UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)



x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the Period Ended ~~September~~June 30, ~~2014~~2015



o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from to

Commission file number 1-04851

THE SHERWIN-WILLIAMS COMPANY

(Exact name of registrant as specified in its charter)



OHIO	34-0526850
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 West Prospect Avenue, Cleveland, Ohio	44115-1075
(Address of principal executive offices)	(Zip Code)

(216) 566-2000

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)



Large accelerated filer	x		Accelerated filer	o

Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $1.00 Par Value – ~~95,997,693~~93,210,645 shares as of ~~September~~June 30, ~~2014~~2015.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2019
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3227
Item 4. Controls and Procedures	3328

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	3429
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3530
Item 5. Other Information	3631
Item 6. Exhibits	3732

SIGNATURES	3833
INDEX TO EXHIBITS	3934
~~EX-10(a)~~
EX-31(a)
EX-31(b)
EX-32(a)
EX-32(b)
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABEL LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

Thousands of dollars, except per share data


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013			2015			2014			2015			2014
Net sales	$	3,150,570		$	2,847,417		$	8,560,121		$	7,728,474		$	3,132,139		$	3,042,995		$	5,582,423		$	5,409,551
Cost of goods sold	1,679,615			1,551,459			4,613,612			4,236,086			1,602,153			1,633,342			2,919,988			2,933,997
Gross profit	1,470,955			1,295,958			3,946,509			3,492,388			1,529,986			1,409,653			2,662,435			2,475,554
Percent to net sales	46.7		%	45.5		%	46.1		%	45.2		%	48.8		%	46.3		%	47.7		%	45.8		%
Selling, general and administrative expenses	984,366			889,690			2,837,637			2,505,493			999,224			969,183			1,928,421			1,853,271
Percent to net sales	31.2		%	31.2		%	33.1		%	32.4		%	31.9		%	31.8		%	34.5		%	34.3		%
Other general expense - net	11,873			834			12,071			5,266			9,971			770			8,298			198
Interest expense	16,025			15,394			48,793			45,774			12,885			16,374			25,236			32,768
Interest and net investment income	(764		)	(916		)	(2,110		)	(2,363		)	(553		)	(757		)	(975		)	(1,346		)
Other (income) expense - net	(14,593		)	3,494			(19,237		)	1,488
Other expense (income) - net													677			(5,147		)	432			(4,644		)
Income before income taxes	474,048			387,462			1,069,355			936,730			507,782			429,230			701,023			595,307
Income taxes	147,808			124,496			336,211			300,292			157,845			137,783			219,682			188,403
Net income	$	326,240		$	262,966		$	733,144		$	636,438		$	349,937		$	291,447		$	481,341		$	406,904
Net income per common share:
Basic	$	3.42		$	2.60		$	7.53		$	6.24		$	3.78		$	3.00		$	5.18		$	4.14
Diluted	$	3.35		$	2.55		$	7.39		$	6.11		$	3.70		$	2.94		$	5.08		$	4.06
Average shares outstanding - basic	94,800,191			100,460,185			96,744,423			101,362,328			92,260,367			96,599,869			92,500,213			97,716,539
Average shares and equivalents outstanding - diluted	96,714,043			102,622,514			98,670,999			103,551,542			94,124,695			98,541,909			94,427,191			99,688,557
Comprehensive income	$	269,970		$	286,887		$	682,402		$	617,758		$	361,580		$	305,178		$	436,637		$	412,432

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Thousands of dollars


	September 30, 2014			December 31, 2013			September 30, 2013			June 30, 2015			December 31, 2014			June 30, 2014
Assets
Current assets:
Cash and cash equivalents	$	261,346		$	744,889		$	1,035,713		$	75,068		$	40,732		$	267,198
Accounts receivable, less allowance	1,408,967			1,097,751			1,348,607			1,454,045			1,130,565			1,402,803
Inventories:
Finished goods	866,908			779,057			818,557			945,918			841,784			892,488
Work in process and raw materials	179,734			191,758			199,061			186,058			191,743			198,694
	1,046,642			970,815			1,017,618			1,131,976			1,033,527			1,091,182
Deferred income taxes	101,815			104,496			128,306			107,902			109,087			102,733
Other current assets	260,965			240,766			240,471			236,137			252,869			244,202
Total current assets	3,079,735			3,158,717			3,770,715			3,005,128			2,566,780			3,108,118
Goodwill	1,167,047			1,178,687			1,175,621			1,151,720			1,158,346			1,174,654
Intangible assets	295,251			313,299			307,043			273,882			289,127			306,985
Deferred pension assets	304,207			302,446			252,229			251,684			250,144			304,582
Other assets	457,480			407,975			405,052			446,931			420,625			440,365
Property, plant and equipment:
Land	129,309			125,131			101,731			122,503			125,691			131,234
Buildings	703,351			715,096			698,675			696,426			698,202			711,079
Machinery and equipment	1,916,091			1,838,590			1,872,562			1,980,796			1,952,037			1,916,103
Construction in progress	48,360			62,563			44,301			69,274			59,330			40,313
	2,797,111			2,741,380			2,717,269			2,868,999			2,835,260			2,798,729
Less allowances for depreciation	1,783,826			1,719,997			1,706,341			1,863,680			1,814,230			1,792,433
	1,013,285			1,021,383			1,010,928			1,005,319			1,021,030			1,006,296
Total Assets	$	6,317,005		$	6,382,507		$	6,921,588		$	6,134,664		$	5,706,052		$	6,341,000

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings	$	55,621		$	96,551		$	295,276		$	1,159,284		$	679,436		$	64,739
Accounts payable	1,266,167			998,484			1,121,001			1,253,894			1,042,182			1,244,574
Compensation and taxes withheld	344,815			337,637			305,525			267,352			360,458			264,652
Accrued taxes	192,464			79,504			187,662			193,834			86,744			190,368
Current portion of long-term debt	502,278			502,948			2,386			3,179			3,265			502,125
Other accruals	507,037			513,433			494,423			479,696			508,581			458,826
Total current liabilities	2,868,382			2,528,557			2,406,273			3,357,239			2,680,666			2,725,284
Long-term debt	1,122,699			1,122,373			1,631,988			1,122,756			1,122,715			1,122,420
Postretirement benefits other than pensions	273,706			268,874			320,219			279,650			277,892			272,095
Other long-term liabilities	700,282			688,168			693,457			617,677			628,309			696,242
Shareholders’ equity:
Common stock—$1.00 par value:
95,997,693, 100,129,380 and 101,333,029 shares outstanding at
September 30, 2014, December 31, 2013 and September 30, 2013, respectively	114,211			112,902			112,604
93,210,645, 94,704,173 and 97,787,954 shares outstanding
at June 30, 2015, December 31, 2014 and June 30, 2014, respectively										115,394			114,525			114,001
Preferred stock—convertible, no par value:
40,406 and 54,946 shares outstanding at
December 31, 2013 and September 30, 2013, respectively				40,406			54,946
5,722 shares outstanding at June 30, 2014										—			—			5,722
Unearned ESOP compensation				(40,406		)	(54,946		)	—			—			(5,722		)
Other capital	2,019,493			1,847,801			1,798,797			2,241,197			2,079,639			1,980,760
Retained earnings	2,345,016			1,774,050			1,708,553			2,780,764			2,424,674			2,072,118
Treasury stock, at cost	(2,754,998		)	(1,639,174		)	(1,361,234		)	(3,863,351		)	(3,150,410		)	(2,326,404		)
Cumulative other comprehensive loss	(371,786		)	(321,044		)	(389,069		)	(516,662		)	(471,958		)	(315,516		)
Total shareholders' equity	1,351,936			1,774,535			1,869,651			757,342			996,470			1,524,959
Total Liabilities and Shareholders’ Equity	$	6,317,005		$	6,382,507		$	6,921,588		$	6,134,664		$	5,706,052		$	6,341,000

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

Thousands of dollars


	Nine Months Ended						Six Months Ended
	September 30, 2014			September 30, 2013			June 30, 2015			June 30, 2014
OPERATING ACTIVITIES
Net income	$	733,144		$	636,438		$	481,341		$	406,904
Adjustments to reconcile net income to net operating cash:
Depreciation	125,761			117,693			84,581			83,513
Amortization of intangible assets	22,611			21,473			13,720			15,146
Stock-based compensation expense	43,813			35,948			32,578			29,563
Provisions for qualified exit costs	10,229			848			1,482			9,439
Provisions for environmental-related matters	11,034			2,353			11,560			(175		)
Defined benefit pension plans net cost	5,440			14,963			3,576			3,626
Net increase in postretirement liability	4,455			2,700			(111		)	2,970
Other	1,214			4,302			(2,373		)	3,100
Change in working capital accounts - net	(58,866		)	(52,193		)	(238,809		)	(202,068		)
Costs incurred for environmental-related matters	(7,018		)	(9,736		)	(5,573		)	(4,955		)
Costs incurred for qualified exit costs	(8,726		)	(6,451		)	(5,045		)	(3,877		)
Other	(1,781		)	9,573			(27,907		)	(11,606		)
Net operating cash	881,310			777,911			349,020			331,580

INVESTING ACTIVITIES
Capital expenditures	(135,903		)	(108,500		)	(87,542		)	(66,870		)
Acquisitions of businesses, net of cash acquired				(92,780		)
Proceeds from sale of assets	1,037			3,298			8,021			373
Increase in other investments	(30,677		)	(55,872		)	(1,486		)	(17,488		)
Net investing cash	(165,543		)	(253,854		)	(81,007		)	(83,985		)

FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings	(35,947		)	228,241
Net increase (decrease) in short-term borrowings							484,636			(31,925		)
Payments of long-term debt	(290		)	(1,140		)	—			(752		)
Payments of cash dividends	(162,178		)	(154,352		)	(125,251		)	(108,836		)
Proceeds from stock options exercised	73,192			48,973			57,420			59,442
Income tax effect of stock-based compensation exercises and vesting	56,197			41,219			72,529			45,253
Treasury stock purchased	(1,094,070		)	(492,022		)	(679,449		)	(665,492		)
Other	(23,397		)	(18,443		)	(34,081		)	(23,354		)
Net financing cash	(1,186,493		)	(347,524		)	(224,196		)	(725,664		)

Effect of exchange rate changes on cash	(12,817		)	(3,410		)	(9,481		)	378
Net (decrease) increase in cash and cash equivalents	(483,543		)	173,123
Net increase (decrease) in cash and cash equivalents							34,336			(477,691		)
Cash and cash equivalents at beginning of year	744,889			862,590			40,732			744,889
Cash and cash equivalents at end of period	$	261,346		$	1,035,713		$	75,068		$	267,198

Income taxes paid	$	173,430		$	161,416		$	45,319		$	33,994
Interest paid	44,055			39,639			25,234			33,893

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Periods ended ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014

NOTE 1—BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

There have been no significant changes in critical accounting policies since December 31, ~~2013~~2014. Accounting estimates were revised as necessary during the first ~~nine~~six months of ~~2014~~2015 based on new information and changes in facts and circumstances. Certain amounts in the ~~2013~~2014 condensed consolidated financial statements have been reclassified to conform to the ~~2014~~2015 presentation.

The Company primarily uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs are subject to the final year-end LIFO inventory valuation. In addition, interim inventory levels include management’s estimates of annual inventory losses due to shrinkage and other factors. The final year-end valuation of inventory is based on an annual physical inventory count performed during the fourth quarter. For further information on inventory valuations and other matters, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, ~~2013~~2014.

The consolidated results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2014~~2015.

NOTE 2—IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On April 1, 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which requires companies to present debt issuance costs associated with a debt liability as a deduction from the carrying amount of that debt liability on the balance sheet rather than being capitalized as an asset. The standard is effective for interim and annual periods beginning after December 15, 2015, and retrospective presentation is required. The Company will adopt ASU No. 2015-03 as required. The ASU will not have a material effect on the Company's results of operations, financial condition or liquidity.

Effective January 1, 2015, the Company adopted ASU No. 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects," which allows companies to elect to use the proportional amortization method to account for investments in qualified affordable housing projects if certain conditions are met. Under the proportional amortization method, which replaces the effective yield method, the cost of the investment is amortized in proportion to the tax credits and other tax benefits received to income tax expense. The adoption of ASU No. 2014-01 did not have a material effect on the Company's results of operations, financial condition or liquidity.

In May 2014, the Financial Accounting Standards Board (FASB) issued ~~Accounting Standards Update (ASU)~~ASU No. 2014-09, "Revenue Recognition - Revenue from Contracts with Customers," which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard is effective for interim and annual periods beginning after December 15, ~~2016, and either~~2017. Either full retrospective adoption or modified retrospective adoption is permitted. The Company is in the process of evaluating the impact of the standard.

NOTE 3—DIVIDENDS

Dividends paid on common stock during each of the first ~~three~~two quarters of ~~2014~~2015 and ~~2013~~2014 were $~~.55~~.67 per common share and $~~.50~~.55 per common share, respectively.

NOTE 4—CHANGES IN CUMULATIVE OTHER COMPREHENSIVE LOSS

The following tables summarize the changes in Cumulative other comprehensive loss for the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 and ~~2013:~~2014:

(Thousands of dollars)
Foreign Currency Translation Adjustments Net Actuarial (Losses) Gains and Prior Service Costs Recognized for Employee Benefit Plans Unrealized Net Gains (Losses) on Available-for-Sale Securities Total Cumulative Other Comprehensive (Loss) Income
Balance at December 31, 2013 $ (250,942 ) $ (70,611 ) $ 509
$ (321,044 )
Other comprehensive (loss) income before reclassifications⁽¹⁾
(52,206 ) (570 ) 616
(52,160 )
Amounts reclassified from other comprehensive income (loss)⁽²⁾

1,512
(94 ) 1,418
Net other comprehensive (loss) income (52,206 ) 942
522
(50,742 )
Balance at September 30, 2014 $ (303,148 ) $ (69,669 ) $ 1,031
$ (371,786 )



(Thousands of dollars)
	Foreign Currency Translation Adjustments			Net Actuarial (Losses) Gains and Prior Service Costs Recognized for Employee Benefit Plans			Unrealized Net Gains (Losses) on Available-for-Sale Securities			Total Cumulative Other Comprehensive Loss
Balance at December 31, 2014	$	(354,384	)	$	(118,167	)	$	593		$	(471,958	)
Other comprehensive loss before reclassifications⁽¹⁾	(45,554		)				52			(45,502		)
Amounts reclassified from other comprehensive (loss) income⁽²⁾				853			(55		)	798
Net other comprehensive (loss) income	(45,554		)	853			(3		)	(44,704		)
Balance at June 30, 2015	$	(399,938	)	$	(117,314	)	$	590		$	(516,662	)

⁽¹⁾Net of taxes of ~~$244 for net actuarial losses and prior service costs recognized for employee benefit plans and~~ $~~(387)~~(34) for unrealized net gains on available-for-sale securities.

⁽²⁾Net of taxes of $~~(556)~~(699) for net actuarial losses and prior service costs recognized for employee benefit plans and $5933 for realized gains on the sale of available-for-sale securities.

(Thousands of dollars)
Foreign Currency Translation Adjustments Net Actuarial (Losses) Gains and Prior Service Costs Recognized for Employee Benefit Plans Unrealized Net Gains (Losses) on Available-for-Sale Securities Total Cumulative Other Comprehensive (Loss) Income
Balance at December 31, 2012 $ (204,195 ) $ (166,595 ) $ 401
$ (370,389 )
Other comprehensive loss before reclassifications⁽³⁾
(27,935 ) (855 ) (276 ) (29,066 )
Amounts reclassified from other comprehensive income (loss)⁽⁴⁾
10,389
(3 ) 10,386
Net other comprehensive (loss) income (27,935 ) 9,534
(279 ) (18,680 )
Balance at September 30, 2013 $ (232,130 ) $ (157,061 ) $ 122
$ (389,069 )



(Thousands of dollars)
	Foreign Currency Translation Adjustments			Net Actuarial Losses (Gains) and Prior Service Costs Recognized for Employee Benefit Plans			Unrealized Net Gains (Losses) on Available-for-Sale Securities			Total Cumulative Other Comprehensive Loss
Balance at December 31, 2013	$	(250,942	)	$	(70,611	)	$	509		$	(321,044	)
Other comprehensive loss before reclassifications⁽³⁾	4,612			(570		)	516			4,558
Amounts reclassified from other comprehensive (loss) income⁽⁴⁾				1,015			(45		)	970
Net other comprehensive loss	4,612			445			471			5,528
Balance at June 30, 2014	$	(246,330	)	$	(70,166	)	$	980		$	(315,516	)

⁽³⁾Net of taxes of $~~534~~244 for net actuarial losses and prior service costs recognized for employee benefit plans and ~~$173~~$(324) for unrealized net ~~gains~~losses on available-for-sale securities.

⁽⁴⁾Net of taxes of ~~$(6,005)~~$(417) for net actuarial losses and prior service costs recognized for employee benefit plans and $2$28 for realized gains on the sale of available-for-sale securities.

NOTE 5—PRODUCT WARRANTIES

Changes in the Company’s accrual for product warranty claims during the first ~~nine~~six months of ~~2014~~2015 and ~~2013~~2014, including customer satisfaction settlements, were as follows:


(Thousands of dollars)
	2014			2013			2015			2014
Balance at January 1	$	26,755		$	22,710		$	27,723		$	26,755
Charges to expense	25,250			18,916			14,470			14,446
Settlements	(26,297		)	(18,936		)	(14,955		)	(16,351		)
Balance at September 30	$	25,708		$	22,690
Balance at June 30							$	27,238		$	24,850

For further details on the Company’s accrual for product warranty claims, see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

NOTE 6—EXIT OR DISPOSAL ACTIVITIES

Liabilities associated with exit or disposal activities are recognized as incurred in accordance with the Exit or Disposal Cost Obligations Topic of the ASC. Qualified exit costs primarily include post-closure rent expenses, incremental post-closure costs and costs of employee terminations. Adjustments may be made to liabilities accrued for qualified exit costs if information becomes available upon which more accurate amounts can be reasonably estimated. Concurrently, property, plant and equipment is tested for impairment in accordance with the Property, Plant and Equipment Topic of the ASC, and if impairment exists, the carrying value of the related assets is reduced to estimated fair value. Additional impairment may be recorded for subsequent revisions in estimated fair value.

In the ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015, ~~eight~~nineteen stores in the Paint Stores Group, ~~five~~two stores in the Global Finishes Group and one store in the Latin America Coatings ~~Group and four facilities in the Consumer~~ Group were closed due to lower demand or redundancy. ~~In addition,~~No provisions were incurred for the ~~Global Finishes Group exited its business in Venezuela.~~2015 store shutdowns due to the timing of lease cancellations and movement of employees to other locations.

The following table summarizes the activity and remaining liabilities associated with qualified exit costs at ~~September~~June 30, ~~2014~~2015:


(Thousands of dollars)
Exit Plan	Balance at December 31, 2013		Provisions in Cost of goods sold or SG&A		Actual expenditures charged to accrual			Balance at September 30, 2014		Balance at December 31, 2014		Provisions in Cost of goods sold or SG&A		Actual expenditures charged to accrual			Balance at June 30, 2015
Paint Stores Group stores shutdown in 2014:
Other qualified exit costs										$	280	$	142	$	(135	)	$	287
Consumer Group facilities shutdown in 2014:
Severance and related costs			$	2,135	$	(452	)	$	1,683	2,732		1,224		(2,981		)	975
Other qualified exit costs										781		6		(479		)	308
Global Finishes Group exit of business in 2014:
Severance and related costs			2,500		(2,396		)	104		104				(104		)
Other qualified exit costs			2,022		(920		)	1,102		1,080		110		(61		)	1,129
Paint Stores Group facility shutdown in 2013:
Severance and related costs	$	977	1,976		(1,838		)	1,115		654				(507		)	147
Other qualified exit costs			1,499		(196		)	1,303		1,205				(205		)	1,000
Consumer Group facilities shutdown in 2013:
Severance and related costs	598		97		(471		)	224
Global Finishes Group stores shutdown in 2013:
Severance and related costs	33				(3		)	30		28				(28		)
Other qualified exit costs	220				(58		)	162		138				(99		)	39
Latin America Coatings Group facilities shutdown in 2013:
Severance and related costs	123				(123		)
Paint Stores Group stores shutdown in 2012:
Other qualified exit costs	244				(37		)	207
Global Finishes Group facilities shutdown in 2012:
Severance and related costs	2,177				(1,863		)	314
Other qualified exit costs	83							83
Other qualified exit costs for facilities shutdown prior to 2012	1,365				(369		)	996
Other qualified exit costs for facilities shutdown prior to 2013										1,514				(446		)	1,068
Totals	$	5,820	$	10,229	$	(8,726	)	$	7,323	$	8,516	$	1,482	$	(5,045	)	$	4,953

For further details on the Company’s exit or disposal activities, see Note 5 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

NOTE 7—HEALTH CARE, PENSION AND OTHER BENEFITS

Shown below are the components of the Company’s net periodic benefit cost (credit) for domestic defined benefit pension plans, foreign defined benefit pension plans and postretirement benefits other than pensions:


(Thousands of dollars)	Domestic Defined Benefit Pension Plans						Foreign Defined Benefit Pension Plans						Postretirement Benefits Other than Pensions						Domestic Defined Benefit Pension Plans						Foreign Defined Benefit Pension Plans						Postretirement Benefits Other than Pensions
	2014			2013			2014			2013			2014			2013			2015			2014			2015			2014			2015			2014
Three Months Ended September 30:
Three Months Ended June 30:
Net periodic benefit cost (credit):
Service cost	$	5,636		$	5,396		$	1,547		$	1,160		$	609		$	765		$	5,755		$	5,637		$	1,325		$	1,548		$	621		$	608
Interest cost	6,526			4,267			2,695			1,902			3,195			3,046			6,237			6,525			2,271			2,694			2,796			3,196
Expected return on assets	(12,666		)	(10,342		)	(2,739		)	(1,783		)							(13,024		)	(12,665		)	(2,430		)	(2,740		)
Amortization of:
Prior service cost (credit)	459			456									(126		)	(82		)	328			459									(1,132		)	(125		)
Actuarial loss				3,489			356			443						983			843						484			355			253
Net periodic benefit cost (credit)	$	(45	)	$	3,266		$	1,859		$	1,722		$	3,678		$	4,712		$	139		$	(44	)	$	1,650		$	1,857		$	2,538		$	3,679

Nine Months Ended September 30:
Six Months Ended June 30:
Net periodic benefit cost (credit):
Service cost	$	16,910		$	16,189		$	4,642		$	3,480		$	1,826		$	2,296		$	11,509		$	11,274		$	2,650		$	3,095		$	1,242		$	1,217
Interest cost	19,577			12,801			8,083			5,707			9,586			9,137			12,474			13,051			4,542			5,388			5,591			6,391
Expected return on assets	(37,997		)	(31,026		)	(8,219		)	(5,347		)							(26,048		)	(25,331		)	(4,861		)	(5,480		)
Amortization of:
Prior service cost (credit)	1,377			1,367									(377		)	(246		)	655			918									(2,264		)	(251		)
Actuarial loss				10,465			1,067			1,327						2,950			1,686						969			711			506
Net periodic benefit cost (credit)	$	(133	)	$	9,796		$	5,573		$	5,167		$	11,035		$	14,137		$	276		$	(88	)	$	3,300		$	3,714		$	5,075		$	7,357

For further details on the Company’s health care, pension and other benefits, see Note 6 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

NOTE 8—OTHER LONG-TERM LIABILITIES

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 are determined based on currently available facts regarding each site. If the best estimate of 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. At ~~September~~June 30, ~~2014~~2015, the unaccrued maximum of the estimated range of possible outcomes is $~~87.2~~90.6 million higher than the minimum.

The Company continuously 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 these estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site.

Included in Other long-term liabilities at ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014 were accruals for extended environmental-related activities of $~~92.8~~121.2 million and $~~94.8~~82.7 million, respectively. Estimated costs of current investigation and remediation activities of $~~15.4~~16.9 million and $~~17.1~~15.4 million are included in Other accruals at ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014, respectively.

Two of the Company’s currently and formerly owned manufacturing sites account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at ~~September~~June 30, ~~2014~~2015. At ~~September~~June 30, ~~2014~~2015, $~~64.6~~87.2 million, or ~~59.7~~63.2 percent of the total accrual, related directly to these two sites. In the aggregate unaccrued maximum of $~~87.2~~90.6 million at ~~September~~June 30, ~~2014~~2015, $~~55.3~~59.0 million, or ~~63.5~~65.1 percent, related to the two manufacturing sites. While

~~manufacturing sites. While~~ environmental investigations and remedial actions are in different stages at these sites, additional investigations, remedial actions and monitoring will likely be required at each site.

Management cannot presently estimate the ultimate potential loss contingencies related to these sites or other less significant sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed. In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on net income for the annual or interim period during which the additional costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.

Management expects these contingent environmental-related liabilities to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indefinite amount of time to conduct investigation activities at any site, the indefinite amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indefinite amount of time necessary to conduct remediation activities.

For further details on the Company’s Other long-term liabilities, see Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

NOTE 9 – LITIGATION

In the course of its business, the Company is subject to a variety of claims and lawsuits, including, but not limited to, litigation relating to product liability and warranty, personal injury, environmental, intellectual property, commercial, contractual and antitrust claims that are inherently subject to many uncertainties regarding the possibility of a loss to the Company. 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 reduction of a liability. In accordance with the Contingencies Topic of the ASC, the Company accrues for these 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 that the Company’s 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 the Company’s results of operations, liquidity 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 that a liability has been incurred and the amount of any such loss cannot be reasonably estimated, any potential liability ultimately determined to be attributable to the Company may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued. In those cases where no accrual is recorded or exposure to loss exists in excess of the amount accrued, the Contingencies Topic of the ASC requires disclosure of the contingency when there is a reasonable possibility that a loss or additional loss may have been incurred.

Lead pigment and lead-based paint litigation. The Company’s past operations included the manufacture and sale of lead pigments and lead-based paints. The Company, along with other companies, is and has 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, negligent misrepresentations and omissions, fraudulent misrepresentations and omissions, concert of action, civil conspiracy, violations of unfair trade practice and consumer protection laws, enterprise liability, market share liability, public nuisance, unjust enrichment and other theories. The plaintiffs seek 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. The Company has 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 adequately warn of potential exposure to lead during surface preparation when using non-lead-based paint on surfaces previously painted with lead-based paint. The Company believes that the litigation brought to date is without merit or subject to meritorious defenses and is vigorously defending such litigation. The Company has not settled any material lead pigment or lead-based paint litigation. The Company expects that additional lead pigment and lead-based paint litigation may be filed against the Company in the future asserting similar or different legal theories and seeking similar or different types of damages and relief.

109

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 the Company and other manufacturers have been successful.

Due to the uncertainties involved, management is unable to predict the outcome of the lead pigment and lead-based paint litigation, the number or nature of possible future claims and proceedings or the effect that any legislation and/or administrative regulations may have on the litigation or against the Company. In addition, management cannot reasonably determine the scope or amount of the potential costs and liabilities related to such litigation, or resulting from any such legislation and regulations. The Company has not accrued any amounts for such litigation. With respect to such litigation, including the public nuisance litigation, the Company does not believe that it is probable that a loss has occurred, and it is not possible to estimate the range of potential losses as there is no prior history of a loss of this nature and 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. In the event any significant liability is determined to be attributable to the Company relating to such litigation, the recording of the liability may result in a material impact on net income for the annual or interim period during which such liability is accrued. Additionally, 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 the Company arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition. An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made due to the aforementioned uncertainties.

Public nuisance claim litigation. The Company and other companies are or were defendants in legal proceedings seeking recovery based on public nuisance liability theories, among other theories, brought by the State of Rhode Island, the City of St. Louis, Missouri, various cities and counties in the State of New Jersey, various cities in the State of Ohio and the State of Ohio, the City of Chicago, Illinois, the City of Milwaukee, Wisconsin and the County of Santa Clara, California and other public entities in the State of California. Except for the Santa Clara County, California proceeding, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.

The proceedings initiated by the State of Rhode Island included two jury trials. At the conclusion of the second trial, the jury returned a verdict finding that (i) the cumulative presence of lead pigment in paints and coatings on buildings in the State of Rhode Island constitutes a public nuisance, (ii) the Company, along with two other defendants, caused or substantially contributed to the creation of the public nuisance and (iii) the Company and two other defendants should be ordered to abate the public nuisance. The Company and two other defendants appealed and, on July 1, 2008, the Rhode Island Supreme Court, among other determinations, reversed the judgment of abatement with respect to the Company and two other defendants. The Rhode Island Supreme Court’s decision reversed the public nuisance liability judgment against the Company on the basis that the complaint failed to state a public nuisance claim as a matter of law.

The Santa Clara County, California proceeding was initiated in March 2000 in the Superior Court of the State of California, County of Santa Clara. In the original complaint, the plaintiffs asserted various claims including fraud and concealment, strict product liability/failure to warn, strict product liability/design defect, negligence, negligent breach of a special duty, public nuisance, private nuisance, and violations of California’s Business and Professions Code. A number of the asserted claims were resolved in favor of the defendants through pre-trial proceedings. The named plaintiffs in the Fourth Amended Complaint, filed on March 16, 2011, are the Counties of Santa Clara, Alameda, Los Angeles, Monterey, San Mateo, Solano and Ventura, the Cities of Oakland and San Diego and the City and County of San Francisco. The Fourth Amended Complaint asserted a sole claim for public nuisance, alleging that the presence of lead pigments for use in paint and coatings in, on and around residences in the plaintiffs’ jurisdictions constitutes a public nuisance. The plaintiffs sought the abatement of the alleged public nuisance that exists within the plaintiffs’ jurisdictions. A trial commenced on July 15, 2013 and ended on August 22, 2013. The court entered final judgment on January 27, 2014, finding in favor of the plaintiffs and against the Company and two other defendants (ConAgra Grocery Products Company and NL Industries, Inc.). The final judgment held the Company jointly and severally liable with the other two defendants to pay $1.15 billion into a fund to abate the public nuisance. The Company strongly disagrees with the judgment. On February 18, 2014, the Company filed a motion for new trial and a motion to vacate the judgment. The court denied these motions on March 24, 2014. On March 28, 2014, the Company filed a notice of appeal to the Sixth District Court of Appeal for the State of California. The filing of the notice of appeal effects an automatic stay of the judgment without the requirement to post a bond. The appeal is fully briefed, and the parties are waiting for the Sixth District Court of Appeal to set a date for oral argument. The date for oral argument is at the discretion of the Sixth District Court of Appeal. The Company expects the Sixth District Court of Appeal to issue its ruling within 90 days following oral argument. The Company believes that the judgment conflicts with established principles of law and is unsupported by the evidence. The Company has had a favorable history with respect to lead pigment and lead-based paint litigation, particularly other public nuisance litigation, and accordingly, the Company believes that it is not probable that a loss has occurred and it is not possible to estimate the range of potential loss with respect to the case.

Litigation seeking damages from alleged personal injury. The Company and other companies are defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries. These proceedings include claims by children allegedly injured from ingestion of lead pigment or lead-containing paint and claims for damages allegedly incurred

by the children’s parents or guardians. These proceedings generally seek compensatory and punitive damages, and seek other relief including medical monitoring costs. These proceedings include purported claims by individuals, groups of individuals and class actions.

The plaintiff in Thomas v. Lead Industries Association, et al., initiated an action in state court against the Company, other alleged former lead pigment manufacturers and the Lead Industries Association in September 1999. The claims against the Company and the other defendants included strict liability, negligence, negligent misrepresentation and omissions, fraudulent misrepresentation and omissions, concert of action, civil conspiracy and enterprise liability. Implicit within these claims is the theory of “risk contribution” liability (Wisconsin’s theory which is similar to market share liability, except that liability can be joint and several) due to the plaintiff’s inability to identify the manufacturer of any product that allegedly injured the plaintiff. The case ultimately proceeded to trial and, on November 5, 2007, the jury returned a defense verdict, finding that the plaintiff had ingested white lead carbonate, but was not brain damaged or injured as a result. The plaintiff appealed and, on December 16, 2010, the Wisconsin Court of Appeals affirmed the final judgment in favor of the Company and other defendants.

Wisconsin is the only jurisdiction to date to apply a theory of liability with respect to alleged personal injury (i.e., risk contribution/market share liability) that does not require the plaintiff to identify the manufacturer of the product that allegedly injured the plaintiff in the lead pigment and lead-based paint litigation. Although the risk contribution liability theory was applied during the Thomas trial, the constitutionality of this theory as applied to the lead pigment cases has not been judicially determined by the Wisconsin state courts. However, in an unrelated action filed in the United States District Court for the Eastern District of Wisconsin, Gibson v. American Cyanamid, et al., on November 15, 2010, the District Court held that Wisconsin’s risk contribution theory as applied in that case violated the defendants’ right to substantive due process and is unconstitutionally retroactive. The District Court's decision in Gibson v. American Cyanamid, et al., was appealed by the plaintiff to the United States Court of Appeals for the Seventh Circuit. On July 24, 2014, the United States Court of Appeals for the Seventh Circuit reversed the judgment and remanded the case back to the District Court for further proceedings. On January 16, 2015, the defendants filed a petition for certiorari in the United States Supreme Court seeking that Court's review of the Seventh Circuit's decision, and on May 18, 2015, the United States Supreme Court denied the defendants' petition. Also, in Yasmine Clark v. The Sherwin-Williams Company, et al., the Wisconsin Circuit Court, Milwaukee County, on March 25, 2014, held that the application to a pending case of Section 895.046 of the Wisconsin Statutes (which clarifies the application of the risk contribution theory) is unconstitutional as a violation of the plaintiff’s right to due process of law under the Wisconsin Constitution. On April 8, 2014, defendants filed a petition requesting the Wisconsin Court of Appeal to hear the issue as an interlocutory appeal. On August 21, 2014, the Wisconsin Court of Appeal granted defendants' petition.

Insurance coverage litigation. The Company and its liability insurers, including certain underwriters at Lloyd’s of London, initiated legal proceedings against each other to primarily determine, among other things, whether the costs and liabilities associated with the abatement of lead pigment are covered under certain insurance policies issued to the Company. The Company’s action, filed on March 3, 2006 in the Common Pleas Court, Cuyahoga County, Ohio, is currently stayed and inactive. The liability insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed. An ultimate loss in the insurance coverage litigation would mean that insurance proceeds could be unavailable under the policies at issue to mitigate any ultimate abatement related costs and liabilities. The Company has not recorded any assets related to these insurance policies or otherwise assumed that proceeds from these insurance policies would be received in estimating any contingent liability accrual. Therefore, an ultimate loss in the insurance coverage litigation without a determination of liability against the Company in the lead pigment or lead-based paint litigation will have no impact on the Company’s results of operation, liquidity or financial condition. As previously stated, however, the Company has not accrued any amounts for the lead pigment or lead-based paint litigation and any significant liability ultimately determined to be attributable to the Company relating to such litigation may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.

~~Government tax assessment settlements related to Brazilian operations.~~ ~~Charges totaling~~ ~~$28.7 million~~ ~~and~~ ~~$2.9 million~~ were recorded to Cost of goods sold and SG&A, respectively, during the second and third quarters of 2013. The charges were primarily related to import duty taxes paid to the Brazilian government related to the handling of import duties on products brought into the country for the years 2006 through 2012. The Company elected to pay the taxes through an existing voluntary amnesty program offered by the government to resolve these issues rather than contest them in court. The after-tax charges were ~~$21.9 million~~ ~~for the full year 2013. The Company’s import duty process in Brazil was changed to reach a final resolution of this matter with the Brazilian government.~~

Litigation related to Consorcio Comex. As previously disclosed, the Company entered into a definitive Stock Purchase Agreement (as subsequently amended and restated, the “Purchase Agreement”), with Avisep, S.A. de C.V. (“Avisep”) and Bevisep, S.A. de C.V. (“Bevisep”) to, among other things, acquire the Mexico business of Consorcio Comex, S.A. de C.V. (the "Acquisition"). Under the terms of the Purchase Agreement, either the Company or Avisep and Bevisep had the right to

terminate the Purchase Agreement in the event that the closing of the Acquisition did not occur on or prior to March 31, 2014 and such party was not in material breach of the Purchase Agreement.

On April 3, 2014, the Company sent notice to Avisep and Bevisep that the Company was terminating the Purchase Agreement. On April 3, 2014, the Company filed a complaint for declaratory judgment in the Supreme Court of the State of New York, New York County, requesting the court to declare that the Company had used commercially reasonable efforts as required under the Purchase Agreement and has not breached the Purchase Agreement. On August 7, 2014, the case was removed by Avisep and Bevisep to the United States District Court for the Southern District of New York. On April 11, 2014, Avisep and Bevisep initiated an arbitration proceeding against the Company in the International Court of Arbitration contending that the Company breached the Purchase Agreement by terminating the Purchase Agreement and not utilizing commercially reasonable efforts under the Purchase Agreement, which allegedly caused Avisep and Bevisep to incur damages. On June 1, 2015, Avisep and Bevisep filed their statement of claim in the arbitration alleging damages of approximately $85 million. The Company ~~believes~~continues to believe that the claims are without merit and ~~intends~~will continue to vigorously defend against such claims.

Titanium dioxide suppliers antitrust class action lawsuit. The Company is a member of the plaintiff class related to Titanium Dioxide Antitrust Litigation that was initiated in 2010 against certain suppliers alleging various theories of relief arising from purchases of titanium dioxide made from 2003 through 2012. The Court approved a settlement less attorney fees and expense, and the Company timely submitted claims to recover its pro-rata portion of the settlement. There was no specified deadline for the claims administrator to complete the review of all claims submitted. In October 2014, the Company was notified that it would receive a disbursement of settlement funds, and the Company received a pro-rata disbursement net of all fees of approximately $21.4 million. The Company recorded this settlement gain in the fourth quarter of 2014.

NOTE 10—OTHER

Other general expense - net

Included in Other general expense - net were the following:


(Thousands of dollars)	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014		2013		2015			2014		2015			2014
Provisions for environmental matters - net	$	11,209	$	584		$	11,034	$	2,353	$	10,510		$	259	$	11,560		$	(175	)
Loss on disposition of assets	664		495			1,037		2,818
Adjustments to prior provisions for qualified exit costs			(245		)			95
(Gain) loss on disposition of assets										(539		)	511		(3,262		)	373
Total	$	11,873	$	834		$	12,071	$	5,266	$	9,971		$	770	$	8,298		$	198

Provisions for environmental matters - net represent site-specific increases or decreases to environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Environmental-related accruals are not recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC. See Note 8 for further details on the Company’s environmental-related activities.

The (gain) loss on disposition of assets represents net realized (gains) losses associated with the disposal of fixed assets previously used in the conduct of the primary business of the Company.

The adjustments to prior provisions for qualified exit costs represent site specific increases or decreases to accrued qualified exit costs as adjustments for costs of employee terminations are required or as information becomes available upon which more accurate amounts can be reasonably estimated. See Note 6 for further details on the Company’s exit or disposal activities.

Other expense (income) ~~expense~~ - net

Included in Other expense (income) ~~expense~~ - net were the following:


(Thousands of dollars)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013			2015			2014			2015			2014
Dividend and royalty income	$	(1,287	)	$	(1,128	)	$	(3,533	)	$	(4,765	)	$	(1,039	)	$	(1,195	)	$	(2,120	)	$	(2,246	)
Net expense from financing activities	2,706			2,508			8,175			7,251			2,197			2,547			5,164			5,469
Foreign currency transaction related (gains) losses	(481		)	2,594			547			8,538
Foreign currency transaction related losses (gains)													1,722			(1,830		)	2,860			1,028
Other income	(18,657		)	(3,981		)	(31,936		)	(18,400		)	(4,843		)	(6,973		)	(10,340		)	(13,279		)
Other expense	3,126			3,501			7,510			8,864			2,640			2,304			4,868			4,384
Total	$	(14,593	)	$	3,494		$	(19,237	)	$	1,488		$	677		$	(5,147	)	$	432		$	(4,644	)

The net expense from financing activities includes the net expense relating to the change in the Company’s financing fees.

Foreign currency transaction related losses (gains) ~~losses~~ represent net realized losses (gains) ~~losses~~ on U.S. dollar-denominated liabilities of foreign subsidiaries and net realized and unrealized losses (gains) ~~losses~~ from foreign currency option and forward contracts. There were no foreign currency option and forward contracts outstanding at ~~September~~June 30, ~~2014~~2015 and ~~2013.~~2014.

Other income and Other expense included items of revenue, gains, expenses and losses that were unrelated to the primary business purpose of the Company. Other income for the three and nine months ended September 30, 2014 included a $6,336 gain on the early termination of a customer agreement recorded in the Global Finishes Group and a $6,198 realized gain resulting from final asset valuations related to the acquisition of the U.S./Canada business of Comex recorded in the Administrative segment. There were no other items within the other income or other expense caption that were individually significant.

NOTE 11—INCOME TAXES

The effective tax rate was ~~31.2~~31.1 percent and ~~31.4~~31.3 percent for the ~~third~~second quarter and first ~~nine~~six months of ~~2014~~2015, respectively, compared to 32.1 percent and 31.6 percent for the ~~third~~second quarter and first ~~nine months of~~ ~~2013. The major components of the Company's effective tax rate were consistent for the~~ ~~third quarter~~ ~~and first nine~~six months of 2014, respectively. The decrease in the effective tax rate for the second quarter of 2015 compared to ~~2013~~.2014 was primarily due to the recognition of previously unrecognized tax benefits.

At December 31, ~~2013~~,2014, the Company had ~~$31.0~~$31.6 million in unrecognized tax benefits, the recognition of which would have had an effect of ~~$27.8~~$28.2 million on the current provision for income taxes. Included in the balance of unrecognized tax benefits at December 31, ~~2013~~,2014 was ~~$5.6~~$4.4 million related to tax positions for which it was reasonably possible that the total amounts could significantly change during the next twelve months. During the first six months of 2015, the Company recognized tax benefits related to partnership investments and the completion of IRS audits of the Company's U.S. income tax returns for the 2010, 2011 and 2012 tax years. At June 30, 2015, the Company had $25.3 million in unrecognized tax benefits, the recognition of which would have an effect of $22.2 million on the current provision for income taxes. Included in the balance of unrecognized tax benefits at June 30, 2015 was $1.0 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount ~~represents a decrease in unrecognized tax benefits comprised of items related~~primarily relates to ~~federal audits of partnership investments, assessed state income tax audits, state settlement negotiations currently in progress and~~ expiring statutes in federal, foreign and state jurisdictions.

The Company classifies all income tax related interest and penalties as income tax expense. At December 31, ~~2013~~2014, the Company had accrued $~~6.2~~5.7 million for the potential payment of income tax interest and penalties.

There were no significant changes to ~~any of the~~these balances ~~of unrecognized tax benefits at~~ ~~December 31, 2013~~ during the first ~~nine~~six months of ~~2014~~2015.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. ~~The~~As of June 30, 2015, there are no examinations being conducted by the IRS, ~~commenced an~~however, the Company is still open for examination ~~of the Company's U.S. income tax returns~~ for the ~~2010, 2011~~2013 and ~~2012~~2014 tax ~~years in the fourth quarter of 2013. Fieldwork is expected to be completed during 2014.~~years.

As of ~~September~~June 30, ~~2014~~2015, the Company is subject to non-U.S. income tax examinations for the tax years of 2007 through ~~2013.~~2014. In addition, the Company is subject to state and local income tax examinations for the tax years ~~2003~~2004 through ~~2013.~~2014.

1413

NOTE 12—NET INCOME PER COMMON SHARE


(Thousands of dollars except per share data)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013			2015			2014			2015			2014
Basic
Average common shares outstanding	94,800,191			100,460,185			96,744,423			101,362,328			92,260,367			96,599,869			92,500,213			97,716,539

Net income	$	326,240		$	262,966		$	733,144		$	636,438		$	349,937		$	291,447		$	481,341		$	406,904
Less net income allocated to unvested restricted shares	(1,992		)	(1,700		)	(4,237		)	(3,978		)	(1,539		)	(1,722		)	(2,014		)	(2,245		)
Net income allocated to common shares	$	324,248		$	261,266		$	728,907		$	632,460		$	348,398		$	289,725		$	479,327		$	404,659
Basic net income per common share	$	3.42		$	2.60		$	7.53		$	6.24		$	3.78		$	3.00		$	5.18		$	4.14

Diluted
Average common shares outstanding	94,800,191			100,460,185			96,744,423			101,362,328			92,260,367			96,599,869			92,500,213			97,716,539
Stock options and other contingently issuable shares ⁽¹⁾	1,913,852			2,162,329			1,926,576			2,189,214			1,864,328			1,942,040			1,926,978			1,972,018
Average common shares outstanding assuming dilution	96,714,043			102,622,514			98,670,999			103,551,542			94,124,695			98,541,909			94,427,191			99,688,557

Net income	$	326,240		$	262,966		$	733,144		$	636,438		$	349,937		$	291,447		$	481,341		$	406,904
Less net income allocated to unvested restricted shares
assuming dilution	(1,955		)	(1,667		)	(4,160		)	(3,902		)	(1,510		)	(1,690		)	(1,977		)	(2,205		)
Net income allocated to common shares assuming
dilution	$	324,285		$	261,299		$	728,984		$	632,536		$	348,427		$	289,757		$	479,364		$	404,699
Diluted net income per common share	$	3.35		$	2.55		$	7.39		$	6.11		$	3.70		$	2.94		$	5.08		$	4.06

⁽¹⁾

Stock options and other contingently issuable shares excluded 21,243 shares due to their anti-dilutive effect for the three and six months ended June 30, 2015. Stock options and other contingently issuable shares excluded 2,932 shares for the six months ended June 30, 2014.There were no options excluded due to their anti-dilutive effect for the three months ended ~~September~~June 30, ~~2014. Stock options and other contingently issuable shares excluded 15,885 shares for the nine months ended September 30,~~ 2014. ~~There were 16,609 options excluded due to their anti-dilutive effect for the three and nine months ended~~ ~~September 30, 2013~~.

The Company has two classes of participating securities: common shares and restricted shares, representing 99% and 1% of outstanding shares, respectively. The restricted shares are shares of unvested restricted stock granted under the Company’s restricted stock award program. Time-based restricted shares receive non-forfeitable dividends, while dividends on performance-based restricted shares are deferred and payment is contingent upon the awards vesting. The time-based restricted shares are considered a participating security, therefore, basic and diluted earnings per share are calculated using the two-class method in accordance with the Earnings Per Share Topic of the ASC.

1514

NOTE 13—REPORTABLE SEGMENT INFORMATION

The Company reports segment information in the same way that management internally organizes its business for assessing performance and making decisions regarding allocation of resources in accordance with the Segment Disclosures Topic of the ASC. The Company has determined that it has four reportable operating segments: Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group (individually, a "Reportable Segment" and collectively, the “Reportable Segments”).


(Thousands of dollars)	Three Months Ended September 30, 2014															Three Months Ended June 30, 2015
	Paint Stores Group		Consumer Group			Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals			Paint Stores Group		Consumer Group		Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals
Net external sales	$	2,027,485	$	385,238		$	536,261	$	200,367	$	1,219		$	3,150,570		$	1,984,985	$	490,042	$	505,767	$	150,068	$	1,277		$	3,132,139
Intersegment transfers			802,249			2,097		10,297		(814,643		)						768,663		1,188		10,484		(780,335		)
Total net sales and intersegment transfers	$	2,027,485	$	1,187,487		$	538,358	$	210,664	$	(813,424	)	$	3,150,570		$	1,984,985	$	1,258,705	$	506,955	$	160,552	$	(779,058	)	$	3,132,139

Segment profit	$	431,840	$	78,956	⁽¹⁾	$	60,751	$	11,792				$	583,339		$	433,381	$	114,247	$	57,268	$	4,031				$	608,927
Interest expense										$	(16,025	)	(16,025		)									$	(12,885	)	(12,885		)
Administrative expenses and other										(93,266		)	(93,266		)									(88,260		)	(88,260		)
Income before income taxes	$	431,840	$	78,956		$	60,751	$	11,792	$	(109,291	)	$	474,048		$	433,381	$	114,247	$	57,268	$	4,031	$	(101,145	)	$	507,782

Three Months Ended September 30, 2013

Paint Stores
Group

Consumer
Group

Global
Finishes
Group

Latin America
Coatings
Group
Administrative
Consolidated
Totals
Net external sales $ 1,763,404
$ 366,845
$ 507,284
$ 208,645
$ 1,239
$ 2,847,417
Intersegment transfers 689,319
2,437
9,170
(700,926 )
Total net sales and intersegment transfers $ 1,763,404
$ 1,056,164
$ 509,721
$ 217,815
$ (699,687 ) $ 2,847,417

Segment profit $ 359,352
$ 73,065
⁽¹⁾
$ 44,536
$ (983 ) $ 475,970
Interest expense $ (15,394 ) (15,394 )
Administrative expenses and other (73,114 ) (73,114 )
Income before income taxes $ 359,352
$ 73,065
$ 44,536
$ (983 ) $ (88,508 ) $ 387,462

⁽¹⁾ ~~Segment profit includes~~ ~~$9,064~~ ~~and~~ ~~$8,340~~ ~~of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the~~ ~~third quarter~~ of ~~2014~~ ~~and~~ ~~2013, respectively.~~



	Three Months Ended June 30, 2014
	Paint Stores Group		Consumer Group		Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals
Net external sales	$	1,882,592	$	433,356	$	544,597	$	181,221	$	1,229		$	3,042,995
Intersegment transfers			766,080		2,202		9,927		(778,209		)
Total net sales and intersegment transfers	$	1,882,592	$	1,199,436	$	546,799	$	191,148	$	(776,980	)	$	3,042,995

Segment profit	$	375,857	$	92,488	$	54,865	$	5,660				$	528,870
Interest expense									$	(16,374	)	(16,374		)
Administrative expenses and other									(83,266		)	(83,266		)
Income before income taxes	$	375,857	$	92,488	$	54,865	$	5,660	$	(99,640	)	$	429,230

1615


	Nine Months Ended September 30, 2014															Six Months Ended June 30, 2015
	Paint Stores Group		Consumer Group			Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals			Paint Stores Group		Consumer Group		Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals
Net external sales	$	5,270,080	$	1,143,893		$	1,578,497	$	563,975	$	3,676		$	8,560,121		$	3,446,490	$	841,732	$	975,323	$	316,299	$	2,579		$	5,582,423
Intersegment transfers			2,114,891			5,712		30,346		(2,150,949		)						1,376,201		2,962		20,553		(1,399,716		)
Total net sales and intersegment transfers	$	5,270,080	$	3,258,784		$	1,584,209	$	594,321	$	(2,147,273	)	$	8,560,121		$	3,446,490	$	2,217,933	$	978,285	$	336,852	$	(1,397,137	)	$	5,582,423

Segment profit	$	953,962	$	222,532	⁽²⁾	$	162,093	$	27,439				$	1,366,026		$	609,957	$	169,653	$	96,168	$	13,531				$	889,309
Interest expense										$	(48,793	)	(48,793		)									$	(25,236	)	(25,236		)
Administrative expenses and other										(247,878		)	(247,878		)									(163,050		)	(163,050		)
Income before income taxes	$	953,962	$	222,532		$	162,093	$	27,439	$	(296,671	)	$	1,069,355		$	609,957	$	169,653	$	96,168	$	13,531	$	(188,286	)	$	701,023

Nine Months Ended September 30, 2013

Paint Stores
Group

Consumer
Group

Global
Finishes
Group

Latin America
Coatings
Group
Administrative
Consolidated
Totals
Net external sales $ 4,537,849
$ 1,069,085
$ 1,507,626
$ 610,271
$ 3,643
$ 7,728,474
Intersegment transfers 1,855,226
7,469
29,081
(1,891,776 )
Total net sales and intersegment transfers $ 4,537,849
$ 2,924,311
$ 1,515,095
$ 639,352
$ (1,888,133 ) $ 7,728,474

Segment profit $ 822,037
$ 206,079
⁽²⁾
$ 132,929
$ 20,712
$ 1,181,757
Interest expense $ (45,774 ) (45,774 )
Administrative expenses and other (199,253 ) (199,253 )
Income before income taxes $ 822,037
$ 206,079
$ 132,929
$ 20,712
$ (245,027 ) $ 936,730

⁽²⁾ ~~Segment profit includes $24,389 and $22,618 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the first nine months of~~ ~~2014~~ ~~and~~ ~~2013, respectively.~~



	Six Months Ended June 30, 2014
	Paint Stores Group		Consumer Group		Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals
Net external sales	$	3,242,595	$	758,655	$	1,042,236	$	363,609	$	2,456		$	5,409,551
Intersegment transfers			1,312,642		3,615		20,049		(1,336,306		)
Total net sales and intersegment transfers	$	3,242,595	$	2,071,297	$	1,045,851	$	383,658	$	(1,333,850	)	$	5,409,551

Segment profit	$	522,122	$	143,576	$	101,342	$	15,647				$	782,687
Interest expense									$	(32,768	)	(32,768		)
Administrative expenses and other									(154,612		)	(154,612		)
Income before income taxes	$	522,122	$	143,576	$	101,342	$	15,647	$	(187,380	)	$	595,307

In the reportable segment financial information, Segment profit was total net sales and intersegment transfers less operating costs and expenses. Domestic intersegment transfers were accounted for at the approximate fully absorbed manufactured cost, based on normal capacity volumes, plus customary distribution costs. International intersegment transfers were accounted for at values comparable to normal unaffiliated customer sales. The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site. Also included in the Administrative segment was interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which were not directly associated with the Reportable Segments. The Administrative segment did not include any significant foreign operations. Also included in the Administrative segment was a real estate management unit that is responsible for the ownership, management and leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities. Sales of this segment represented external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its primary businesses. Gains and losses from the sale of property were not a significant operating factor in determining the performance of the Administrative segment.

Net external sales and segment profit of all consolidated foreign subsidiaries were $~~571.9~~476.8 million and $~~33.3~~22.4 million, respectively, for the ~~third~~second quarter of ~~2014~~2015, and $~~523.7~~576.7 million and $~~18.2~~39.9 million, respectively, for the ~~third~~second quarter of ~~2013~~2014. Net external sales and segment profit of these subsidiaries were ~~$1.678 billion~~$933.3 million and ~~$88.0~~$40.7 million, respectively, for the first ~~nine~~six months of ~~2014~~2015, and ~~$1.572~~$1.106 billion and ~~$50.2~~$72.6 million, respectively, for the first ~~nine~~six months of ~~2013~~2014. Long-lived assets of these subsidiaries totaled $~~577.7~~521.0 million and $~~674.5~~614.6 million at ~~September~~June 30, ~~2014~~2015 and ~~September~~June 30, ~~2013~~2014, respectively. Domestic operations accounted for the remaining net external sales, segment profits and long-lived assets. No single geographic area outside the United States was significant relative to consolidated net external sales, income before taxes, or consolidated long-lived assets.

Export sales and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all periods presented.

1716

NOTE 14—~~ACQUISITIONS~~

On September 16, 2013, the Company entered into a definitive Stock Purchase Agreement and completed the acquisition of the U.S./Canada business of Consorcio Comex, S.A. de C.V. (Comex). The U.S./Canada business of Comex focuses on the manufacture and sale of paint and paint related products through retail service centers under various proprietary brands. The acquisition strengthens the ability of the Paint Stores Group and Consumer Group to serve customers in key geographic markets. The Company engaged an independent valuation firm to value the assets of the acquired business, and the appropriate adjustments have been recorded. The acquisition resulted in the recognition of intangible assets of $4,696. Final asset valuation adjustments resulted in a realized gain of $6,198 which was included in Other (income) expense for the three and nine months ended September 30, 2014. The acquisition of the U.S./Canada business of Comex has been accounted for as a purchase and the results of operations have been included in the consolidated financial statements since the date of acquisition.

The following unaudited pro-forma summary presents consolidated financial information as if the U.S./Canada business of Comex had been acquired as of the beginning of each period presented. The pro-forma consolidated financial information does not necessarily reflect the actual results that would have occurred had the acquisition taken place on January 1, 2013 or of future results of operations of this acquisition under ownership and operation of the Company.

(Thousands of dollars except per share data) Three Months Ended
September 30, Nine Months Ended
September 30,
2014 2013 2014 2013
Net sales $ 3,150,571
$ 2,959,162
$ 8,560,121
$ 8,083,123
Net income 326,240
257,149
733,144
609,651
Net income per common share:
Basic $ 3.42
$ 2.53
$ 7.53
$ 5.96
Diluted $ 3.35
$ 2.47
$ 7.39
$ 5.83

~~NOTE 15~~—FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosures Topic of the ASC applies to the Company’s financial and non-financial assets and liabilities. The guidance applies when other standards require or permit the fair value measurement of assets and liabilities. It does not expand the use of fair value measurements. The Company did not have any fair value measurements for its non-financial assets and liabilities during the ~~third~~second quarter. The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis, categorized using the fair value hierarchy:


(Thousands of dollars)
			Quoted Prices							Quoted Prices
			in Active				Significant			in Active				Significant
	Fair Value at		Markets for		Significant Other		Unobservable	Fair Value at		Markets for		Significant Other		Unobservable
	September 30,		Identical Assets		Observable Inputs		Inputs	June 30,		Identical Assets		Observable Inputs		Inputs
	2014		(Level 1)		(Level 2)		(Level 3)	2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Deferred compensation plan asset ⁽¹⁾	$	23,726	$	900	$	22,826		$	24,749	$	1,733	$	23,016
Liabilities:
Deferred compensation plan liability ⁽²⁾	$	31,263	$	31,263				$	34,074	$	34,074

⁽¹⁾

The deferred compensation plan asset consists of the investment funds maintained for the future payments under the Company’s executive deferred compensation plan, which is structured as a rabbi trust. The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC. The level 1 investments are valued using quoted market prices multiplied by the number of shares. The level 2 investments are valued based on vendor or broker models. The cost basis of the investment funds is $~~22,848~~24,590.


⁽²⁾	The deferred compensation plan liability is the Company’s liability under its executive deferred compensation plan. The liability represents the fair value of the participant shadow accounts, and the value is based on quoted market prices.

NOTE 1615—DEBT

The table below summarizes the carrying amount and fair value of the Company’s publicly traded debt and non-publicly traded debt in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. The fair values of the Company’s publicly traded debt are based on quoted market prices. The fair values of the Company’s non-traded debt are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The Company’s publicly traded debt and non-traded debt are classified as level 1 and level 2, respectively, in the fair value hierarchy.


(Thousands of dollars)	September 30, 2014				September 30, 2013				June 30, 2015				June 30, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Publicly traded debt	$	1,620,856	$	1,651,232	$	1,630,269	$	1,631,266	$	1,121,041	$	1,129,742	$	1,620,784	$	1,654,524
Non-traded debt	4,121		3,914		4,105		3,903		4,894		4,659		3,761		3,558

On July 16, 2015, the Company and three of its wholly-owned subsidiaries, Sherwin-Williams Canada, Inc. (SW Canada), Sherwin-Williams Luxembourg S.à r.l. (SW Lux) and Sherwin-Williams UK Holding Limited, entered into a new five-year $1.35 billion credit agreement. The credit agreement will be used for general corporate purposes, including the financing of working capital requirements. The credit agreement replaces the existing credit agreements for each of the Company, SW Canada and SW Lux, dated July 8, 2011, June 29, 2012 and September 19, 2012, as amended, respectively. The credit agreement allows the Company to extend the maturity of the facility with two one-year extension options and to increase the aggregate amount of the facility to $1.85 billion, both of which are subject to the discretion of each lender.

NOTE 1716—NON-TRADED INVESTMENTS

The Company has invested in the U.S. affordable housing and historic renovation real estate markets. These non-traded investments have been identified as variable interest entities. However, because the Company does not have the power to direct the day-to-day operations of the investments and the risk of loss is limited to the amount of contributed capital, the Company is not considered the primary beneficiary. In accordance with the Consolidation Topic of the ASC, the investments are not consolidated. ~~The~~ For affordable housing investments entered into prior to the January 1, 2015 adoption of ASU No. 2014-01, the

Company uses the effective yield method to determine the carrying value of the investments. Under the effective yield method, the initial cost of the investments is amortized to income tax expense over the period that the tax credits are recognized. For affordable housing investments entered into on or after the January 1, 2015 adoption of ASU No. 2014-01, the Company uses the proportional amortization method. Under the proportional amortization method, the initial cost of the investments is amortized to income tax expense in proportion to the tax credits and other tax benefits received. The carrying amount of the affordable housing and historic renovation investments, included in Other assets, was $~~272.3~~227.0 million and $~~262.4~~245.3 million at ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014, respectively. The liability for estimated future capital contributions to the investments was $~~231.9~~191.5 million and $~~223.0~~217.7 million at ~~September~~June 30, ~~2014~~2015 and ~~2013~~2014, respectively.

1918

Item 2. MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

SUMMARY

The Sherwin-Williams Company, founded in 1866, and its consolidated wholly owned subsidiaries (collectively, the “Company”) are engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean region, Europe and Asia. The Company is structured into four reportable segments—Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group (collectively, the “Reportable Segments”)—and an Administrative segment in the same way it is internally organized for assessing performance and making decisions regarding allocation of resources. See pages 6 through 15 and Note 18, on pages 7371 through ~~75,~~73, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 for more information concerning the Reportable Segments.

The Company’s financial condition, liquidity and cash flow continued to be strong through the first ~~nine~~six months of ~~2014~~2015 primarily due to improved operating results in our Paint Stores ~~Consumer~~ and ~~Global Finishes~~Consumer Groups. Net working capital decreased $~~1,153.1~~734.9 million at ~~September~~June 30, ~~2014~~2015 compared to the end of the ~~third~~second quarter of ~~2013~~2014 due to a significant increase in current liabilities and a ~~significant~~ decrease in current assets. Short-term borrowings increased $1.095 billion, Current portion of long-term debt ~~increased $499.9~~decreased $498.9 million resulting from the 3.125% Senior Notes becoming due in 2014, ~~while~~and cash and cash equivalents decreased ~~$774.4 million resulting primarily from treasury stock purchases.~~$192.1 million. The Company has been able to arrange sufficient short-term borrowing capacity at reasonable rates, and the Company has sufficient total available borrowing capacity to fund its current operating needs. Net operating cash improved ~~$103.4~~$17.4 million in the first ~~nine~~six months of ~~2014~~2015 to a cash source of ~~$881.3~~$349.0 million from a cash source of ~~$777.9~~$331.6 million in ~~2013~~2014 primarily due to improved operating results in the core ~~business partially offset by the impact of operating loss from acquisitions.~~business.

Consolidated net sales increased ~~10.6~~2.9 percent in the ~~third~~second quarter of 2015 to $3.132 billion from $3.043 billion in the second quarter of 2014 to ~~$3.151 billion~~ ~~from~~ ~~$2.847 billion~~ ~~in the~~ ~~third quarter~~ of ~~2013~~and increased ~~10.8~~3.2 percent in the first ~~nine~~six months of ~~2014~~2015 to ~~$8.560~~$5.582 billion from ~~$7.728~~$5.410 billion in the first ~~nine~~six months of ~~2013~~2014 due primarily to higher paint sales volume in our Paint Stores ~~Group~~ and ~~acquisitions.~~Consumer Groups. Consolidated gross profit as a percent of consolidated net sales increased in the ~~third~~second quarter to ~~46.7~~48.8 percent from ~~45.5~~46.3 percent in ~~2013~~2014 and increased to ~~46.1~~47.7 percent from ~~45.2~~45.8 percent in the first ~~nine~~six months due primarily to increased paint volume and improved operating ~~efficiency and selling price increases.~~efficiency. Selling, general and administrative expenses (SG&A) ~~was flat~~increased slightly as a percent of consolidated net sales atto ~~31.2~~31.9 percent ~~compared to~~from 31.8 percent in the ~~third~~second quarter of ~~2013~~2014 and increased slightly to ~~33.1~~34.5 percent from ~~32.4~~34.3 percent in the first ~~nine~~six months primarily due to timing of net new store openings and ~~acquisitions.~~expenses related to the launch of a new paint program at a national retailer. Interest expense ~~increased~~decreased $~~0.6~~3.5 million in the ~~third~~second quarter and ~~increased $3.0~~decreased $7.5 million in the first ~~nine~~six months of ~~2014~~2015. due to lower short-term borrowing rates versus long-term borrowing rates. The effective income tax rate for the ~~third~~second quarter of ~~2014~~2015 was ~~31.2~~31.1 percent compared to 32.1 percent in ~~2013~~2014 and the rate for the first ~~nine~~six months of ~~2014~~2015 was ~~31.4~~31.3 percent compared to ~~32.1~~31.6 percent in ~~2013~~.2014. Diluted net income per common share increased to $~~3.35~~3.70 per share for the ~~third~~second quarter of ~~2014~~2015 from $~~2.55~~2.94 per share a year ago and increased to ~~$7.39~~$5.08 per share from ~~$6.11~~$4.06 per share in the first ~~nine~~six months. Charges in the third quarter and first nine months of 2013 resulting from government tax assessments related to our Brazilian operations of $.13 and $.21 per share, respectively, adversely impacted diluted net income per common share for those time periods.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation and fair presentation of the consolidated unaudited interim financial statements and accompanying notes included in this report are the responsibility of management. The financial statements and footnotes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and contain certain amounts that were based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances. Management considered the impact of the uncertain economic environment and utilized certain outside sources of economic information when developing the basis for their estimates and assumptions. The impact of the global economic conditions on the estimates and assumptions used by management was believed to be reasonable under the circumstances. Management used assumptions based on historical results, considering the current economic trends, and other assumptions to form the basis for determining appropriate carrying values of assets and liabilities that were not readily available from other sources. Actual results could differ from those estimates. Also, materially different amounts may result under materially different conditions, materially different economic trends or from using materially different assumptions. However, management believes that any materially different amounts resulting from materially different conditions or material changes in facts or circumstances are unlikely to significantly impact the current valuation of assets and liabilities that were not readily available from other sources.

A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Management’s Discussion and

Analysis of Financial Condition and Results of Operations and in Note 1, on pages 4844 through ~~51,~~47, in the Company’s Annual

Report on Form 10-K for the year ended December 31, ~~2013~~2014. There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended December 31, ~~2013~~2014.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

Overview

The Company’s financial condition, liquidity and cash flow ~~continued to be~~remained strong through the first ~~nine~~six months of ~~2014~~2015 primarily due to improved operating results in our Paint Stores ~~Consumer~~ and ~~Global Finishes~~Consumer Groups. Net working capital decreased $~~1,153.1~~734.9 million at ~~September~~June 30, ~~2014~~2015 compared to the end of the ~~third~~second quarter of ~~2013~~2014 due to a significant increase in current liabilities and a significant decrease in current assets. Cash and cash equivalents decreased $~~774.4~~192.1 million, primarily due to treasury stock purchases, partially offset by an increase in accounts receivable of $~~60.4~~51.2 million and an increase in inventories of $~~29.0~~40.8 million. Short-term borrowings increased$1.095 billion, primarily due to the retirement of long-term debt and increased cash needed to fund working capital requirements for the first half of the year. Accounts payable increased $~~145.2~~9.3 million, and all other current liabilities increased $27.0 million from June 30, 2014 while current portion of long-term debt ~~increased $499.9~~decreased $498.9 million resulting from the 3.125% Senior Notes becoming due in ~~2014, and all other current liabilities increased $56.7 million while short-term borrowings~~ ~~decreased$239.7 million~~ ~~from~~ ~~September 30, 2013. Net working capital decreases were partially offset by net increases from acquisitions.~~2014. The Company continues to maintain sufficient short-term borrowing capacity at reasonable rates, and the Company has sufficient cash on hand and total available borrowing capacity to fund its current operating needs. In the first ~~nine~~six months of ~~2014~~2015, accounts receivable increased $~~311.2~~323.5 million when normal seasonal trends typically require significant growth in this category and inventories increased $~~75.8~~98.4 million. Accounts payable increased $~~267.7~~211.7 million, primarily due to the seasonal increase in need for working capital, and all other current liabilities ~~increased~~decreased $~~113.1~~15.0 million, primarily due to timing of ~~accrued taxes,~~tax payments, while short-term borrowings ~~decreased~~increased $~~40.9~~479.8 million., primarily due to treasury stock purchases. The Company’s current ratio was ~~1.07~~0.90 at ~~September~~June 30, ~~2014~~2015 compared to ~~1.57~~1.14 at ~~September~~June 30, ~~2013~~2014 and ~~1.25~~0.96 at December 31, ~~2013~~2014. Total debt at ~~September~~June 30, ~~2014~~2015 ~~decreased~~increased $~~249.1~~595.9 million to $~~1.681~~2.285 billion from $~~1.930~~1.689 billion at ~~September~~June 30, ~~2013~~2014 and increased as a percentage of total capitalization to ~~55.4~~75.1 percent from ~~50.8~~52.6 percent at the end of the ~~third~~second quarter last year. Total debt ~~decreased~~increased $~~41.3~~479.8 million from December 31, ~~2013~~2014 and increased as a percentage of total capitalization from ~~49.2~~64.4 percent to ~~55.4~~75.1 percent. At ~~September~~June 30, ~~2014~~2015, the Company had remaining borrowing ability of $~~2.276 billion~~1,128.4 million. Net operating cash improved ~~$103.4~~$17.4 million in the first ~~nine~~six months of ~~2014~~2015 to a cash source of ~~$881.3~~$349.0 million from a cash source of ~~$777.9~~$331.6 million in ~~2013~~2014. In the twelve month period from ~~October~~July 1, ~~2013~~2014 through ~~September~~June 30, ~~2014~~2015, the Company generated net operating cash of $~~1.187~~1.099 billion, used $~~250.0~~307.1 million in investing activities, and used $~~1.692 billion~~965.6 million in financing activities. In that same period, the Company invested $~~194.1~~221.2 million in capital additions and improvements, ~~made payments on~~increased total debt ofby $~~242.2~~609.5 million, purchased $~~1.371~~1.503 billion in treasury stock and paid $~~212.8~~231.7 million in cash dividends to its shareholders of common stock.

Net Working Capital, Debt and Other Long-Term Assets and Liabilities

Cash and cash equivalents ~~decreased $483.5~~increased $34.3 million during the first ~~nine~~six months of ~~2014~~2015. Cash and cash equivalents on hand and increased short-term borrowings funded cash requirements for increased sales and normal seasonal increases in working capital, capital expenditures of ~~$135.9~~$87.5 million, payments of cash dividends of ~~$162.2~~$125.3 million, and treasury stock purchases of ~~$1,094.1~~$679.4 million. At ~~September~~June 30, ~~2014~~2015, the Company’s current ratio was ~~1.07~~0.90 compared to ~~1.25~~0.96 at December 31, ~~2013~~2014 and ~~1.57~~1.14 a year ago. The decrease resulted primarily from the increase in ~~current portion of long-term debt and the decrease in cash and cash equivalents.~~short-term debt.

Goodwill and intangible assets decreased $~~29.7~~21.9 million from December 31, ~~2013~~2014 and decreased $~~20.4~~56.0 million from ~~September~~June 30, ~~2013~~2014. The net decrease during the first ~~nine~~six months of ~~2014~~2015 was due ~~primarily~~ to amortization of ~~$22.6~~$13.7 million and foreign currency translation of ~~$14.8~~$9.9 million partially offset by capitalization of software of ~~$9.6~~$1.8 million. The net decrease over the twelve month period from ~~September~~June 30, ~~2013~~2014 resulted from amortization of $~~30.2~~28.4 million and foreign currency translation of ~~$23.1~~$33.6 million partially offset by capitalization of software of $~~17.4 million~~ ~~and acquisitions of~~ ~~$15.6~~6.0 million. See Note 4, on pages ~~52 to 53,~~48 and 49, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 for more information concerning goodwill and intangible assets.

Deferred pension assets increased $~~1.8~~1.5 million during the first ~~nine~~six months of ~~2014~~2015 and ~~increased~~decreased $~~52.0~~52.9 million from ~~September~~June 30, ~~2013~~2014. The ~~increase~~decrease in the last twelve months was due primarily to increased projected benefit obligations resulting from changes in actuarial assumptions partially offset by increases in the fair market value of equity securities held by the Company’s defined benefit pension plans. See Note 6, on pages 5652 through ~~61,~~57, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 for more information concerning the Company’s benefit plan assets.

Other assets at ~~September~~June 30, ~~2014~~2015 increased $~~49.5~~26.3 million in the first ~~nine~~six months of ~~2014~~2015 and increased $~~52.4~~6.6 million from a year ago. ~~Both increases were due~~The net increase during the first six months of 2015 was primarily related to ~~increases in various~~long-term deposits and increased other ~~investments along with increased investments in affordable housing and historic renovation real estate properties.~~investments.

Net property, plant and equipment decreased~~$8.1~~ $15.7 million in the first ~~nine~~six months of ~~2014~~2015 and ~~increased$2.4~~decreased $1.0 million in the twelve months since ~~September~~June 30, ~~2013~~2014. The decrease in the first ~~nine~~six months was primarily due to depreciation expense of $~~125.8~~84.6 million, sale or disposition of fixed assets of $~~2.9~~4.8 million and changes in currency translation rates of $~~15.2~~13.8 million partially

offset by capital expenditures of $~~135.9~~87.5 million. Since ~~September~~June 30, ~~2013~~2014, ~~capital expenditures of~~ ~~$194.1 million~~ ~~were partially offset by~~ depreciation expense of $~~166.8~~170.2 million, changes in currency translation rates of ~~$15.1~~$39.8 million and dispositions or sale of assets with remaining net book value of $~~5.1~~8.2 million were partially offset by capital expenditures of $221.2 million. Capital expenditures during the first ~~nine~~six months of ~~2014~~2015 primarily represented expenditures associated with improvements and normal equipment replacement in manufacturing and distribution facilities in the Consumer Group, normal equipment replacement in the Paint Stores and Global Finishes Groups, and ~~replacement or upgraded aviation equipment and~~ information systems hardware in the Administrative Segment.

There were no$725.2 million in borrowings outstanding under the Company's domestic commercial paper program at June 30, 2015 with a weighted-average interest rate of 0.3 percent. Borrowings outstanding ~~nor certain other~~under short-term revolving and letter of credit agreements at ~~September~~June 30, ~~2014~~2015. were $400.0 million with a weighted-average interest rate of 0.9 percent. Short-term borrowings outstanding under various foreign programs at ~~September~~June 30, ~~2014~~2015 were $~~55.6~~34.1 million with a weighted average interest rate of ~~6.7~~4.9 percent. The Company had unused capacity of $~~1.050 billion~~324.8 million at ~~September~~June 30, ~~2014~~2015 under the commercial paper program that is backed by the Company’s revolving credit agreement. There were no significant changes in long-term debt during the ~~third~~second quarter of ~~2014~~2015. See Note 7, on ~~pages 61 to 62,~~page 58, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 for more information concerning the Company’s debt.

Long-term liabilities for postretirement benefits other than pensions did not change significantly from December 31, ~~2013~~2014 and ~~decreased~~increased $~~46.5~~7.6 million from ~~September~~June 30, ~~2013~~2014. The ~~decrease~~increase in the liability was due to the ~~decrease~~increase in the actuarially determined postretirement benefit obligation resulting from changes in actuarial assumptions ~~and~~partially offset by favorable claims experience. See Note 6, on pages ~~56 to 61,~~52 through 57, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 for more information concerning the Company’s benefit plan obligations.

Other long-term liabilities at ~~September~~June 30, ~~2014~~2015 ~~increased~~decreased $~~12.1~~10.6 million in the first ~~nine~~six months of ~~2014~~2015, primarily due to ~~an increase~~a decrease in non-current deferred tax liabilities, and decreased$78.6 million from a year ago primarily due to a decrease in long-term commitments related to affordable housing and historic renovation real estate properties and ~~increased$6.8 million~~ ~~from a year ago, primarily due to~~non-current deferred tax liabilities, partially offset by an increase in ~~non-current deferred tax~~accruals for extended environmental-related liabilities.

Environmental-Related Liabilities

The operations of the Company, like those of other companies in the same industry, are subject to various federal, state and local environmental laws and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that the Company conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs designed to protect the environment and promote continued compliance.

Depreciation of capital expenditures and other expenses related to ongoing environmental compliance measures were included in the normal operating expenses of conducting business. The Company’s capital expenditures, depreciation and other expenses related to ongoing environmental compliance measures were not material to the Company’s financial condition, liquidity, cash flow or results of operations during the first ~~nine~~six months of ~~2014~~2015. 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 ~~2014~~.

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). In addition, the Company, together with other parties, has been designated a potentially responsible party under federal and state environmental protection laws for the investigation and remediation of environmental contamination and hazardous waste at a number of third party sites, primarily Superfund sites. The Company may be similarly designated with respect to additional third party sites in the future.

The Company accrues for estimated costs of investigation and remediation activities at its currently and formerly owned sites 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 are based on currently available facts

regarding each site. The Company accrues a specific estimated amount when such an amount and a time frame in which the costs will be incurred can be reasonably determined. If the best estimate of 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 accrued by the Company in accordance with applicable accounting rules and interpretations. The Company continuously assesses its potential liability for investigation and remediation activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated. At ~~September 30,~~

~~2014~~ ~~and~~ ~~2013, the Company had accruals for environmental-related activities of~~ ~~$108.2 million~~ ~~and~~ ~~$111.9 million, respectively.~~

Due to the uncertainties of the scope and magnitude of contamination and the degree of investigation and remediation activities that may be necessary at certain currently or formerly owned sites and third party sites, it is reasonably likely that further extensive investigations may be required and that extensive remedial actions may be necessary not only on such sites but on adjacent properties. Depending on the extent of the additional investigations and remedial actions necessary, the Company’s ultimate liability may result in costs that are significantly higher than currently accrued. If the Company’s future loss contingency is ultimately determined to be at the maximum of the range of possible outcomes for every site for which costs can be reasonably estimated, the Company’s aggregate accruals for environmental-related activities would be ~~$87.2 million~~ ~~higher than the accruals at~~ ~~September 30, 2014~~.

~~Two~~ of the Company’s currently and formerly owned sites accounted for the majority of the accruals for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at ~~September 30, 2014~~2015. At ~~September 30, 2014~~, ~~$64.6 million, or~~ ~~59.7 percent, related directly to these~~ ~~two~~ ~~sites. Of the aggregate unaccrued exposure at~~ ~~September 30, 2014~~, ~~$55.3 million, or~~ ~~63.5 percent, related to the~~ ~~two~~ sites. While environmental investigations and remedial actions are in different stages at these sites, additional investigations, remedial actions and/or monitoring will likely be required at each site. A comprehensive description of the ~~two~~ ~~currently and formerly owned sites that account~~See Note 8 for ~~the majority of the accruals for~~further information on environmental-related ~~activities is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended~~ long-term liabilities.~~December 31, 2013. There have been no significant changes in the investigative or remedial status of the~~ ~~two~~ ~~sites since~~ ~~December 31, 2013~~.

~~Management cannot presently estimate the ultimate potential loss contingencies related to these~~ ~~two~~ ~~sites or other less significant sites until such time as a substantial portion of the investigative activities at each site is completed and remedial action plans are developed.~~

In accordance with the Asset Retirement Obligations Topic of the ASC, the Company has identified certain conditional asset retirement obligations at various current manufacturing, distribution and store facilities. These obligations relate primarily to asbestos abatement and closures of hazardous waste containment devices. Using investigative, remediation and disposal methods that are currently available to the Company, the estimated cost of these obligations is not significant.

In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on net income for the annual or interim period during which the additional costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters or conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity or cash flow due to the extended period of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.

Management expects these contingent environmental-related liabilities and conditional asset retirement obligations to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indefinite amount of time to conduct investigation activities at any site, the indefinite amount of time to obtain governmental agency approval, as necessary, with respect to investigation and remediation activities, and the indefinite amount of time necessary to conduct remediation activities.

Contractual Obligations, Commercial Commitments and Warranties

Short-term borrowings ~~decreased~~increased $~~40.9~~479.8 million to $~~55.6 million~~1.159 billion at ~~September~~June 30, ~~2014~~2015 from $~~96.6~~679.4 million at December 31, ~~2013~~2014. Total long-term debt was $~~1.625~~1.126 billion at ~~September~~June 30, ~~2014~~2015 and December 31, ~~2013~~2014 and decreased $~~9.4~~498.6 million from $~~1.634~~1.625 billion at ~~September~~June 30, ~~2013~~2014. See the Financial Condition, Liquidity and Cash Flow section of this report for more information. There have been no other significant changes to the Company’s contractual obligations and commercial commitments in the ~~third~~second quarter of ~~2014~~2015 as summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

Changes to the Company’s accrual for product warranty claims in the first ~~nine~~six months of ~~2014~~2015 are disclosed in Note 5.

Litigation

liability or the reduction of a liability. In accordance with the Contingencies Topic of the ASC, the Company accrues for these 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 that the Company’s 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 the Company’s results of operations, liquidity 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 that a liability has been incurred and the amount of any such loss cannot be reasonably estimated, any potential liability ultimately determined to be attributable to the Company may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued. In those cases where no accrual is recorded or exposure to loss exists in excess of the amount accrued, the Contingencies Topic of the ASC requires disclosure of the contingency when there is a reasonable possibility that a loss or additional loss may have been incurred.

~~Lead pigment and lead-based paint litigation.~~ The Company’s past operations included the manufacture and sale of lead pigments and lead-based paints. The Company, along with other companies, is and has 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, negligent misrepresentations and omissions, fraudulent misrepresentations and omissions, concert of action, civil conspiracy, violations of unfair trade practice and consumer protection laws, enterprise liability, market share liability, public nuisance, unjust enrichment and other theories. The plaintiffs seek 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. The Company has 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 adequately warn of potential exposure to lead during surface preparation when using non-lead-based paint on surfaces previously painted with lead-based paint. The Company believes that the litigation brought to date is without merit or subject to meritorious defenses and is vigorously defending such litigation. The Company has not settled any lead pigment or lead-based paint litigation. The Company expects that additional lead pigment and lead-based paint litigation may be filed against the Company in the future asserting similar or different legal theories and seeking similar or different types of damages and relief.

Notwithstanding the Company’s views on the merits, litigation is inherently subject to many uncertainties, and the Company ultimately may not prevail. Adverse court rulings or determinations of liability, among other factors, could affect the lead pigment and lead-based paint litigation against the Company 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 the Company and other manufacturers have been successful.

~~Public nuisance claim litigation~~. The Company and other companies are or were defendants in legal proceedings seeking recovery based on public nuisance liability theories, among other theories, brought by the State of Rhode Island, the City of St. Louis, Missouri, various cities and counties in the State of New Jersey, various cities in the State of Ohio and the State of Ohio, the City of Chicago, Illinois, the City of Milwaukee, Wisconsin and the County of Santa Clara, California and other public entities in the State of California. Except for the Santa Clara County, California proceeding, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.

~~The proceedings initiated by the State of Rhode Island included~~ ~~two~~ jury trials. At the conclusion of the second trial, the jury returned a verdict finding that (i) the cumulative presence of lead pigment in paints and coatings on buildings in the State of Rhode Island constitutes a public nuisance, (ii) the Company, along with ~~two~~ ~~other defendants, caused or substantially contributed to the creation of the public nuisance and (iii) the Company and~~ ~~two~~ ~~other defendants should be ordered to abate the public nuisance. The Company and~~ ~~two~~ ~~other defendants appealed and, on July 1, 2008, the Rhode Island Supreme Court, among other determinations, reversed the judgment of abatement with respect to the Company and~~ ~~two~~ other defendants. The Rhode Island Supreme Court’s decision reversed the public nuisance liability judgment against the Company on the basis that the complaint failed to state a public nuisance claim as a matter of law.

The Santa Clara County, California proceeding was initiated in March 2000 in the Superior Court of the State of California, County of Santa Clara. In the original complaint, the plaintiffs asserted various claims including fraud and concealment, strict product liability/failure to warn, strict product liability/design defect, negligence, negligent breach of a special duty, public nuisance, private nuisance, and violations of California’s Business and Professions Code. A number of the asserted claims were resolved in favor of the defendants through pre-trial proceedings. The named plaintiffs in the Fourth Amended Complaint, filed on March 16, 2011, are the Counties of Santa Clara, Alameda, Los Angeles, Monterey, San Mateo, Solano and Ventura, the Cities of Oakland and San Diego and the City and County of San Francisco. The Fourth Amended Complaint asserted a sole claim for public nuisance, alleging that the presence of lead pigments for use in paint and coatings in, on and around residences in the plaintiffs’ jurisdictions constitutes a public nuisance. The plaintiffs sought the abatement of the alleged public nuisance that exists within the plaintiffs’ jurisdictions. A trial commenced on July 15, 2013 and ended on August 22, 2013. The court entered final judgment on January 27, 2014, finding in favor of the plaintiffs and against the Company and two other defendants (ConAgra Grocery Products Company and NL Industries, Inc.). The final judgment held the Company jointly and severally liable with the other two defendants to pay $1.15 billion into a fund to abate the public nuisance. The Company strongly disagrees with the judgment. On February 18, 2014, the Company filed a motion for new trial and a motion to vacate the judgment. The court denied these motions on March 24, 2014. On March 28, 2014, the Company filed a notice of appeal to the Sixth District Court of Appeal for the State of California. The filing of the notice of appeal effects an automatic stay of the judgment without the requirement to post a bond. The Company believes that the judgment conflicts with established principles of law and is unsupported by the evidence. The Company has had a favorable history with respect to lead pigment and lead-based paint litigation, particularly other public nuisance litigation, and accordingly, the Company believes that it is not probable that a loss has occurred and it is not possible to estimate the range of potential loss with respect to the case.

~~Litigation seeking damages from alleged personal injury~~. The Company and other companies are defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries. These proceedings include claims by children allegedly injured from ingestion of lead pigment or lead-containing paint and claims for damages allegedly incurred by the children’s parents or guardians. These proceedings generally seek compensatory and punitive damages, and seek other relief including medical monitoring costs. These proceedings include purported claims by individuals, groups of individuals and class actions.

Wisconsin is the only jurisdiction to date to apply a theory of liability with respect to alleged personal injury (i.e., risk contribution/market share liability) that does not require the plaintiff to identify the manufacturer of the product that allegedly injured the plaintiff in the lead pigment and lead-based paint litigation. Although the risk contribution liability theory was applied during the Thomas trial, the constitutionality of this theory as applied to the lead pigment cases has not been judicially determined by the Wisconsin state courts. However, in an unrelated action filed in the United States District Court for the Eastern District of Wisconsin, Gibson v. American Cyanamid, et al., on November 15, 2010, the District Court held that Wisconsin’s risk contribution theory as applied in that case violated the defendants’ right to substantive due process and is unconstitutionally retroactive. The District Court's decision in Gibson v. American Cyanamid, et al., was appealed by the plaintiff to the United States Court of Appeals for the Seventh Circuit. On July 24, 2014, the United States Court of Appeals for the Seventh Circuit reversed the judgment and remanded the case back to the District Court for further proceedings. Also, in Yasmine Clark v. The Sherwin-Williams Company, et al., the Wisconsin Circuit Court, Milwaukee County, on March 25, 2014, held that the application to a pending case of Section 895.046 of the Wisconsin Statutes (which clarifies the application of the

risk contribution theory) is unconstitutional as a violation of the plaintiff's right to due process of law under the Wisconsin Constitution. On April 8, 2014, defendants filed a petition requesting the Wisconsin Court of Appeal to hear the issue as an interlocutory appeal. On August 21 ~~2014, the Wisconsin Court of Appeal granted defendants' petition.~~

~~Insurance coverage litigation~~. The Company and its liability insurers, including certain underwriters at Lloyd’s of London, initiated legal proceedings against each other to primarily determine, among other things, whether the costs and liabilities associated with the abatement of lead pigment are covered under certain insurance policies issued to the Company. The Company’s action, filed on March 3, 2006 in the Common Pleas Court, Cuyahoga County, Ohio, is currently stayed and inactive. The liability insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed. An ultimate loss in the insurance coverage litigation would mean that insurance proceeds could be unavailable under the policies at issue to mitigate any ultimate abatement related costs and liabilities. The Company has not recorded any assets related to these insurance policies or otherwise assumed that proceeds from these insurance policies would be received in estimating any contingent liability accrual. Therefore, an ultimate loss in the insurance coverage litigation without a determination of liability against the Company in the lead pigment or lead-based paint litigation will have no impact on the Company’s results of operation, liquidity or financial condition. As previously stated, however, the Company has not accrued any amounts for the lead pigment or lead-based paint litigation and any significant liability ultimately determined to be attributable to the Company relating to such litigation may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.

~~Government tax assessment settlements related to Brazilian operations.~~ ~~Charges totaling $28.7 million and~~ ~~$2.9 million~~ were recorded to Cost of goods sold and SG&A, respectively, during the second and third quarters of 2013. The charges were primarily related to import duty taxes paid to the Brazilian government related to the handling of import duties on products brought into the country for the years 2006 through 2012. The Company elected to pay the taxes through an existing voluntary amnesty program offered by the government to resolve these issues rather than contest them in court. The after-tax charges were $21.9 million for the full year 2013. The Company’s import duty process in Brazil was changed to reach a final resolution of this matter with the Brazilian government.

~~Litigation related to Consorcio Comex.~~ As previously disclosed, the Company entered into a definitive Stock Purchase Agreement (as subsequently amended and restated, the “Purchase Agreement”), with Avisep, S.A. de C.V. (“Avisep”) and Bevisep, S.A. de C.V. (“Bevisep”) to, among other things, acquire the Mexico business of Consorcio Comex, S.A. de C.V. (the "Acquisition"). Under the terms of the Purchase Agreement, either the Company or Avisep and Bevisep had the right to terminate the Purchase Agreement in the event that the closing of the Acquisition did not occur on or prior to March 31, 2014 and such party was not in material breach of the Purchase Agreement.

On April 3, 2014, the Company sent notice to Avisep and Bevisep that the Company was terminating the Purchase Agreement. On April 3, 2014, the Company filed a complaint for declaratory judgment in the Supreme Court of the State of New York, New York County, requesting the court to declare that the Company had used commercially reasonable efforts as required under the Purchase Agreement and has not breached the Purchase Agreement. On August 7, 2014, the case was removed by Avisep and Bevisep to the United States District Court for the Southern District of New York. On April 11, 2014, Avisep and Bevisep initiated an arbitration proceeding against the Company in the International Court of Arbitration contending that the Company breached the Purchase Agreement by terminating the Purchase Agreement and not utilizing commercially reasonable efforts under the Purchase Agreement, which allegedly caused Avisep and Bevisep to incur damages. The Company believes that the claims are without merit and intends to vigorously defend against such claims.

~~Titanium dioxide suppliers antitrust class action lawsuit.~~ The Company is a member of the plaintiff class related to Titanium Dioxide Antitrust Litigation that was initiated in 2010 against certain suppliers alleging various theories of relief arising from purchases of titanium dioxide made from 2003 through 2012. The Court approved a settlement less attorney fees and expense, and the Company timely submitted claims to recover its pro-rata portion of the settlement. There was no specified deadline for the claims administrator to complete the review of all claims submitted. In October 2014, the Company was notified that it would receive a disbursement of settlement funds, and the Company received a pro-rata disbursement net of all fees of approximately $21.0 million. The Company will record this settlement gain in the fourth quarter of 2014.

Shareholders’ Equity

Shareholders’ equity decreased $~~422.6~~239.1 million to $~~1.352 billion~~757.3 million at ~~September~~June 30, ~~2014~~2015 from $~~1.775 billion~~996.5 million at December 31, ~~2013~~2014 and decreased $~~517.7~~767.6 million from $~~1.870~~1.525 billion at ~~September~~June 30, ~~2013~~2014. The decrease in Shareholders’ equity for the first ~~nine~~six months of ~~2014~~2015 resulted primarily from purchases of treasury stock of ~~$1.116 billion,~~$679.4 million, cash dividends paid on common stock of ~~$162.2~~$125.3 million, and an increase in Cumulative other comprehensive loss of $~~50.7~~44.7 million partially offset by net income of $~~733.1~~481.3 million and an increase in Other capital of $~~171.7~~161.6 million, resulting primarily from stock option exercises. Since ~~September~~June 30, ~~2013~~2014, purchases of treasury stock for $~~1.371~~1.503 billion ~~and~~, cash dividends paid on common stock of $~~212.8~~231.7 million, and an increase in Cumulative other comprehensive loss of $201.1 million more than offset increases from net income of $~~849.3~~940.3 million, and an increase in Other capital of $~~220.7 million~~ ~~and~~ ~~a decrease~~ ~~in Cumulative other comprehensive loss of~~ ~~$17.3~~260.4 million in twelve months. During the first ~~nine~~six months of ~~2014~~2015, the Company purchased ~~5.33~~2.25 million shares of its common stock for treasury purposes through open market purchases. The Company purchased ~~6.83~~5.85 million shares of its common stock since ~~September~~June 30, ~~2013~~2014 for treasury. The Company acquires its common stock for general corporate purposes, and depending on its cash position and market conditions, it may acquire additional shares in the future. The Company had remaining authorization at ~~September~~June 30, ~~2014~~2015 to purchase ~~6.83~~2.98 million shares of its common stock. At a meeting held on February ~~19, 2014,~~18, 2015, the Board of Directors increased the quarterly cash dividend from $~~.50~~.55 per common share to $~~.55~~.67 per common share. This quarterly dividend will result in an annual dividend for ~~2014~~2015 of $~~2.20~~2.68 per common share or a ~~30.3~~30.5 percent payout of ~~2013~~2014 diluted net income per common share.

Cash Flow

Net operating cash improved ~~$103.4~~$17.4 million in the first ~~nine~~six months of ~~2014~~2015 to a cash source of ~~$881.3~~$349.0 million from a cash source of ~~$777.9~~$331.6 million in ~~2013~~2014 primarily due to an increase in net income of ~~$96.7~~$74.4 million ~~and a non-recurring payment to the ESOP for the 2012 DOL settlement of $80.0 million in the first quarter of 2013,~~ partially offset by increases in cash used for working ~~capital from acquisitions.~~capital. Net investing cash usage decreased ~~$88.3~~$3.0 million in the first ~~nine~~six months of ~~2014~~2015 to a usage of ~~$165.5~~$81.0 million from a usage of ~~$253.9~~$84.0 million in ~~2013~~2014 primarily due to decreased cash used for ~~acquisitions~~other investments and ~~other investments~~increased proceeds from sale of long-term assets partially offset by higher capital expenditures. Net financing cash usage ~~increased $839.0~~decreased $501.5 million to a usage of ~~$1.186 billion~~$224.2 million in the first ~~nine~~six months of ~~2014~~2015 from a usage of ~~$347.5~~$725.7 million in ~~2013~~2014 primarily due to net increases in short-term borrowings of $516.6 million partially offset by increases in treasury stock purchases of ~~$602.0 million and net decreases in short-term borrowings of $264.2~~$14.0 million in the first ~~nine~~six months of ~~2014~~2015 ~~partially offset by increased proceeds from stock options exercised of $24.2 million.~~. In the twelve month period from ~~October~~July 1, ~~2013~~2014 through ~~September~~June 30, ~~2014~~2015, the Company generated net operating cash of $~~1.187~~1.099 billion, used $~~250.0~~307.1 million in investing activities and used $~~1.692 billion~~965.6 million in financing activities. In that same period, the Company invested $~~194.1~~221.2 million in capital additions and improvements, made payments on total debt of ~~$242.2~~$499.9 million,, increased short-term borrowings by $1.108 billion, purchased $~~1.371~~1.503 billion in treasury stock and paid $~~212.8~~231.7 million in cash dividends to its shareholders of common stock.

Market Risk

The Company is exposed to market risk associated with interest rate, foreign currency and commodity fluctuations. The Company occasionally utilizes derivative instruments as part of its overall financial risk management policy, but does not use derivative instruments for speculative or trading purposes. In the first ~~nine~~six months of ~~2014~~2015, the Company entered into forward currency exchange contracts with maturity dates of less than twelve months to hedge against value changes in foreign currency. The Company believes it may be exposed to continuing market risk from foreign currency exchange rate and commodity price fluctuations. However, the Company does not expect that foreign currency exchange rate and commodity price fluctuations or hedging contract losses will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Financial Covenant

Certain borrowings contain a consolidated leverage covenant. The covenant states the Company’s leverage ratio is not to exceed 3.25 to 1.00. The leverage ratio is defined as the ratio of total indebtedness (the sum of Short-term borrowings, Current portion of long-term debt and Long-term debt) at the reporting date to consolidated “Earnings Before Interest, Taxes, Depreciation, and Amortization” (EBITDA) for the twelve month period ended on the same date. Refer to the “Results of Operations” caption below for a reconciliation of EBITDA to Net income. At ~~September~~June 30, ~~2014~~2015, the Company was in compliance with the covenant. 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, on ~~pages 61 to 62,~~page 58, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 for more information concerning the Company’s debt and related covenant.

2722

RESULTS OF OPERATIONS

Shown below are net sales and income before taxes by segment for the ~~third~~second quarter and first ~~nine~~six months:


(Thousands of dollars)	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2014		2013		Change		2014		2013		Change		2015		2014		Change		2015		2014		Change
Net Sales:
Paint Stores Group	$	2,027,485	$	1,763,404	15.0	%	$	5,270,080	$	4,537,849	16.1	%	$	1,984,985	$	1,882,592	5.4	%	$	3,446,490	$	3,242,595	6.3	%
Consumer Group	385,238		366,845		5.0	%	1,143,893		1,069,085		7.0	%	490,042		433,356		13.1	%	841,732		758,655		11.0	%
Global Finishes Group	536,261		507,284		5.7	%	1,578,497		1,507,626		4.7	%	505,767		544,597		-7.1	%	975,323		1,042,236		-6.4	%
Latin America Coatings Group	200,367		208,645		-4.0	%	563,975		610,271		-7.6	%	150,068		181,221		-17.2	%	316,299		363,609		-13.0	%
Administrative	1,219		1,239		-1.6	%	3,676		3,643		0.9	%	1,277		1,229		3.9	%	2,579		2,456		5.0	%
Total	$	3,150,570	$	2,847,417	10.6	%	$	8,560,121	$	7,728,474	10.8	%	$	3,132,139	$	3,042,995	2.9	%	$	5,582,423	$	5,409,551	3.2	%


(Thousands of dollars)	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2014			2013			Change		2014			2013			Change		2015			2014			Change		2015			2014			Change
Income Before Income Taxes:
Paint Stores Group	$	431,840		$	359,352		20.2	%	$	953,962		$	822,037		16.0	%	$	433,381		$	375,857		15.3	%	$	609,957		$	522,122		16.8	%
Consumer Group	78,956			73,065			8.1	%	222,532			206,079			8.0	%	114,247			92,488			23.5	%	169,653			143,576			18.2	%
Global Finishes Group	60,751			44,536			36.4	%	162,093			132,929			21.9	%	57,268			54,865			4.4	%	96,168			101,342			-5.1	%
Latin America Coatings Group	11,792			(983		)	1,299.6	%	27,439			20,712			32.5	%	4,031			5,660			-28.8	%	13,531			15,647			-13.5	%
Administrative	(109,291		)	(88,508		)	-23.5	%	(296,671		)	(245,027		)	-21.1	%	(101,145		)	(99,640		)	-1.5	%	(188,286		)	(187,380		)	-0.5	%
Total	$	474,048		$	387,462		22.3	%	$	1,069,355		$	936,730		14.2	%	$	507,782		$	429,230		18.3	%	$	701,023		$	595,307		17.8	%

Consolidated net sales increased in the ~~third~~second quarter and ~~increased in the~~ first ~~nine~~six months of ~~2014~~2015 due primarily to higher paint sales volume in our Paint Stores ~~Group~~ and ~~acquisitions. Acquisitions increased~~Consumer Groups, partially offset by unfavorable currency translation rate changes that decreased consolidated net sales ~~3.3~~3.0 percent in the quarter and ~~4.1 percent in the~~ first ~~nine months, while unfavorable currency translation rate changes decreased consolidated net sales~~ ~~0.7 percent~~ ~~in the quarter and 1.1 percent in the first nine~~six months.

Net sales of all consolidated foreign subsidiaries were up~~9.2~~down 17.3 percent to ~~$571.9~~$476.8 million in the quarter and ~~up 6.7~~down 15.6 percent to ~~$1.678 billion~~$933.3 million in the first ~~nine~~six months versus ~~$523.7~~$576.7 million and ~~$1.572~~$1.106 billion in the same periods last year. The ~~increase~~decrease in net sales for all consolidated foreign subsidiaries in the quarter and first six months was due primarily to ~~acquisitions, which~~ ~~increased~~ ~~net sales~~ ~~7.6~~a 14.6 percent ~~in the quarter,~~ negative impact and ~~selling price increases partially offset by~~ a ~~3.3~~13.8 percentnegative impact of foreign translation rate changes. The increase in the first nine months was due primarily to acquisitions, which increased net sales 7.0 percent in the first nine months, and selling price increases partially offset by a 5.0 percent negative impact of foreign currency translation rate changes.changes, respectively. Net sales of all operations other than consolidated foreign subsidiaries were up~~11.0~~ 7.7 percent to ~~$2.579~~$2.655 billion in the quarter and up ~~11.8~~8.0 percent to ~~$6.882~~$4.649 billion in the first ~~nine~~six months as compared to ~~$2.324~~$2.466 billion and ~~$6.156~~$4.304 billion in the same periods last year.

Net sales in the Paint Stores Group increased in the ~~third~~second quarter and first ~~nine~~six months due primarily to higher architectural paint sales ~~volume and acquisitions. Acquisitions increased net sales 4.6 percent in the quarter and increased net sales 5.9 percent in the first nine months.~~volume. Net sales from stores open for more than twelve calendar months increased~~9.6~~ 3.9 percent in the quarter and increased ~~9.2~~5.0 percent in the first ~~nine~~six months compared to last year’s comparable periods. Total paint sales volume percentage increases were in the high single digits for the core business and exceed 18.0 percent when including acquisitions for the quarter and first nine months as compared to last year’s comparable periods. Sales of non-paint products increased by ~~14.1~~8.3 percent over last ~~year’s~~ ~~third~~year's second quarter and increased by ~~13.9~~8.8 percent over last year's first ~~nine~~six months. A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general merchandise sold. Net sales of the Consumer Group increased in the ~~third~~second quarter and first ~~nine~~six months due primarily to the ~~impact of acquisitions. Acquisitions increased net sales~~ ~~3.9 percent~~ ~~in the quarter and increased net sales 4.3 percent in the first nine months.~~new paint program launch at a national retailer. Net sales in the Global Finishes Group stated in U.S. dollars ~~increased~~decreased in the ~~third~~second quarter and first ~~nine~~six months due primarily to ~~selling price increases and increased paint sales volume in the quarter partially offset by~~ unfavorable currency translation rate changes, which decreased net sales by ~~0.4~~7.7 percent in the quarter and ~~0.7~~7.3 percent in the first ~~nine~~six months. Net sales in the Latin America Coatings Group stated in U.S. dollars decreased in the ~~third~~second quarter and first ~~nine~~six months, which can primarily be attributed to unfavorable currency translation rate changes ~~and lower paint sales volume~~ partially offset by selling

price increases. Currency translation rate changes decreased net sales by ~~7.8~~17.4 percent in the quarter and decreased net sales by ~~11.8~~15.6 percent in the first ~~nine~~six months. Net sales in the Administrative segment, which primarily consist of external leasing revenue of excess headquarters space and leasing of facilities no longer used by the Company in its primary business, were essentially flat in the ~~third~~second quarter and first ~~nine~~six months.

Consolidated gross profit increased~~$175.0~~ $120.3 million in the ~~third~~second quarter and increased ~~$454.1~~$186.9 million in the first ~~nine~~six months of ~~2014~~2015 compared to the same periods in ~~2013~~.2014. As a percent of sales, consolidated gross profit increased to ~~46.7~~48.8 percent in the quarter from ~~45.5~~46.3 percent in the ~~third~~second quarter of ~~2013~~2014 and improved to ~~46.1~~47.7 percent in the first ~~nine~~six months of ~~2014~~2015 from ~~45.2~~45.8 percent last year. The percent to sales and dollar increases were primarily due to increased paint sales volume and selling price increases. Acquisitions also contributed to increased gross profit dollars but decreased gross profit percent along with unfavorable currency translation rates for the third quarter and first nine months.volume.

The Paint Stores Group’s gross profit was higher than last year by ~~$137.8~~$85.8 million in the ~~third~~second quarter and was higher than last year by ~~$384.6~~$142.3 million in the first ~~nine~~six months due to higher paint sales volume. The Paint Stores Group’s gross profit margins ~~were essentially flat~~increased in the quarter and first ~~nine~~six months compared to the same periods last year ~~as the impact of higher paint sales volume was offset by the impact of acquisitions.~~for that same reason. The Consumer Group’s gross profit increased by ~~$14.6~~$45.5 million in the quarter and increased by ~~$38.0~~$71.8 million in the first ~~nine~~six months compared to the same periods last year primarily due to ~~acquisitions and~~ increased sales ~~volume.~~volume and improved manufacturing volumes and operating efficiency. The Consumer Group's gross profit margins increased as a percent of sales for the ~~third~~second quarter and first ~~nine~~six months compared to the same periods last year ~~primarily due to improved manufacturing volumes and operating efficiency.~~for those same reasons. The Global Finishes Group’s gross profit ~~increased$14.5~~decreased $5.4 million in the ~~third~~second quarter and ~~increased $28.4~~decreased $18.7 million in the first ~~nine~~six months compared to the same periods last year, when stated in U.S. dollars, primarily due to ~~increased~~unfavorable currency translation rate changes and decreased international sales. The Global Finishes Group’s gross profit margins were up as a percent of sales in the quarter and up as a percent of sales in the first ~~nine~~six months compared to the same periods last year due primarily to ~~selling price increases and higher paint sales volume partially offset by unfavorable currency impacts.~~increased domestic sales. The Latin America Coatings Group’s gross profit ~~increased~~decreased by ~~$9.6~~$5.8 million in the ~~third~~second quarter and ~~increased~~decreased by ~~$6.9~~$11.0 million in the first ~~nine~~six months from the same periods in the prior year, when stated in U.S. dollars, primarily due to ~~the Brazilian government import duty tax assessments in recorded in 2013 and selling price increases partially offset by lower volume sales, increasing raw material costs and~~ unfavorable currency translation rate changes. Brazilian government import duty tax assessments of $16.9 million and $28.7 million were recorded to cost of goods sold in the quarter and nine months of 2013, respectively. The Latin America Coatings Group’s gross profit margins were up ~~as a percent of sales for the~~ ~~third quarter~~ and first nine months as compared to the same periods last year for these same reasons. Excluding the Brazilian government import duty tax assessment in 2013, the Latin America Coatings Group’s gross profit margins were lower as a percent of sales. The Administrative segment’s gross profit ~~decreased~~increased by ~~$1.5~~$0.3 million in the ~~third~~second quarter and ~~decreased~~increased by ~~$3.8~~$2.5 million in the first ~~nine~~six months compared to the same periods last year.

Selling, general and administrative expenses (SG&A) increased~~$94.7~~ $30.0 million in the ~~third~~second quarter and increased ~~$332.1~~$75.2 million in the first ~~nine~~six months of ~~2014~~2015 versus last year due primarily to increased expenses to support higher sales levels and net new store openings as well as the impact from ~~acquisitions.~~a new paint program launch at a national retailer. As a percent of sales, consolidated SG&A ~~was flat at~~ ~~31.2~~increased slightly to 31.9 percent in the quarter ~~versus 2013~~ and increased slightly to ~~33.1~~34.5 percent in the first ~~nine~~six months of 2015 from ~~32.4~~31.8 percent in the second quarter and 34.3 percent in the first ~~nine~~six months of ~~2013~~2014 primarily due to ~~timing of net new store openings in the quarter and acquisitions.~~those same reasons.

The Paint Stores Group’s SG&A increased~~$66.4~~ $28.6 million in the ~~third~~second quarter and increased ~~$254.0~~$55.0 million in the first ~~nine~~six months due primarily to net new store openings and general comparable store expenses to support higher sales ~~levels as well as the impact from acquisitions.~~levels. The Consumer Group’s SG&A was up~~$8.2~~ $23.4 million in the quarter and increased ~~$21.1~~$45.6 million in the first ~~nine~~six months compared to the same periods last year primarily due to ~~acquisitions.~~a new paint program launch at a national retailer. The Global Finishes Group’s SG&A ~~increased~~decreased $~~6.7~~10.2 million in the quarter and ~~increased $17.4~~decreased $16.0 million in the first ~~nine~~six months due to increased sales, SG&A charges of $4.3 million related to the exit of the business in Venezuela in the second quarter of 2014 and the timing of spending partially offset by currency translation rate changes. The Latin America Coatings Group’s SG&A ~~decreased$2.6 million~~ ~~in the~~ ~~third quarter~~ ~~and decreased $1.7 million in the first nine months~~primarily due to currency translation rate changes and ~~Brazilian government tax assessments of $2.9~~$4.3 million ~~recorded~~charged to SG&A in the ~~third~~second quarter 2014 related to the exit of ~~2013~~business in Venezuela. The Latin America Coatings Group’s SG&A decreased $7.7 million in the second quarter and decreased $10.5 million in the first six months due to currency translation rate changes partially offset by timing of spending. The Administrative segment’s SG&A ~~increased$15.9~~decreased $4.1 million in the ~~third~~second quarter and increased ~~$41.3~~$1.0 million in the first ~~nine~~six months primarily due to ~~acquisition integration efforts, information systems costs, and incentive compensation, including stock-based compensation expense.~~timing of spending.

Other general expense—net increased $~~11.0~~9.2 million in the ~~third~~second quarter and increased ~~$6.8~~$8.1 million in the first ~~nine~~six months primarily due to increased provisions for environmental expenses in the Administrative segment.

Other expense (income) ~~expense—net improved~~—net increased $~~18.1~~5.8 million in the ~~third~~second quarter and increased ~~$20.7~~$5.1 million in the first ~~nine~~six months primarily due to a $6.3 million gain on the early termination of a customer agreement recorded in the Global Finishes Group and a $6.2 million realized gain resulting from final asset valuations related to the acquisition of the U.S./Canada business of Comex recorded in the Administrative segment, both in the third quarter of 2014. Decreasedincreased foreign currency transaction losses

and reduced miscellaneous income in both the Global Finishes and Latin America Coatings ~~Groups also contributed to the favorable comparisons to the prior periods.~~Groups.

Consolidated income before income taxes increased $~~86.6~~78.6 million in the ~~third~~second quarter and increased ~~$132.6~~$105.7 million in the first ~~nine~~six months due to higher segment profits in Paint Stores and Consumer ~~and~~Groups. Segment profits in Global Finishes ~~Groups partially offset by increased expenses in the Administrative segment. The Global Finishes Group's profits~~Group were ~~reduced by charges recorded in~~slightly better for the second quarter ~~of 2014 related to~~and slightly worse for the ~~exit of the business~~first six months while segment profits in ~~Venezuela. The~~ Latin America Coatings Group ~~segment profits~~ were lower for both the ~~third~~second quarter and ~~the~~ first ~~nine months when excluding the Brazil tax assessments impact on 2013 results.~~six months.

The effective income tax rate of ~~31.2~~31.1 percent for the ~~third~~second quarter of ~~2014~~2015 was lower than the 32.1 percent effective income tax rate for the ~~third~~second quarter of ~~2013~~2014 primarily due ~~primarily~~ to an increase in miscellaneous discrete tax benefits reflected in the ~~timing~~second quarter of ~~discrete items.~~2015 compared to second quarter of 2014. The effective income tax rate of ~~31.4~~31.3 percent for the first ~~nine~~six months of ~~2014~~2015 was lower than the ~~32.1~~31.6 percent effective income tax rate for the first ~~nine~~six months of ~~2013~~ ~~also~~2014 primarily due ~~primarily~~ to ~~the timing of discrete items.~~those same reasons.

Net income for the quarter increased $~~63.3~~58.5 million to $~~326.2~~349.9 million from $~~263.0~~291.4 million in the ~~third~~second quarter of ~~2013~~2014 and increased ~~$96.7~~$74.4 million to ~~$733.1~~$481.3 million from ~~$636.4~~$406.9 million in the first ~~nine~~six months of ~~2013~~.2014. Diluted net income per common share increased ~~31.4~~25.9 percent from $~~2.55~~2.94 per share in the ~~third~~second quarter of ~~2013~~2014 to $~~3.35~~3.70 per share ~~including a $.01 per share loss from acquisitions,~~ in the ~~third~~second quarter of ~~2014~~2015. Diluted net income per common share increased ~~20.9~~25.1 percent from ~~$6.11~~$4.06 per share in the first ~~nine~~six months of ~~2013~~2014 to ~~$7.39~~$5.08 per share in the first ~~nine~~six months of ~~2014~~, including an $.18 per share loss from acquisitions. The quarter and nine months 2013 diluted net income per common share included charges of $.13 and $.21 per share, respectively, related to the Brazil tax assessments.2015.

Management considers a measurement that is not in accordance with U.S. generally accepted accounting principles a useful measurement of the operational profitability of the Company. Some investment professionals also utilize such a measurement as an indicator of the value of profits and cash that are generated strictly from operating activities, putting aside working capital and certain other balance sheet changes. For this measurement, management increases net income for significant non-operating

and non-cash expense items to arrive at an amount known as “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA). The reader is cautioned that the following value for EBITDA should not be compared to other entities unknowingly. EBITDA should not be considered an alternative to net income or cash flows from operating activities as an indicator of operating performance or as a measure of liquidity. The reader should refer to the determination of net income and cash flows from operating activities in accordance with U. S. generally accepted accounting principles disclosed in the Statements of Consolidated Income and Comprehensive Income and Statements of Consolidated Cash Flows. EBITDA as used by management is calculated as follows:


(Thousands of dollars)	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013		2015		2014		2015		2014
Net income	$	326,240	$	262,966	$	733,144	$	636,438	$	349,937	$	291,447	$	481,341	$	406,904
Interest expense	16,025		15,394		48,793		45,774		12,885		16,374		25,236		32,768
Income taxes	147,808		124,496		336,211		300,292		157,845		137,783		219,682		188,403
Depreciation	42,248		39,392		125,761		117,693		42,081		42,105		84,581		83,513
Amortization	7,465		7,346		22,611		21,473		6,815		7,594		13,720		15,146
EBITDA	$	539,786	$	449,594	$	1,266,520	$	1,121,670	$	569,563	$	495,303	$	824,560	$	726,734

3025

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and the costs and potential liability for environmental-related matters and the lead pigment and lead-based paint litigation. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to” and similar expressions.

Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements and from the Company’s historical results and experience. These risks, uncertainties and other factors include such things as: (a) general business conditions, strengths of retail and manufacturing economies and the growth in the coatings industry; (b) competitive factors, including pricing pressures and product innovation and quality; (c) changes in raw material and energy supplies and pricing; (d) changes in the Company’s relationships with customers and suppliers; (e) the Company’s ability to attain cost savings from productivity initiatives; (f) the Company’s ability to successfully integrate past and future acquisitions into its existing operations, ~~including the recent acquisitions of the Comex business in the United States and Canada, Geocel Holdings Corporation and Jiangsu Pulanna,~~ as well as the performance of the businesses acquired; (g) changes in general domestic economic conditions such as inflation rates, interest rates, tax rates, unemployment rates, higher labor and healthcare costs, recessions, and changing government policies, laws and regulations; (h) risks and uncertainties associated with the Company’s expansion into and its operations in Asia, Europe, South America and other foreign markets, including general economic conditions, inflation rates, recessions, foreign currency exchange rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest and other external economic and political factors; (i) the achievement of growth in foreign markets, such as Asia, Europe and South America; (j) increasingly stringent domestic and foreign governmental regulations, including those affecting health, safety and the environment; (k) inherent uncertainties involved in assessing the Company’s potential liability for environmental-related activities; (l) other changes in governmental policies, laws and regulations, including changes in accounting policies and standards and taxation requirements (such as new tax laws and new or revised tax law interpretations); (m) the nature, cost, quantity and outcome of pending and future litigation and other claims, including the lead pigment and lead-based paint litigation, and the effect of any legislation and administrative regulations relating thereto; and (n) unusual weather conditions.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

3126

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk associated with interest rate, foreign currency and commodity fluctuations. The Company occasionally utilizes derivative instruments as part of its overall financial risk management policy, but does not use derivative instruments for speculative or trading purposes. The Company enters into option and forward currency exchange contracts and commodity swaps to hedge against value changes in foreign currency and commodities. The Company believes it may experience continuing losses from foreign currency translation and commodity price fluctuations. However, the Company does not expect currency translation, transaction, 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. There were no material changes in the Company’s exposure to market risk since the disclosure included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December ~~31,2013.~~31, 2014.

3227

Item 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chairman and Chief Executive Officer and our Senior Vice President—Finance and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, our Chairman and Chief Executive Officer and our Senior Vice President—Finance and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and accumulated and communicated to our management including our Chairman and Chief Executive Officer and our Senior Vice President—Finance and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3328

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For information with respect to certain environmental-related matters and legal proceedings, see the information included under the captions entitled “Environmental-Related Liabilities” and “Litigation” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 8 and 9 of the “Notes to Condensed Consolidated Financial Statements,” which is incorporated herein by reference.

3429

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

A summary of the repurchase activity for the Company’s ~~third~~second quarter is as follows:

Period
Total
Number of
Shares
Purchased

Average
Price
Paid Per
Share

Number of
Shares
Purchased as
Part of a
Publicly
Announced
Plan

Number of
Shares That
May Yet Be
Purchased
Under the
Plan
July 1 - July 31

Share repurchase program ⁽¹⁾
2,000,000
$ 214.29
2,000,000
6,825,000

Employee transactions ⁽²⁾
NA

August 1 - August 31

Share repurchase program⁽¹⁾
6,825,000

September 1 - September 30

Share repurchase program⁽¹⁾
6,825,000

Employee transactions ⁽²⁾
NA
Total

Share repurchase program⁽¹⁾
2,000,000
$ 214.29
2,000,000
6,825,000

Employee transactions⁽²⁾
NA



Period		Total Number of Shares Purchased	Average Price Paid Per Share		Number of Shares Purchased as Part of a Publicly Announced Plan	Number of Shares That May Yet Be Purchased Under the Plan
April 1 - April 30
	Share repurchase program ⁽¹⁾					3,225,000
	Employee transactions ⁽²⁾	1,675	$	285.44		NA

May 1 - May 31
	Share repurchase program⁽¹⁾	235,000	$	256.15	235,000	2,990,000

June 1 - June 30
	Share repurchase program⁽¹⁾	15,000	$	289.58	15,000	2,975,000
Total
	Share repurchase program⁽¹⁾	250,000	$	258.15	250,000	2,975,000
	Employee transactions⁽²⁾	1,675	285.44			NA


⁽¹⁾	All shares were purchased through the Company’s publicly announced share repurchase program. The Company had remaining authorization at ~~September~~June 30, ~~2014~~2015 to purchase ~~6,825,000~~2,975,000 shares. There is no expiration date specified for the program. The Company intends to repurchase stock under the program in the future.


⁽²⁾	All shares were delivered to satisfy the exercise price and/or tax withholding obligations by employees who exercised stock options or had shares of restricted stock vest.

3530

Item 5. Other Information.

During the ~~nine~~six months ended ~~ended~~ ~~September~~June 30, ~~2014~~2015, the Audit Committee of the Board of Directors of the Company approved permitted non-audit services to be performed by Ernst & Young LLP, the Company’s independent registered public accounting firm. These non-audit services were approved within categories related to domestic advisory tax and tax compliance services and international tax compliance.

3631

Item 6. Exhibits.




~~10(a)~~	Schedule of Executive Officers who are Parties to the Amended and Restated Severance Agreements in the Forms Filed as Exhibit 10(e) to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2010 (filed herewith).

31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).

31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith).

32(a)	Section 1350 Certification of Chief Executive Officer (filed herewith).

32(b)	Section 1350 Certification of Chief Financial Officer (filed herewith).

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

3732

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		THE SHERWIN-WILLIAMS COMPANY

~~October 29, 2014~~July 22, 2015	By:	/s/ Allen J. Mistysyn
~~October 29, 2014~~July 22, 2015		Allen J. Mistysyn
		Senior Vice President-Corporate Controller

~~October 29, 2014~~July 22, 2015	By:	/s/ Catherine M. Kilbane
~~October 29, 2014~~July 22, 2015		Catherine M. Kilbane
		Senior Vice President, General
		Counsel and Secretary

3833



INDEX TO EXHIBITS
Exhibit No.	Exhibit Description

~~10(a)~~	Schedule of Executive Officers who are Parties to the Amended and Restated Severance Agreements in the Forms Filed as Exhibit 10(e) to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2010 (filed herewith).

31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).

31(b)	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith).

32(a)	Section 1350 Certification of Chief Executive Officer (filed herewith).

32(b)	Section 1350 Certification of Chief Financial Officer (filed herewith).

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

3934



	Three Months Ended September 30, 2013
	Paint Stores Group		Consumer Group			Global Finishes Group		Latin America Coatings Group			Administrative			Consolidated Totals
Net external sales	$	1,763,404	$	366,845		$	507,284	$	208,645		$	1,239		$	2,847,417
Intersegment transfers			689,319			2,437		9,170			(700,926		)
Total net sales and intersegment transfers	$	1,763,404	$	1,056,164		$	509,721	$	217,815		$	(699,687	)	$	2,847,417

Segment profit	$	359,352	$	73,065	⁽¹⁾	$	44,536	$	(983	)				$	475,970
Interest expense											$	(15,394	)	(15,394		)
Administrative expenses and other											(73,114		)	(73,114		)
Income before income taxes	$	359,352	$	73,065		$	44,536	$	(983	)	$	(88,508	)	$	387,462



	Nine Months Ended September 30, 2013
	Paint Stores Group		Consumer Group			Global Finishes Group		Latin America Coatings Group		Administrative			Consolidated Totals
Net external sales	$	4,537,849	$	1,069,085		$	1,507,626	$	610,271	$	3,643		$	7,728,474
Intersegment transfers			1,855,226			7,469		29,081		(1,891,776		)
Total net sales and intersegment transfers	$	4,537,849	$	2,924,311		$	1,515,095	$	639,352	$	(1,888,133	)	$	7,728,474

Segment profit	$	822,037	$	206,079	⁽²⁾	$	132,929	$	20,712				$	1,181,757
Interest expense										$	(45,774	)	(45,774		)
Administrative expenses and other										(199,253		)	(199,253		)
Income before income taxes	$	822,037	$	206,079		$	132,929	$	20,712	$	(245,027	)	$	936,730