numerous complex and increasingly stringent domestic and foreign health, safety and environmental laws, regulations and requirements, the cost of which is likely to increase and may adversely affect our results of operations, cash flow or financial condition.
Our operations are subject to various domestic and foreign health, safety and environmental laws, regulations and requirements, including those related to climate change, producer responsibility and chemicals registration and management. These laws, regulations and requirements not only govern our current operations and products, but also may impose potential liability on us for our past operations.
Global focus on climate change and chemical use and management may result in the imposition of new or additional regulations or requirements applicable to, and new or additional financial and transition risks for, our business and industry. A number of government authorities and agencies have introduced, or are contemplating, regulatory changes to address climate change, including the regulation and disclosure of greenhouse gas emissions and the management and use of chemicals in operations and products. For example, the European Union Corporate Sustainability Reporting Directive requires that we make expansive disclosures on various environmental- and social-related topics. Similarly, California has enacted legislation that will require broad disclosures, including of greenhouse gas emissions. Chemicals we use in our products, packaging and operations may be restricted or prohibited by initiatives to address new and existing chemicals under current laws and regulations or by emerging laws and regulations in domestic and foreign jurisdictions. The outcome of new and emerging legislation or regulation in the U.S., European Union and other jurisdictions in which we operate may result in fees or restrictions on certain activities or materials (including changes to our products or product packaging) and new or additional requirements, including to fund
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energy efficiency activities or renewable energy use and to disclose information regarding our greenhouse gas emissions performance, renewable energy usage and efficiency, waste generation and recycling rates, climate-related risks, opportunities and oversight and related strategies and initiatives across our global operations. Compliance with these climate change, chemical management and other initiatives has in the past and may in the future result in additional costs to us, including, among other things, increased production costs, additional taxes, additional investments in renewable energy use and other initiatives, reduced emission allowances, additional restrictions on production or operations and increased costs associated with reporting and data assurance. They may also require us to alter the contents of our products and/or product packaging, which may alter the performance and profitability of such products and packaging. We may not be able to timely recover the cost of compliance with such new or more stringent laws and regulations, which could adversely affect our results of operations, cash flow or financial condition. Despite our efforts to timely comply with such initiatives, implement measures to improve our operations and execute on our related strategies and initiatives, any actual or perceived failure to comply with new or additional requirements or meet stakeholder expectations with respect to the impacts of our operations on the environment or on our customers or employees and related strategies and initiatives may result in adverse publicity, increased litigation risk and adversely affect our business and reputation, which could adversely impact our results of operations, cash flow and financial condition.
We expect health, safety and additional environmental laws, regulations and requirements to continue to evolve and to be applied with increasing stringency on our industry. Our costs to comply with these laws, regulations and requirements may increase as they become more stringent in the future, and these increased costs may adversely affect our results of operations, cash flow or financial condition.
We are involved with environmental investigation and remediation activities at some of our currently- and formerly-owned sites, as well as a number of third-party sites, for which our ultimate liability may exceed the current amount we have accrued.
We are involved with environmental investigation and remediation activities at some of our currently- and formerly-owned sites and a number of third-party sites. We accrue for estimated costs of investigation and remediation activities at these sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs are based on currently available facts regarding each site. We routinely assess our potential liability for investigation and remediation activities and adjust our environmental-related accruals as information becomes available, including as a result of sites progressing through investigation and remediation-related activities, upon which more accurate costs can be reasonably estimated. Due to the uncertainties surrounding environmental investigation and remediation activities, our liability may result in costs that are significantly higher than currently accrued and may have an adverse effect on our earnings. We discuss these risks and uncertainties in more detail in the “Environmental-Related Liabilities” and “Environmental Matters” sections in Item 7 and in Note 10 to the consolidated financial statements in Item 8.
The nature, cost, quantity and outcome of pending and future litigation could have a material adverse effect on our results of operations, cash flow, liquidity and financial condition.
In the course of our business, we are subject to a variety of actual and potential claims, lawsuits, and other proceedings, including, but not limited to, litigation relating to product liability and warranty, raw materials used in our products, personal injury, environmental (including alleged natural resource damages), intellectual property, commercial, contractual and antitrustclaims, that are inherently subject to many uncertainties regarding the possibility of a loss to us. These uncertainties will ultimately be resolved when one or more future events occur or fail to occur confirming the incurrence of a liability or the avoidance or reduction of a liability. In accordance with the Contingencies Topic of the Accounting Standards Codification (ASC), we accrue for contingencies by a charge to income when it is both probable that one or more future events will occur confirming the fact of a loss and the amount of the loss can be reasonably estimated. In the event a loss contingency is ultimately determined to be significantly higher than currently accrued, the recording of the additional liability may result in a material impact on our results of operations, liquidity or financial condition for the annual or interim period during which such additional liability is accrued. In matters where no accrual is recorded because it is not probable that a liability will be incurred or the amount of any such loss cannot be reasonably estimated, any potential liability ultimately determined to be attributable to us may result in a material impact on our results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.
For example, our past operations included the manufacture and sale of lead pigments and lead-based paints. Along with other companies, we are and have been a defendant in a number of legal proceedings, including individual personal injury actions, purported class actions and actions brought by various counties, cities, school districts and other government-related entities, arising from the manufacture and sale of lead pigments and lead-based paints. The plaintiffs’ claims have been based upon various legal theories, including negligence, strict liability, breach of warranty, negligentmisrepresentations and omissions, fraudulentmisrepresentations and omissions, concert of action, civil conspiracy, violations of unfair trade practice and
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consumer protection laws, enterprise liability, market share liability, public nuisance, unjust enrichment and other theories. The plaintiffs have sought various damages and relief, including personal injury and property damage, costs relating to the detection and abatement of lead-based paint from buildings, costs associated with a public education campaign, medical monitoring costs and others. We have also been a defendant in legal proceedings arising from the manufacture and sale of non-lead-based paints that seek recovery based upon various legal theories, including the failure to adequatelywarn of potential exposure to lead during surface preparation when using non-lead-based paint on surfaces previously painted with lead-based paint. We are vigorously defending any such litigation that remains ongoing. We expect additional litigation may be filed against us in the future asserting similar or different legal theories, and seeking similar or different types of damages and relief. The Company will continue to vigorously defendagainst any such litigation that may be filed, including utilizing all avenues of appeal, if necessary.
Litigation is inherently subject to many uncertainties, and we ultimately may not prevail. Adverse court rulings, determinations of liability, or third-party funding of litigation, among other factors, could affect litigationagainst us, including the lead pigment and lead-based paint litigation, and encourage an increase in the number and nature of future claims and proceedings. In addition, from time to time, various legislation and administrative regulations have been enacted, promulgated or proposed to impose obligations on present and former manufacturers of lead pigments and lead-based paints respecting asserted health concerns associated with such products or to overturn the effect of court decisions in which we and other manufacturers have been successful. Legislation and administrative regulations also may be enacted, promulgated, or proposed to impose obligations for the manufacture or sale of other raw materials that are or were used in paints and coatings.
Due to the uncertainties involved, management is unable to predict the outcome of the claims, lawsuits, and other proceedings against us, the number or nature of possible future claims, lawsuits, and proceedings, or the effect of any legislation and/or administrative regulations. Further, management cannot reasonably determine the scope or amount of the potential costs and liabilities related to such matters, or resulting from any such legislation and regulations. We currently have not accrued any amounts for the pending lead pigment and lead-based paint litigation, because we do not believe it is probable that a loss will occur, or we believe it is not possible to estimate the range of potential losses as there is no substantive information upon which an estimate could be based. In addition, any potential liability that may result from any changes to legislation and regulations cannot reasonably be estimated. Due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to us arising out of such litigation may have a material adverse effect on our results of operations, cash flow, liquidity or financial condition. We discuss the risks and uncertainties related to litigation, including the lead pigment and lead-based paint litigation, in more detail in Note 11 to the consolidated financial statements in Item 8.
Outlook
Sherwin-Williams delivered strong 2025 results driven by solid core performance and a focus on operational discipline despite continued demand choppiness. Full year Net sales grew to a record level, and gross profit and gross margin expanded. The Company continued to generate strong cash flow from operations, which was used for investment in capital expenditures, funding acquisitions and returning cash to shareholders through dividends and repurchases of common stock. Although the softer-for-longer demand environment is expected to continue in 2026, we have confidence in our differentiated strategy, Success by Design, that continues to deliver innovative and productive solutions for our customers. Significant opportunities exist for each business, and we will continue to support our growth strategy by executing initiatives within our enterprise priorities, including talent, simplification, digitization, supply chain responsiveness and sustainability.
Within the Paint Stores and Consumer Brands groups, we anticipate continued economic pressures to impact customer buying behavior in 2026. Our investments in sales reps, training and digital tools, coupled with home builder relationships are expected to drive growth opportunities. The outlook for the Performance Coatings Group is varied by end market and region with an expectation that the core business remains flat, however, new account wins and favorable business sales mix should drive growth. At the business unit level, we expect modest growth in Automotive Refinish, Industrial Wood and General Industrial while Packaging sales are anticipated to be flattish. Coil sales are expected to be slightly negative due to demand softness. As it relates to consolidated expenses, raw material costs could be impacted by evolving tariff policies. We will continue to monitor changes and impacts to our operations as we navigate this uncertain environment. We expect these costs and employee-related expenses to contribute to a low-single digit percentage increase, offset by cost saving simplification efforts across our supply chain such as capacity and productivity improvements.
Our capital deployment strategy remains balanced and consistent. We have a strong liquidity position, with $207.2 million in cash and $3.649 billion of unused capacity under our credit facilities at December 31, 2025. We are, and expect to remain, in compliance with all financing covenants. Long-term debt maturities due in 2026 are $350.1 million, which were fully repaid in January 2026 with short-term borrowings. With the long-term debt maturities refinanced during 2025 and the interest related to the delayed draw term loans to fund the Suvinil acquisition, coupled with the incremental interest expense related to the new global headquarters and research and development center and the higher interest rates used to refinance the long-term debt maturities due in 2026, Interest expense is expected to increase by approximately $85 million in 2026. We plan to expand our footprint by opening 80 to 100 new stores in the United States and Canada in 2026, continue to evaluate acquisitions that align with our strategy and return value to our shareholders through the payment of dividends and repurchases of common stock.
See Item 1A Risk Factors for further information regarding the current and potential impact of general business and macroeconomic conditions, including inflation rates and interest rates, tariffs, supply chain disruptions, raw material availability and fluctuations in foreign currency.
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RESULTS OF OPERATIONS
The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for the years ended December 31, 2025 and 2024. For comparisons of the years ended December 31, 2024 and 2023, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed on February 20, 2025.
Net Sales
Year Ended December 31,
$ Change
% Change
Currency Impact
Acquisition and Divestiture Impact
Paint Stores Group
Consumer Brands Group
Performance Coatings Group
Administrative
Total
Consolidated Net sales for 2025 increased 2.1% primarily due to higher Net sales in the Paint Stores and Consumer Brands Groups. Net sales of all consolidated foreign subsidiaries increased to $4.615 billion in 2025 compared to $4.426 billion in 2024 primarily as a result of the higher Net sales in Latin America due to the October 2025 acquisition of Suvinil, partially offset by unfavorable foreign currency translation driven by Latin America. Net sales of all operations other than consolidated foreign subsidiaries increased to $18.959 billion for 2025 compared to $18.673 billion for 2024.
Net sales in the Paint Stores Group increased 3.2% primarily due to selling price increases, which impacted Net sales by a mid-single digit percentage, partially offset by a low-single digit decrease in sales volume. Net sales from stores in the Paint Stores Group open for more than twelve calendar months increased 1.7% in the year over the prior year comparable period. During 2025, the Paint Stores Group opened 83 new stores and closed 3 locations for a net increase of 80 stores. The total number of stores in operation at December 31, 2025 was 4,853 in the United States, Canada and the Caribbean region. The Paint Stores Group’s objective is to grow sales through the expansion of its store base by an approximate average of 2% each year. Sales of products other than paint increased 0.5% over last year. A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general merchandise sold.
Net sales in the Consumer Brands Group increased 1.9% in 2025 primarily due to the October 2025 acquisition of Suvinil, which contributed $164.5 million, or 5.3%, partially offset by 1.1% of unfavorable foreign currency translation driven by Latin America. In 2025, the Consumer Brands Group opened 13 new stores and closed 40 locations for a net decrease of 27 stores. The total number of stores in operation at December 31, 2025 was 307 in the Latin America region.
Net sales in the Performance Coatings Group were essentially flat in 2025 when compared to 2024 due to an offsetting favorable impact from acquisitions and foreign currency translation and an unfavorable impact from selling prices attributable to product mix. In 2025, the Performance Coatings Group opened 6 new branches and closed 13 branches for a net decrease of 7 branches, decreasing the total at December 31, 2025 to 317 branches.
Net sales in the Administrative function, which primarily consists of external leasing revenue, increased by an insignificant amount in 2025.
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Income Before Income Taxes
The following table presents the components of Income before income taxes as a percent of Net sales:
Year Ended December 31,
% of Net Sales
% of Net Sales
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses (SG&A)
Other general (income) expense - net
Impairment
Interest expense
Interest income
Other expense (income) - net
Income before income taxes
Consolidated Cost of goods sold increased $155.4 million, or 1.3% in 2025 compared to the same period in 2024 primarily due to the impact of the October 2025 Suvinil acquisition, partially offset by moderating raw material costs and lower sales volume.
Consolidated Gross profit increased $320.4 million, or 2.9% in 2025 compared to the same period in 2024 primarily due to favorable selling prices in the Paint Stores Group, the acquisition of Suvinil within the Consumer Brands Group and moderating raw material costs, partially offset by unfavorable product mix within the Performance Coatings Group. Consolidated Gross profit as a percent to consolidated Net sales increased to 48.8% in 2025 from 48.5% in 2024 for these same reasons.
The Paint Stores Group’s Gross profit for 2025 increased $364.2 million compared to the same period in 2024 primarily due to growth in Net sales from favorable selling prices and moderating raw material costs, partially offset by lower sales volume. The Paint Stores Group’s Gross profit as a percent of Net sales increased for these same reasons. The Consumer Brands Group’s Gross profit decreased $42.2 million in 2025 compared to the same period in 2024 primarily due to lower sales volumes and unfavorable currency translation impact, partially offset by the impact from the October 2025 acquisition of Suvinil. The Consumer Brands Group’s Gross profit as a percent of Net sales decreased for these same reasons. The Performance Coatings Group’s Gross profit decreased $38.1 million compared to the same period in 2024 primarily due to an unfavorable impact from selling prices attributable to product mix, partially offset by the impact of acquisitions and favorable foreign currency translation. The Performance Coatings Group’s Gross profit as a percent of Net sales decreased for these same reasons.
Consolidated SG&A increased by $272.9 million, or 3.7% in 2025 compared to the same period in 2024 primarily due to investments in long-term growth opportunities in the Paint Stores Group, including expenses to support net new store openings, costs related to the October 2025 Suvinil acquisition, costs related to the new global headquarters and research and development (R&D) center buildings, higher employee-related costs and other expenses associated with targeted restructuring actions. As a percent of Net sales, SG&A increased 50 basis points compared to the same period in 2024 for these same reasons.
The Paint Stores Group’s SG&A increased $183.7 million, or 4.2% for the year primarily due to higher employee-related costs and investments in long-term growth initiatives, including increased spending from net new store openings and costs to support higher sales. The Consumer Brands Group’s SG&A increased $32.8 million, or 3.8% for the year primarily due to costs related to the October 2025 Suvinil acquisition, increased marketing & advertising and higher employee-related costs. The Performance Coatings Group’s SG&A increased by $3.1 million, or 0.2% for the year primarily due to targeted restructuring activities and higher employee-related costs. The Administrative function’s SG&A increased $53.3 million, or 7.5% primarily due to targeted restructuring activities and costs related to the new global headquarters and R&D center buildings.
Other general (income) expense - net decreased by $28.6 million from income of $38.8 million in 2024 to income of $10.2 million in 2025. The change was primarily attributable to a gain recognized in 2024 from insurance recoveries related to environmental matters at a current manufacturing site. See Note 19 to the consolidated financial statements in Item 8 for further information.
Impairment of $17.8 million was recorded in 2025 related to restructuring activities which impacted certain trademarks in the Asia, Latin America and Europe regions. There was no impairment in 2024. For further information on impairment considerations, see Notes 3 and 6 to the consolidated financial statements in Item 8.
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Interest expense increased $49.3 million in 2025 compared to 2024 primarily due to an increase in long-term debt, interest expense related to the new global headquarters and research and development center which were both placed into service in 2025 and an increase in short-term borrowings primarily to fund the October 2025 acquisition of Suvinil. See Note 7 to the consolidated financial statements in Item 8 for further information on the Company’s outstanding debt.
Other expense (income) - net changed by $65.6 million from income of $44.7 million in 2024 to expense of $20.9 million in 2025 primarily due to higher foreign currency transaction related losses in 2025 compared to 2024, including impacts from highly inflationary economies such as Argentina and an immaterial loss recognized in 2025 from a transaction to convert a foreign currency with limited liquidity to the U.S. dollar. The remaining change is due to miscellaneous other income and expense, none of which were individually significant. See Note 19 to the consolidated financial statements in Item 8 for further information related to Other expense (income) - net.
The following table presents Income before income taxes by segment and as a percent of Net sales by segment:
Year Ended December 31,
$ Change
% Change
Income Before Income Taxes:
Paint Stores Group
Consumer Brands Group
Performance Coatings Group
Administrative
Total
Income Before Income Taxes as a percent of Net sales:
Paint Stores Group
Consumer Brands Group
Performance Coatings Group
Administrative
Total
nm - not meaningful
Income Tax Expense
The effective income tax rate for 2025 was 23.1% compared to 22.3% in 2024. The increase in the effective rate was primarily due to less favorable impacts of tax benefits related to employee share-based payments. The other significant components of the Company’s effective tax rate were consistent year-over-year. See Note 20 to the consolidated financial statements in Item 8 for further information.
Net Income Per Share
Diluted net income per share for 2025 decreased to $10.26 per share from $10.55 per share in 2024. Currency translation rate changes decreased diluted net income per share by $0.06 per share in 2025. Diluted net income per share in 2025 included acquisition-related amortization expense of $0.78 per share, severance and other restructuring expenses of $0.34 per share, and impairment related to trademarks of $0.05 per share. Diluted net income per share for 2024 included acquisition-related amortization expense of $0.78 per share. See Notes 1, 6 and 21 to the consolidated financial statements in Item 8 for further information.
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FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW
Overview
The Company’s financial condition, liquidity and cash flow remained strong in 2025. The Company generated $3.452 billion in Net operating cash and invested approximately $1.15 billion in the acquisition of Suvinil and $797.6 million in capital expenditures. Cash of $2.446 billion was returned to shareholders in the form of cash dividends and share repurchases during the year.
During 2025, the Company generated Net income of $2.569 billion, EBITDA of $4.480 billion and Adjusted EBITDA of $4.609 billion. See the Non-GAAP Financial Measures section for the definitions and calculations of EBITDA and Adjusted EBITDA. As of December 31, 2025, the Company had Cash and cash equivalents of $207.2 million and total debt outstanding of $10.871 billion. Total debt, net of Cash and cash equivalents, was $10.664 billion and was 2.4 times the Company’s EBITDA in 2025.
Net Working Capital
Net working capital, defined as Total current assets less Total current liabilities, increased $495.0 million to a deficit of $912.9 million at December 31, 2025 compared to a deficit of $1.408 billion at December 31, 2024. The net working capital increase is primarily due to an increase in current assets, particularly Accounts receivable, net and Other current assets and a decrease in the Current portion of long-term debt, partially offset by an increase in Short-term borrowings and Accounts payable.
Current asset balances increased $606.6 million at December 31, 2025 compared to December 31, 2024 primarily due to an increase in Accounts receivable, net of $402.4 million, an increase in Other current assets of $177.3 million, primarily related to prepaid expenses and recoverable income taxes, and an increase in Inventories of $30.1 million. These increases were offset by a decrease in Cash and cash equivalents of $3.2 million.
Current liability balances increased $111.6 million at December 31, 2025 compared to December 31, 2024 primarily due to an increase in Short-term borrowings of $538.1 million, an increase in Other accruals of $148.7 million primarily related to increases in liabilities related to customer considerations, accrued severance, current portion of non-traded investments and miscellaneous other accruals, partially offset by a decrease in insurance payables, an increase in Accounts payable of $101.0 million, an increase in Current portion of operating lease liabilities of $13.2 million and an increase in Accrued taxes of $13.1 million. These increases were partially offset by a decrease in the Current portion of long-term debt of $699.1 million.
As a result of the net effect of these changes, the Company’s current ratio increased to 0.87 at December 31, 2025 from 0.79 at December 31, 2024. Accounts receivable as a percent of Net sales increased to 11.8% in 2025 from 10.3% in 2024. Accounts receivable days outstanding was 62 days in 2025 and 58 days in 2024. In 2025, the allowance for current expected credit losses increased $2.1 million, or 3.5%. Inventories as a percent of Net sales decreased to 9.8% in 2025 from 9.9% in 2024. Inventory days outstanding was 88 days in 2025 compared to 93 days in 2024. The Company has sufficient total available borrowing capacity to fund its current operating needs.
Property, Plant and Equipment
Property, plant and equipment, net increased $604.2 million to $4.137 billion at December 31, 2025 primarily due to capital expenditures of $745.9 million, assets acquired through business combinations of $153.7 million and foreign currency translation and other adjustments of $44.9 million, offset by depreciation expense of $340.3 million.
Buildings within Property, plant and equipment, net increased by $1.491 billion in the twelve months since December 31, 2024 primarily due to the new global headquarters and the R&D center meeting the criteria to be placed into service during 2025. An immaterial amount of capital expenditures related to finalizing the construction of the new global headquarters and R&D center will be placed into service during 2026. The new global headquarters and associated parking garage assets are depreciated over their useful lives of 60 and 45 years, respectively. Additionally, the R&D center asset is depreciated over its useful life of 60 years.
Also included in 2025 capital expenditures were expenditures related to manufacturing capacity expansion, operational efficiencies and maintenance projects in the Consumer Brands and Performance Coatings Groups and the opening of new paint stores and renovation and improvements in existing stores in the Paint Stores Group.
In 2026, the Company expects to spend less than 2025 for capital expenditures, which it will fund primarily through the generation of operating cash. Core capital expenditures are targeted to be approximately 2% of Net sales in 2026 and are expected to be for investments in various productivity improvement and maintenance projects at existing manufacturing, distribution and research and development facilities and new store openings.
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Real Estate Financing
In December 2022, the Company closed a transaction to sell and subsequently lease back its new global headquarters. This transaction did not meet the criteria for recognition as an asset sale under U.S. generally accepted accounting principles (US GAAP) and as such, was accounted for as a real estate financing transaction. The Company received the final proceeds for the new global headquarters in 2025 for a total of $800 million. The initial lease term includes the construction period and extends for 30 years thereafter, and the Company has the right and option to extend the lease term. Lease payments over the next twelve months are expected to be approximately $51 million. The amount of the lease payments during the initial 30 year lease term is estimated to be approximately $1.938 billion. Refer to the Contractual and Other Obligations and Commercial Commitments section below for further information on the Company’s obligations.
The following table summarizes the activity related to this transaction and the corresponding balances recognized in the Consolidated Balance Sheets.
Activity:
Proceeds received
Capitalized interest
Balances:
Short-term liability
Long-term liability
Total liability
The net proceeds from this transaction and other real estate financing transactions are recognized as Proceeds from real estate financing transactions within the Financing Activities section of the Statements of Consolidated Cash Flows. The Company will continue to recognize the related assets, including any capitalized interest, within Property, plant and equipment, net on the Consolidated Balance Sheets. These assets are subject to depreciation over their useful lives in accordance with the Company’s accounting policies. The Company will also allocate payments between interest and repayment of the financing liability over the life of the agreement. See Note 10 to the consolidated financial statements within Item 8 for further information.
Goodwill and Intangible Assets
Goodwill, which represents the excess of cost over the fair value of net assets acquired in business combinations, increased $456.5 million to $8.037 billion at December 31, 2025, due to purchase accounting allocations of $306.8 million, primarily related to the Suvinil acquisition, and foreign currency translation rate fluctuations and other adjustments of $149.7 million.
Intangible assets increased $432.9 million to $3.966 billion at December 31, 2025 due to purchase price accounting allocations of $643.4 million, primarily related to the Suvinil acquisition, foreign currency translation rate fluctuations and other adjustments of $104.0 million and capitalization of software of $39.9 million, offset by amortization of finite-lived intangible assets of $336.6 million and trademark impairment of $17.8 million.
See Note 3 to the consolidated financial statements in Item 8 for further information related to acquisitions. See Note 6 to the consolidated financial statements in Item 8 for a description of goodwill, identifiable intangible assets, asset impairments and summaries of the remaining carrying values of goodwill and intangible assets.
Other Assets
Other assets increased $127.5 million to $1.759 billion at December 31, 2025. The increase was primarily due to an increase in non-traded investments and pension plan assets. See Notes 1 and 8 to the consolidated financial statements in Item 8 for further information.
Debt (including Short-term borrowings)
December 31,
December 31,
Long-term debt
Short-term borrowings
Total debt outstanding
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Total debt outstanding, including Short-term borrowings, increased by $982.9 million to $10.871 billion in 2025. Short-term borrowings are primarily comprised of amounts outstanding under the Company’s domestic commercial paper program, delayed draw term loans and various foreign credit facilities. The Company’s Long-term debt primarily consists of senior notes. The Company targets Net debt, which is total debt outstanding, net of Cash and cash equivalents, to be 2.0 to 2.5 times EBITDA. At December 31, 2025, Net debt was $10.664 billion and was 2.4 times the Company’s EBITDA in 2025. See the Non-GAAP Financial Measures section for the definition and calculation of EBITDA.
The Company’s available capacity under its committed credit agreements is reduced for amounts outstanding under its domestic commercial paper program and letters of credit. At December 31, 2025, the Company had unused capacity under its various credit agreements of $3.649 billion.
See Note 7 to the consolidated financial statements in Item 8 for a detailed description and summary of the Company’s outstanding debt, short-term borrowings and other available financing programs.
Defined Benefit Pension and Other Postretirement Benefit Plans
In accordance with the accounting prescribed by the Retirement Benefits Topic of the ASC, the Company’s total liability for unfunded or underfunded defined benefit pension plans increased $15.5 million to $83.3 million primarily due to changes in actuarial assumptions and the acquisition of a Suvinil defined benefit pension plan. The Company’s liability for domestic other postretirement benefits decreased $9.5 million to $125.6 million at December 31, 2025 primarily due to benefits paid and changes in actuarial assumptions.
The assumed discount rate used to determine the projected benefit obligation for the domestic defined benefit pension plan decreased to 5.7% at December 31, 2025 from 5.8% at December 31, 2024. The assumed discount rate used to determine the projected benefit obligation for foreign defined benefit pension plans of 5.5% remained substantially the same at December 31, 2025 and December 31, 2024. The assumed discount rate used to determine the benefit obligation for domestic other postretirement benefit obligations decreased to 5.4% at December 31, 2025 from 5.6% at December 31, 2024.
In determining the rates of compensation increases, management considered historical Company increases as well as expectations for future increases. The rate of compensation increases used to determine the projected benefit obligation at December 31, 2025 was 3.0% for the domestic pension plan and 3.2% for foreign pension plans, which was comparable to the rates used in the prior year.
In establishing the expected long-term rate of return on plan assets, management considered the historical rates of return, the nature of investments and an expectation for future investment strategies. The expected long-term rate of return on assets for the domestic defined benefit pension plan was 6.0% and 6.5% at December 31, 2025 and 2024, respectively. The expected long-term rate of return on assets for the foreign defined benefit pension plans was 5.1% and 4.8% at December 31, 2025 and 2024, respectively.
In developing the assumed health care cost trend rates, management considered industry data, historical Company experience and expectations for future health care costs. The assumed health care cost trend rates used to determine the benefit obligation for domestic other postretirement benefit obligations at December 31, 2025 were 6.0% and 11.0% for medical and prescription drug cost increases, respectively, both decreasing gradually to 4.5% in 2034. The assumed health care cost trend rates for medical and prescription costs used to determine the benefit obligation for domestic other postretirement benefit obligations at December 31, 2024 were 6.5% and 11.8%, respectively.
The respective year-end assumptions described above for the Company’s defined benefit plans are also used to determine expense for the next year. Net pension (credit) cost in 2026 for the domestic pension plan and foreign pension plans is expected to be approximately $(3.2) million and $6.1 million, respectively. Net periodic benefit cost in 2026 for domestic other postretirement benefits is expected to be approximately $2.6 million.
Employees and their eligible dependents in certain consolidated foreign subsidiaries of the Company are eligible for health care benefits upon retirement, subject to the terms of the plans, and are recorded as other postretirement benefits. The associated benefit obligation and net periodic benefit cost did not have a material impact on the Company’s consolidated financial statements.
See Note 8 to the consolidated financial statements in Item 8 for further information on the Company’s obligations and funded status of its defined benefit pension plans and other postretirement benefits.
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Deferred Income Taxes
Deferred income taxes at December 31, 2025 increased $157.8 million to $765.3 million primarily due to provisions of the One Big Beautiful Bill Act signed into law in 2025 which allows for the immediate expensing of certain domestic capital expenditures and domestic research and development costs, and the ability to accelerate previously capitalized domestic research and development costs, partially offset by the amortization of intangible assets in the current year. See Note 20 to the consolidated financial statements in Item 8 for further information on deferred taxes.
Other Long-Term Liabilities
Other long-term liabilities increased $266.4 million to $2.576 billion at December 31, 2025 primarily due to liabilities associated with net investment hedges, commitments related to non-traded investments and real estate financing. See Notes 1, 9, 10 and 16 to the consolidated financial statements in Item 8 for further information.
Environmental-Related Liabilities
The operations of the Company, like those of other companies in its industry, are subject to various domestic and foreign 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, regulations and requirements and has implemented various programs designed to help 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 2025. 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 2026. See Note 10 to the consolidated financial statements in Item 8 for further information on environmental-related liabilities.
Contractual and Other Obligations and Commercial Commitments
The Company has certain obligations and commitments to make future payments under contractual and other obligations and commercial commitments. The Company believes that cash generated from operating activities and borrowings available under long-term and short-term debt, including its committed credit agreements and commercial paper program, will be sufficient for it to meet its contractual and other obligations and commercial commitments. The following tables summarize such obligations and commitments as of December 31, 2025.
Payments Due by Period
Contractual and Other Obligations
Total
Less Than
1 Year
1–3 Years
3–5 Years
More Than
5 Years
Long-term debt
Interest on Long-term debt
Operating leases
Finance leases
Short-term borrowings
Real estate financing transactions
Purchase obligations (1)
Other contractual obligations (2)
Total contractual cash obligations
(1) Relates to open purchase orders for raw materials at December 31, 2025.
(2) Relates primarily to estimated future capital contributions for investments in the U.S. affordable housing and historic renovation real estate partnerships and various other contractual obligations.
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Amount of Commitment Expiration Per Period
Commercial Commitments
Total
Less Than
1 Year
1–3 Years
3–5 Years
More Than
5 Years
Standby letters of credit
Surety bonds
Total commercial commitments
Warranties
The Company offers product warranties for certain products. The specific terms and conditions of such warranties vary depending on the product or customer contract requirements. Management estimated the costs of unsettled product warranty claims based on historical results and experience and included an amount in Other accruals. Management periodically assesses the adequacy of the accrual for product warranty claims and adjusts the accrual as necessary. Changes in the Company’s accrual for product warranty claims during 2025 and 2024, including customer satisfaction settlements during the year, were as follows:
Balance at January 1
Charges to expense
Settlements
Balance at December 31
Shareholders’ Equity
Shareholders’ equity increased $547.1 million to $4.598 billion at December 31, 2025 from $4.051 billion last year. The increase was primarily attributable to the generation of $2.569 billion of Net income, benefits from stock option exercises and the recognition of stock-based compensation expense of $242.9 million and a decrease in Accumulated other comprehensive income (loss) of $240.8 million mainly due to foreign currency translation adjustments. These increases were partially offset by the repurchase of $1.656 billion in Treasury stock and the payment of $789.8 million in cash dividends. During the fourth quarter of 2025, the Company retired 29.5 million common stock shares held in treasury stock, which resulted in decreases of Common stock, Other capital, Retained earnings and Treasury stock of $9.9 million, $578.5 million, $7.996 billion, and $8.584 billion, respectively. See the Statements of Consolidated Shareholders’ Equity and Statements of Consolidated Comprehensive Income in Item 8 for further information.
The Company purchased 4.8 million shares of its common stock for treasury purposes through open market purchases during 2025. The Company acquires its common stock for general corporate purposes, and depending on its cash position and market conditions, it may acquire shares in the future. The Company had remaining authorization from its Board of Directors at December 31, 2025 to purchase 29.6 million shares of its common stock.
The Company’s 2025 annual cash dividend of $3.16 per share represented 30% of 2024 diluted net income per share. The 2025 annual dividend represented the 47 th consecutive year of increased dividend payments. On January 26, 2026, the Board of Directors increased the quarterly cash dividend to $0.80 per share. This quarterly dividend, if approved in each of the remaining quarters of 2026, would result in an annual dividend for 2026 of $3.20 per share, or a 31% payout of 2025 diluted net income per share.
Cash Flow
Net operating cash increased $298.4 million in 2025 to a cash source of $3.452 billion from a cash source of $3.153 billion in 2024 primarily due to an increase in Deferred income taxes and lower cash requirements for working capital, partially offset by lower Net income. Net operating cash increased as a percent of Net sales to 14.6% in 2025 compared to 13.7% in 2024.
Net investing cash usage increased $870.0 million to a usage of $2.066 billion in 2025 from a usage of $1.196 billion in 2024 primarily due to an increase in cash used for the Suvinil acquisition in the current year, partially offset by a decrease in capital expenditures. See Note 3 to the consolidated financial statements in Item 8 for further information on acquisitions.
Net financing cash usage decreased $638.5 million to a usage of $1.379 billion in 2025 from a usage of $2.017 billion in 2024. This decrease was primarily due to proceeds from long-term debt, an increase in short-term borrowings in 2025 and a lower amount of treasury stock repurchased, partially offset by lower proceeds from real estate financing transactions related to the new global headquarters and lower proceeds from stock options exercised.
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In the normal course of business, the Company may receive proceeds related to claims for incurred damages under its insurance policies. No amounts have been recorded in the consolidated financial statements for any insurance proceeds that have not been received as of the balance sheet date and any future recoveries are indeterminable at this time.
Market Risk
The Company is exposed to market risk associated with interest rates, 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. In 2025 and 2024, the Company utilized U.S. dollar to euro cross currency swap contracts to hedge the Company’s net investment in its European operations. The contracts have been designated as net investment hedges and have various maturity dates. In addition, the Company entered into forward foreign currency exchange contracts during 2025 and 2024 primarily to hedge value changes in foreign currency. There were no material contracts outstanding at December 31, 2025. Lastly, the Company entered into interest rate lock contracts in 2025 to hedge the variability in the benchmark interest rate for the 2025 issuance of long-term fixed rate debt. The contracts were designated as cash flow hedges and settled in 2025. See Notes 1, 16 and 19 to the consolidated financial statements in Item 8 for further information on the use of derivative instruments. The Company believes it may experience losses from foreign currency translation and transactions, interest rate movement and commodity price fluctuations. However, the Company does not expect foreign currency translation or transactions, interest rate movement, commodity price fluctuations or hedging contract losses to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Financial Covenant
Certain borrowings contain a consolidated leverage covenant. The covenant states the Company’s consolidated leverage ratio is not to exceed 3.75 to 1.00; however, the Company may elect to temporarily increase the leverage ratio to 4.25 to 1.00 for a period of four consecutive fiscal quarters immediately following the consummation of a qualifying acquisition, as defined in the credit agreement dated July 31, 2024. 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 for a reconciliation of EBITDA to Net income. At December 31, 2025, 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 to the consolidated financial statements in Item 8 for further information.
Defined Contribution Savings Plan
Participants in the Company’s defined contribution savings plan are allowed to contribute up to the lesser of fifty percent of their annual compensation or the maximum dollar amount allowed under the Internal Revenue Code. The Company matches one hundred percent of all contributions up to six percent of eligible employee contributions and additionally, may elect to make discretionary contributions. The Company’s matching and discretionary contributions to the defined contribution savings plan charged to operations were $184.2 million in 2025 compared to $165.1 million in 2024. At December 31, 2025, there were 14,886,577 shares of the Company’s common stock being held by the defined contribution savings plan, representing 6.0% of the total number of voting shares outstanding. See Note 13 to the consolidated financial statements in Item 8 for further information concerning the Company’s defined contribution savings plan.
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NON-GAAP FINANCIAL MEASURES
Management utilizes certain financial measures that are not in accordance with 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, Interest expense, depreciation and amortization. Adjusted EBITDA is a non-GAAP financial measure defined as EBITDA that excludes certain adjustments that management believes enhances investors’ understanding of the Company’s operating performance. 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 as an indicator of operating performance. The reader should refer to the determination of Net income in accordance with US GAAP disclosed in the Statements of Consolidated Income in Item 8.
The following table reconciles Net income computed in accordance with US GAAP to EBITDA and Adjusted EBITDA as calculated by management for the years indicated below:
Net income
Interest expense
Income taxes
Depreciation
Amortization
EBITDA
Severance and other restructuring expenses
Trademark impairment
Adjusted EBITDA
Free Cash Flow After Dividends
Free cash flow after dividends is a non-GAAP financial measure defined as Net operating cash, as shown in the Statements of Consolidated Cash Flows, less the amount reinvested in the business for capital expenditures and the return on investment to its shareholders by the payments of cash dividends. Management considers Free cash flow after dividends to be a useful tool in its determination of appropriate uses of the Company’s Net operating cash. The reader is cautioned that the Free cash flow after dividends measure should not be compared to other entities unknowingly as it may not be comparable and it does not consider certain non-discretionary cash flows, such as mandatory debt and interest payments. The amount shown below should not be considered an alternative to Net operating cash or other cash flow amounts provided in accordance with US GAAP as disclosed in the Statements of Consolidated Cash Flows in Item 8.
The following table summarizes Free cash flow after dividends as calculated by management for the years indicated below:
Net operating cash
Capital expenditures
Cash dividends
Free cash flow after dividends
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Adjusted Diluted Net Income Per Share
Management believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of diluted net income per share excluding Valspar acquisition-related amortization expense and certain other adjustments. Valspar acquisition-related amortization expense is excluded from diluted net income per share due to its significance as a result of the purchase price assigned to finite-lived intangible assets at the date of acquisition and the related impact on underlying business performance and trends. While these intangible assets contribute to the Company’s revenue generation, the related revenue is not excluded. This adjusted earnings per share measurement is not in accordance with US GAAP. It should not be considered a substitute for earnings per share in accordance with US GAAP and may not be comparable to similarly titled measures reported by other companies. The following tables reconcile diluted net income per share computed in accordance with US GAAP to adjusted diluted net income per share.
Year Ended
December 31, 2025
Pre-Tax
Tax
Effect (1)
After-Tax
Diluted net income per share
Acquisition-related amortization expense (2)
Severance and other restructuring expenses
Trademark impairment
Adjusted diluted net income per share
Year Ended
December 31, 2024
Pre-Tax
Tax
Effect (1)
After-Tax
Diluted net income per share
Acquisition-related amortization expense (2)
Adjusted diluted net income per share
(1) The tax effect is calculated based on the statutory rate and the nature of the item, unless otherwise noted.
(2) Acquisition-related amortization expense, which is included within Selling, general and administrative expenses, consists of the amortization of intangible assets related to the Valspar acquisition. These intangible assets are primarily customer relationships and intellectual property and are being amortized over their remaining useful lives.
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Adjusted Segment Profit
Management believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of Segment profit excluding Valspar acquisition-related amortization expense and certain other adjustments. Valspar acquisition-related amortization expense is excluded from Segment profit due to its significance as a result of the purchase price assigned to finite-lived intangible assets at the date of acquisition and the related impact on underlying business performance and trends. While these intangible assets contribute to the Company’s revenue generation, the related revenue is not excluded. This Adjusted segment profit measurement is not in accordance with US GAAP. It should not be considered a substitute for Segment profit in accordance with US GAAP and may not be comparable to similarly titled measures reported by other companies. The following tables reconcile Segment profit computed in accordance with US GAAP to Adjusted segment profit.
Year Ended December 31, 2025
Paint
Stores
Group
Consumer Brands
Group
Performance Coatings
Group
Administrative
Total
Net sales
Income before income taxes
Percent to Net sales
Acquisition-related amortization expense (1)
Severance and other restructuring expenses
Trademark impairment
Adjusted segment profit
Percent to Net sales
Year Ended December 31, 2024
Paint
Stores
Group
Consumer Brands
Group
Performance Coatings
Group
Administrative
Total
Net sales
Income before income taxes
Percent to Net sales
Acquisition-related amortization expense (1)
Adjusted segment profit
Percent to Net sales
nm - not meaningful
(1) Acquisition-related amortization expense, which is included within Selling, general and administrative expenses, consists of the amortization of intangible assets related to the Valspar acquisition. These intangible assets are primarily customer relationships and intellectual property and are being amortized over their remaining useful lives.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect amounts reported in the accompanying consolidated 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 critical accounting policies and estimates described below. However, application of these critical accounting policies and estimates involves the exercise of judgment and use of assumptions as to future uncertainties and as a result, actual results could differ from these estimates.
All of the significant accounting policies that were followed in the preparation of the consolidated financial statements are disclosed in Note 1 to the consolidated financial statements in Item 8. Management believes that the following critical accounting policies and estimates have a significant impact on our consolidated financial statements.
Inventories
In accordance with the Inventory Topic of the ASC, inventories are stated at the lower of cost or market with cost determined principally on the last-in, first-out (LIFO) method based on inventory quantities and costs determined during the fourth quarter and market representing current replacement cost, which is the cost to purchase or reproduce the inventory. Market shall not exceed net realizable value and shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin. Inventory quantities are adjusted throughout the year as formal cycle counts are completed, or during the fourth quarter as a result of annual physical inventory counts. If inventories accounted for on the LIFO method are reduced on a year-over-year basis, then liquidation of certain quantities carried at costs prevailing in prior years occurs. Management records an estimate of the lower of cost or market whenever the utility of inventory is impaired by damage, deterioration, obsolescence, changes in price levels or other causes based on historical experience and current trends through reductions to inventory cost by recording a provision included in Cost of goods sold. If management estimates that the reasonable market value is below cost or determines that future demand was lower than current inventory levels, based on historical experience, current and projected market demand, current and projected volume trends and other relevant current and projected factors associated with the current economic conditions, a reduction in inventory cost to current market price is provided for in the reserve for obsolescence. See Note 4 to the consolidated financial statements in Item 8 for further information regarding the impact of the LIFO inventory valuation and the reserve for obsolescence.
Goodwill and Intangible Assets
In accordance with the Goodwill and Other Intangibles Topic of the ASC, management performs impairment tests of goodwill and indefinite-lived intangible assets on an annual basis, as well as whenever an event occurs or circumstances change that indicate impairment has occurred on a more likely than not basis. An optional qualitative assessment allows companies to forego the annual quantitative test if it is not more likely than not that impairment has occurred based on monitoring key Company financial performance metrics and macroeconomic conditions. The qualitative assessment is performed when deemed appropriate.
Management tests goodwill for impairment at the reporting unit level. Per the Segment Reporting Topic of the ASC, a reporting unit is an operating segment or one level below the operating segment (component level) as determined by the availability of discrete financial information that is regularly reviewed by operating segment management or an aggregate of component levels of an operating segment having similar economic characteristics. At the time of goodwill impairment testing (if performing a quantitative assessment), management determines fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for each reporting unit. If the calculated fair value is less than the current carrying value, the difference represents the amount of impairment attributable to the reporting unit. The use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing. The key assumptions used in the discounted cash flow valuation model for impairment testing include a discount rate, growth rates, cash flow projections and a terminal value rate. Discount rates are set by using the Weighted Average Cost of Capital (WACC) methodology. The WACC methodology considers market and industry data as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and Company-specific historical and projected data, develops growth rates, sales projections and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and a long-term growth rate. As an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow valuation model, the aggregate of all reporting units’ fair value is reconciled to the total market capitalization of the Company within a reasonable and supportable control premium.
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The Company had seven components, some of which are aggregated due to similar economic characteristics, to form three reporting units (also the reportable operating segments) with goodwill as of October 1, 2025, the date of the annual impairment test. The Company performed the optional qualitative impairment test as of October 1, 2025, and determined that there was no indication of impairment on a more likely than not basis in the Company’s reporting units.
Management tests indefinite-lived intangible assets for impairment at the asset level, as determined by appropriate asset valuations at acquisition. Management utilizes the royalty savings method to determine the estimated fair value for each indefinite-lived intangible asset or trademark. In this method, management estimates the royalty savings arising from the ownership of the intangible asset. The key assumptions used in estimating the royalty savings for impairment testing include a discount rate, a royalty rate, growth rates, sales projections, a terminal value rate and to a lesser extent, a tax rate. The discount rate used is similar to the rate developed by the WACC methodology considering any differences in Company-specific risk factors between reporting units and trademarks. The royalty rate is established by management and valuation experts and periodically substantiated by valuation experts. Management, considering industry and Company-specific historical and projected data, develops growth rates and sales projections for each significant trademark. Terminal value rate determination follows common methodology of capturing the present value of perpetual sales estimates beyond the last projected period assuming a constant WACC and a long-term growth rate. The royalty savings valuation methodology and calculations used in 2025 impairment testing are consistent with prior years. The Company performed the optional qualitative impairment test as of October 1, 2025, and determined that there was indication of impairment on a more likely than not basis in certain of the Company’s trademarks. The quantitative impairment tests performed as of October 1, 2025 resulted in $17.8 million of trademark impairment in the Performance Coatings Group primarily related to restructuring activities which impacted certain trademarks in the Asia, Latin America and Europe regions. No other impairments or risks for impairment were identified as a result of this review.
The discounted cash flow and royalty savings valuation methodologies require management to make certain assumptions based upon information available at the time the valuations are performed from the perspective of a market participant. See Note 6 to the consolidated financial statements in Item 8 for a discussion of goodwill and intangible assets and the impairment tests performed in accordance with the Goodwill and Other Intangibles Topic of the ASC.
Valuation of Long-Lived Assets
In accordance with the Property, Plant and Equipment Topic of the ASC, if events or changes in circumstances indicate that the carrying value of long-lived assets, including operating and finance lease right-of-use assets, may not be recoverable or the useful life has changed, impairment tests are performed or the useful life is adjusted. Undiscounted cash flows are used to calculate the recoverable value of long-lived assets to determine if such assets are recoverable. If the carrying value of the assets is deemed to not be recoverable, the impairment to be recognized is the amount by which the carrying value of the assets exceeds the estimated fair value of the assets as determined in accordance with the Fair Value Topic of the ASC. If the usefulness of an asset is determined to be impaired, an updated useful life is assessed based on the period of time for projected use of the asset. Fair value approaches and changes in useful life are based on certain assumptions and information available at the time the valuation or determination is performed. Management believes the assumptions used are reflective of what a market participant would have used in calculating fair value or useful life considering the current economic conditions. As of October 1, 2025, the Company performed an analysis and determined that there were no events or changes in circumstances to suggest the carrying value of each long-lived asset group is not recoverable and therefore, no further impairment tests were performed. See Note 5 to the consolidated financial statements in Item 8 for a discussion of the reductions in carrying value or useful life of long-lived assets in accordance with the Property, Plant and Equipment Topic of the ASC.
Defined Benefit Pension and Other Postretirement Benefit Plans
To determine the Company’s ultimate obligation under its defined benefit pension and other postretirement benefit plans, management estimates the future cost of benefits and attributes that cost to the time period during which each covered employee works. To determine the obligations of the benefit plans, management uses actuaries to calculate such amounts using key assumptions which include discount rates, inflation rates, long-term investment returns, mortality, employee turnover, rate of compensation increases and medical and prescription drug costs. Management reviews all of these assumptions on an ongoing basis to ensure that the most current information available is considered. An increase or decrease in the assumptions or economic events outside management’s control could have a direct impact on the Company’s results of operations or financial condition.
In accordance with the Retirement Benefits Topic of the ASC, the Company recognizes each plan’s funded status as an asset for overfunded plans and as a liability for unfunded or underfunded plans. Actuarial gains and losses and prior service costs and credits are recognized and recorded in Accumulated other comprehensive income (loss) (AOCI). The amounts recorded in AOCI will continue to be modified as actuarial assumptions and service costs change, and all such amounts will be amortized to Net income over a period of years through the net pension and net periodic benefit costs. Based on facts and circumstances, the
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expense amounts recorded in AOCI can also have accelerated amortization due to certain plan changes, including those that result in a curtailment. See Note 8 to the consolidated financial statements in Item 8 for further information concerning the Company’s defined benefit pension plans and other postretirement benefit plans.
Environmental Matters
The Company is involved with environmental investigation and remediation activities at some of its currently and formerly owned sites (including sites which were previously owned and/or operated by businesses acquired by the Company). The Company initially provides for estimated costs of environmental-related activities relating to its past operations and third-party sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs, which are mostly undiscounted, are determined based on currently available facts regarding each site. If the reasonably estimable costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided.
The Company routinely assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved. See Note 10 to the consolidated financial statements in Item 8 for further information concerning the accrual for extended environmental-related activities and a discussion concerning unaccrued future loss contingencies.
Litigation and Other Contingent Liabilities
In the course of its business, the Company is subject to a variety of actual and potential claims, lawsuits, and other proceedings, including, but not limited to, litigation relating to product liability and warranty, raw materials used in our products, personal injury, environmental (including alleged natural resource damages), intellectual property, commercial, contractual and antitrustclaims, that are inherently subject to many uncertainties regarding the possibility of a loss to the Company. In accordance with the Contingencies Topic of the ASC, management accrues for contingencies when it is both probable that one or more future events will occur confirming the fact of a loss and the amount of the loss can be reasonably estimated. However, because litigation is inherently subject to many uncertainties and the ultimate result of any present or future litigation is unpredictable, the Company’s ultimate liability may result in costs that are significantly higher than currently accrued, and the recording of the additional liability may result in a material impact on Net income for the annual or interim period during which such additional liability is accrued. In matters where no accrual is recorded because it is not probable that a liability will be incurred or the amount of any such loss cannot be reasonably estimated, any potential liability ultimately determined to be attributable to the Company arising out of any such claims, lawsuits or other proceedings, may result in a material adverse effect on the Company’s results of operations, liquidity or financial condition. See Note 11 to the consolidated financial statements in Item 8 for further information concerning litigation.
Income Taxes
The Company estimates income taxes for each jurisdiction in which it conducts operations. This involves estimating taxable earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets and possible exposures related to future tax audits. To the extent these estimates change, adjustments to deferred and accrued income taxes will be made in the period in which the changes occur.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. These assessments of uncertain tax positions contain judgments related to the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or further interpretations of, tax laws and regulations. Income tax expense is adjusted in our Statements of Consolidated Income in the period in which these events occur.
The Company also considers both positive and negative evidence when measuring the realizability of our deferred tax assets and the need for a valuation allowance when it is more likely than not that all or a portion of such assets will not be realized. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. The Company places significant weight on operating results during the most recent three-year period in its analysis. Future reversals of existing temporary differences are heavily weighted sources of objectively verifiable positive evidence. It is typical to only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. If necessary and available, tax planning strategies could be implemented to accelerate taxable amounts to utilize expiring
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carryforwards. A valuation allowance is not required to the extent that, in the Company’s judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that is more likely than not that deferred tax assets will be realized. See Note 20 to the consolidated financial statements in Item 8 for further information concerning income taxes.
