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 ~~June 30, 2018~~March 31, 2019



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 (§ 232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth 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

Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 – ~~93,381,022~~92,316,202 shares as of ~~June 30, 2018~~March 31, 2019.

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	2421
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3429
Item 4. Controls and Procedures	3530

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	3631
Item 1A. Risk Factors	3732
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3833
Item 5. Other Information	3934
Item 6. Exhibits	4035

SIGNATURES	4136
EX-10.1
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
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Net sales $ 4,773,796
$ 3,735,817
$ 8,738,802
$ 6,497,204
Cost of goods sold 2,735,168
2,001,200
5,013,327
3,419,534
Gross profit 2,038,628
1,734,617
3,725,475
3,077,670
Percent to net sales 42.7 % 46.4 % 42.6 % 47.4 %
Selling, general and administrative expenses 1,307,861
1,153,779
2,522,426
2,164,800
Percent to net sales 27.4 % 30.9 % 28.9 % 33.3 %
Other general expense - net 26,979
1,775
29,969
2,051
Amortization 73,893
28,918
158,942
35,088
Interest expense 93,507
56,729
185,054
82,424
Interest and net investment income (559 ) (3,091 ) (2,177 ) (4,371 )
Other income - net (1,139 ) (12,496 ) (10,411 ) (17,930 )
Income from continuing operations before income taxes 538,086
509,003
841,672
815,608
Income taxes 134,482
148,352
187,941
215,805
Net income from continuing operations 403,604
360,651
653,731
599,803

Loss from discontinued operations (see Note 4)

Income taxes

41,540

41,540
Net loss from discontinued operations —
(41,540 ) —
(41,540 )

Net income $ 403,604
$ 319,111
$ 653,731
$ 558,263

Basic net income per common share
Continuing operations $ 4.34
$ 3.89
$ 7.02
$ 6.47
Discontinued operations —
(.45 ) —
(.45 )
Net income per common share $ 4.34
$ 3.44
$ 7.02
$ 6.02

Diluted net income per common share
Continuing operations $ 4.25
$ 3.80
$ 6.86
$ 6.34
Discontinued operations —
(.44 ) —
(.44 )
Net income per common share $ 4.25
$ 3.36
$ 6.86
$ 5.90

Average shares outstanding - basic 92,926,421
92,841,148
93,132,993
92,695,853
Average shares and equivalents outstanding - diluted 94,884,187
94,968,636
95,258,956
94,697,439
Comprehensive income 196,810
349,288
$ 496,152
$ 579,378



	Three Months Ended March 31,
	2019			2018

Net sales	$	4,040,861		$	3,965,006
Cost of goods sold	2,305,784			2,278,159
Gross profit	1,735,077			1,686,847
Percent to net sales	42.9		%	42.5		%
Selling, general and administrative expenses	1,244,017			1,214,565
Percent to net sales	30.8		%	30.6		%
Other general (income) expense - net	(458		)	2,990
Amortization	78,771			85,049
Interest expense	90,994			91,547
Interest and net investment income	(410		)	(1,618		)
Other expense (income) - net	23,309			(9,272		)
Income before income taxes	298,854			303,586
Income taxes	53,617			53,459
Net income	$	245,237		$	250,127


Net income per share - basic	$	2.67		$	2.68

Net income per share - diluted	$	2.62		$	2.62


Average shares outstanding - basic	91,952,828			93,339,564

Average shares and equivalents outstanding - diluted	93,668,728			95,546,152

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

Thousands of dollars



	Three Months Ended
	March 31,
	2019			2018

Net income	$	245,237		$	250,127

Other comprehensive income, net of tax:

Foreign currency translation adjustments	7,971			52,732

Pension and other postretirement benefit adjustments:
Amounts reclassified from Other comprehensive income ⁽¹⁾	(360		)	(209		)
	(360		)	(209		)

Unrealized net gains on cash flow hedges:
Amounts reclassified from Other comprehensive income ⁽²⁾	(1,530		)	(988		)
	(1,530		)	(988		)

Other comprehensive income	6,081			51,535

Comprehensive income	$	251,318		$	301,662

⁽¹⁾Net of taxes of $148 and $90 in the three months ended March 31, 2019 and 2018, respectively.

⁽²⁾ Net of taxes of $505 and $1,047 in the three months ended March 31, 2019 and 2018, respectively.

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Thousands of dollars


	June 30, 2018			December 31, 2017			June 30, 2017			March 31, 2019			December 31, 2018			March 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	154,973		$	204,213		$	210,049		$	94,393		$	155,505		$	158,613
Accounts receivable, less allowance	2,625,066			2,104,555			2,377,874			2,339,551			2,018,768			2,326,411
Inventories:
Finished goods	1,443,538			1,415,339			1,468,671			1,618,404			1,426,366			1,510,534
Work in process and raw materials	431,113			386,036			386,266			375,033			388,909			432,186
	1,874,651			1,801,375			1,854,937			1,993,437			1,815,275			1,942,720
Other current assets	382,515			355,697			411,141			387,763			354,939			400,249
Total current assets	5,037,205			4,465,840			4,854,001			4,815,144			4,344,487			4,827,993
Property, plant and equipment:
Land	245,247			254,676			259,415			243,686			244,608			248,613
Buildings	919,212			962,094			961,870			984,349			979,140			955,376
Machinery and equipment	2,589,790			2,572,963			2,595,633			2,670,902			2,668,492			2,604,311
Construction in progress	143,393			177,056			134,518			142,881			147,931			171,416
	3,897,642			3,966,789			3,951,436			4,041,818			4,040,171			3,979,716
Less allowances for depreciation	2,121,264			2,089,674			2,061,519			2,278,820			2,263,332			2,139,711
	1,776,378			1,877,115			1,889,917			1,762,998			1,776,839			1,840,005
Goodwill	6,994,206			6,814,345			7,178,113			6,956,394			6,956,702			6,819,976
Intangible assets	5,463,518			6,002,361			6,002,534			5,127,133			5,201,579			5,956,301
Operating lease right-of-use assets										1,663,444
Deferred pension assets	301,664			296,743			224,695			35,997			270,664			298,455
Other assets	581,761			502,023			568,138			600,531			584,008			566,046
Total assets	$	20,154,732		$	19,958,427		$	20,717,398		$	20,961,641		$	19,134,279		$	20,308,776

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings	$	650,718		$	633,731		$	51,904		$	824,833		$	328,403		$	920,010
Accounts payable	2,049,123			1,791,552			1,783,648			1,894,005			1,799,424			1,975,323
Compensation and taxes withheld	405,762			508,166			395,867			400,795			504,547			417,316
Accrued taxes	173,022			79,901			320,890			128,944			80,766			113,023
Current portion of long-term debt	1,179			1,179			701,101			303,896			307,191			1,179
California litigation accrual										136,333			136,333
Current portion of operating lease liabilities										356,457
Other accruals	910,283			972,651			898,503			955,293			1,141,083			900,301
Total current liabilities	4,190,087			3,987,180			4,151,913			5,000,556			4,297,747			4,327,152
Long-term debt	9,722,918			9,885,745			10,751,284			8,702,630			8,708,057			9,891,017
Postretirement benefits other than pensions	276,796			274,675			253,434			258,736			257,621			275,735
Deferred income taxes	1,380,370			1,434,196			2,467,348			1,128,804			1,130,872			1,480,066
Long-term operating lease liabilities										1,371,437
Other long-term liabilities	837,472			684,443			702,159			1,039,417			1,009,237			689,075
Shareholders’ equity:
Common stock—$1.00 par value:
93,381,022, 93,883,645 and 93,410,169 shares outstanding
at June 30, 2018, December 31, 2017 and June 30, 2017, respectively	117,964			117,561			117,071
92,316,202, 93,116,762 and 93,545,689 shares outstanding
at March 31, 2019, December 31, 2018 and March 31, 2018, respectively										118,672			118,373			117,875
Other capital	2,795,196			2,723,183			2,606,757			2,945,521			2,896,448			2,761,206
Retained earnings	5,997,628			5,502,730			4,448,788			6,386,948			6,246,548			5,630,323
Treasury stock, at cost	(4,621,250		)	(4,266,416		)	(4,262,120		)	(5,358,887		)	(4,900,690		)	(4,528,018		)
Cumulative other comprehensive loss	(542,449		)	(384,870		)	(519,236		)	(632,193		)	(629,934		)	(335,655		)
Total shareholders' equity	3,747,089			3,692,188			2,391,260			3,460,061			3,730,745			3,645,731
Total liabilities and shareholders’ equity	$	20,154,732		$	19,958,427		$	20,717,398		$	20,961,641		$	19,134,279		$	20,308,776

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

Thousands of dollars


	Six Months Ended						Three Months Ended
	June 30, 2018			June 30, 2017			March 31, 2019			March 31, 2018
OPERATING ACTIVITIES
Net income	$	653,731		$	558,263		$	245,237		$	250,127
Adjustments to reconcile net income to net operating cash:
Loss from discontinued operations	—			41,540
Depreciation	144,133			94,965			64,716			71,591
Amortization of intangible assets	158,942			35,088			78,771			85,049
Amortization of inventory purchase accounting adjustments	—			36,278
Stock-based compensation expense	36,776			35,866			23,068			14,611
Amortization of credit facility and debt issuance costs	5,513			2,940			2,176			2,749
Provisions for qualified exit costs	9,941			12,828			949			3,799
Provisions for environmental-related matters	32,018			1,629			592			765
Defined benefit pension plans net cost	(868		)	10,554			35,222			1,345
Net change in postretirement liability	996			(7,422		)	672			996
Deferred income taxes	27,455			(6,968		)	(2,605		)	3,451
Other	(9,995		)	(630		)	5,842			15
Change in working capital accounts - net	(471,675		)	(239,495		)	(495,961		)	(382,842		)
Costs incurred for environmental-related matters	(8,473		)	(6,059		)	(4,575		)	(4,069		)
Costs incurred for qualified exit costs	(14,325		)	(8,904		)	(437		)	(8,084		)
Other	14,927			25,660			10,383			1,246
Net operating cash	579,096			586,133			(35,950		)	40,749

INVESTING ACTIVITIES
Capital expenditures	(101,826		)	(83,635		)	(51,360		)	(42,253		)
Acquisitions of businesses, net of cash acquired and divestiture (see Note 4)	—			(8,806,282		)
Proceeds from sale of assets	14,354			37,131			2,750			7,352
Increase in other investments	(19,511		)	(11,444		)	(23,595		)	(5,650		)
Net investing cash	(106,983		)	(8,864,230		)	(72,205		)	(40,551		)

FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings	23,985			(228,785		)
Proceeds from long-term debt	—			7,984,375
Net increase in short-term borrowings							496,220			288,866
Payments of long-term debt	(151,794		)	(176		)	(39		)	(808		)
Payments for credit facility and debt issuance costs	(113		)	(45,454		)				(113		)
Payments of cash dividends	(161,641		)	(158,934		)	(104,762		)	(81,028		)
Proceeds from stock options exercised	33,419			79,157			24,864			21,595
Treasury stock purchased	(334,155		)	—			(305,146		)	(241,148		)
Proceeds from real estate financing transactions							9,488
Other	73,586			(26,420		)	(69,254		)	(14,813		)
Net financing cash	(516,713		)	7,603,763			51,371			(27,449		)

Effect of exchange rate changes on cash	(4,640		)	(5,410		)	(4,328		)	(18,349		)
Net decrease in cash and cash equivalents	(49,240		)	(679,744		)	(61,112		)	(45,600		)
Cash and cash equivalents at beginning of year	204,213			889,793			155,505			204,213
Cash and cash equivalents at end of period	$	154,973		$	210,049		$	94,393		$	158,613

Income taxes paid	$	95,181		$	121,115		$	16,055		$	27,910
Interest paid	185,065			31,816			57,919			57,757

See notes to condensed consolidated financial statements.

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Periods ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018

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, ~~2017~~2018, except as described in Note 2. Accounting estimates were revised as necessary during the first ~~six~~three months of ~~2018~~2019 based on new information and changes in facts and circumstances. Certain amounts in the ~~2017~~2018 condensed consolidated financial statements have been reclassified to conform to the ~~2018~~2019 presentation. ~~See Note 2.~~

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. 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, ~~2017~~2018.

The consolidated results for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2018~~2019.

NOTE 2—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adopted in ~~2018~~2019

Effective January 1, ~~2018,~~2019, the Company adopted Accounting Standards Update (ASU) No. ~~2014-09, "Revenue from Contracts with Customers," and all the related amendments (Accounting Standards Codification (ASC) 606)~~2016-02, "Leases" (ASC 842). ASC ~~606~~842 consists of a comprehensive ~~revenue recognition~~lease accounting standard ~~which requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects~~requiring most leases to be ~~entitled.~~recognized on the balance sheet and significant new disclosures. The Company adopted ~~the standard~~ASC 842 using the modified retrospective ~~method and applied it to all contracts. Under~~optional transition method. Therefore, the ~~modified retrospective method, the comparative periods are not restated.~~

~~The only significant change that resulted from the new revenue~~ standard was ~~that certain advertising support that was previously classified as Selling, general~~applied starting January 1, 2019 and ~~administrative expenses is now classified as~~prior periods were not restated. The adoption of ASC 842 did not result in a ~~reduction of revenue. This reclassification had no effect on Net income, and therefore, there was no~~material cumulative-effect adjustment to the opening balance of retained earnings. ~~During~~

The Company applied the ~~six months ended June 30, 2018, this change~~package of practical expedients permitted under the ASC 842 transition guidance. As a result, the Company did not reassess the identification, classification and initial direct costs of leases commencing before the effective date. The Company also applied the practical expedient to not separate lease and non-lease components to all new leases as well as leases commencing before the effective date.

The adoption of ASC 842 resulted in ~~$53.1 million within Consumer Brands Group being recorded as a reduction~~the recognition of ~~Net sales rather than in Selling, general~~right-of-use assets, current liabilities and ~~administrative expenses. The Company does not expect~~non-current liabilities related to operating leases of $1.7 billion, $.4 billion and $1.4 billion, respectively, at March 31, 2019. In addition, the adoption of ASC 842 resulted in a transition adjustment reducing the ~~new revenue standard~~toopening balance of retained earnings by $8.4 million. The adoption of ASC 842 did not have a material impact on ~~its Net income on an ongoing basis. Refer to~~the Company's results of operations, cash flows or debt covenants. See Note 316 for additional information.

Effective January 1, ~~2018,~~2019, the Company adopted ASU No. ~~2017-07, "Improving~~2018-02, "Reclassification of Certain Income Tax Effects from Accumulated Other Comprehensive Income." This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the ~~Presentation of Net Periodic Pension Cost~~Tax Cuts and Net Periodic Postretirement Benefit Costs." The standard requires the service component of pension and other postretirement benefit expense to be presented in the same income statement lines as other employee compensation costs, and the other components to be presented outside of operating income. The guidance on the presentation of components of pension and other postretirement benefit expense was adopted retrospectively, as required, and the practical expedient allowing estimates for comparative periods using the information previously disclosed in the pension and other postretirement benefit plan note was elected. The following table summarizes the impact of the standard for the six months ended June 30, 2018 and 2017.

(Thousands of dollars)
Six Months Ended
June 30, 2018 Six Months Ended June 30, 2017
Impact of ASU 2017-07 As Reported As Previously Reported (Without Adoption of ASU 2017-07) Reclass for ASU 2017-07 As Reported in 2018

Cost of goods sold $ 1,489
$ 5,013,327
$ 3,416,874
$ 2,660
$ 3,419,534
Selling, general and administrative expenses 5,958
2,522,426
2,155,667
9,133
2,164,800
Other expense (income) - net (7,447 ) (10,411 ) (6,137 ) (11,793 ) (17,930 )

Effective January 1, 2018, the Company adopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance for certain aspects of recognition, measurement and disclosure of financial instruments.Jobs Act. As a result of this standard, ~~changes in fair value of available-for-sale marketable securities that were previously recognized in~~the Company recorded an $8.3 million reclassification from cumulative other comprehensive ~~income are now recognized in~~loss to retained earnings. ~~In addition, in accordance with the guidance, the Company reclassified its opening unrealized gains balance of $2.3 million to Retained earnings.~~See Note 4. The adoption of this standard did not have a significant impact on the Company's results of operations, financial condition or liquidity.

Not Yet Adopted

In ~~February 2018,~~June 2016, the FASB issued ASU No. ~~2018-02, "Reclassification~~2016-13, "Measurement of ~~Certain Tax Effects from Accumulated Other Comprehensive Income.~~Credit Losses on Financial Instruments." This ASU ~~allows~~replaces the incurred loss impairment methodology in current GAAP with a ~~reclassification from accumulated other comprehensive income~~methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to ~~retained earnings stranded tax effects resulting from the Tax Cuts and Jobs Act.~~inform credit loss estimates. In

addition, new disclosures are required. The ASU is effective for fiscal years beginning after December 15, ~~2018, and early adoption is permitted.~~2019. The Company is evaluating the potential impact of the standard.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which consists of a comprehensive lease accounting standard. Under the new standard, assets and liabilities arising from most leases will be recognized on the balance sheet. Leases will be classified as either operating or financing, and the lease classification will determine whether expense is recognized on a straight-line basis (operating leases) or based on an effective interest method (financing leases). The new standard is effective for interim and annual periods starting in 2019. A modified retrospective transition approach is required with certain practical expedients available. The Company has made significant progress with its assessment process and anticipates this standard will have a material impact on its consolidated balance sheet. While the Company continues to assess all potential impacts of the standard, it currently believes the most significant impact relates to recording lease assets and related liabilities on the balance sheet for its retail operations in The Americas Group.

NOTE 3—REVENUE

The Company manufactures and sells paint, stains, supplies, equipment and floor covering through ~~Company-owned~~Company-operated stores, branded and private label products through retailers, and a broad range of industrial coatings directly to global manufacturing customers through company-operated branches. A large portion of the Company’s revenue is recognized at a point in time and made to customers who are not engaged in a long-term supply agreement or any form of contract with the Company. These sales are paid for at the time of sale in cash, credit card, or may be on account with the vast majority of customers having terms between 30 and 60 days, not to exceed one year. Many customers who purchase on account take advantage of early payment discounts offered by paying within 30 days of being invoiced. The Company estimates variable consideration ~~or performs a constraint analysis~~ for these sales on the basis of both historical information and current trends to estimate the expected amount of discounts to which customers are likely to be entitled.

The remaining revenue is governed by long-term supply agreements and related purchase orders (“contracts”) ~~which~~that specify shipping terms and aspects of the transaction price including rebates, discounts and other sales incentives, such as advertising support. Contracts are at standalone pricing. The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control of our products to the customer. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

Refer to Note 1513 for the Company's disaggregation of Net sales by reportable segment. As the reportable segments are aligned by similar economic factors, trends and customers, this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company has made payments or credits for rebates or incentives at the beginning of a long-term contract where future revenue is expected and before satisfaction of performance obligations. Under these circumstances, the Company recognizes a contract asset and amortizes these prepayments over the expected benefit life of the long-term contract typically on a straight-line basis. Management judgment is required when estimating sales-based variable consideration, determining whether it is constrained, measuring obligations for returns, refunds, and determining amortization periods for prepayments.

The majority of variable consideration in the Company’s contracts include a form of volume rebate, discounts, and other incentives, where the customer receives a retrospective percentage rebate based on the amount of their purchases. In these situations, the rebates are accrued as a fixed percentage of sales and recorded as a reduction of net sales until paid to the customer per the terms of the supply agreement. Forms of variable consideration such as tiered rebates, whereby a customer receives a retrospective price decrease dependent on the volume of their purchases, are calculated using a forecasted percentage to determine the most likely amount to accrue. Management creates a baseline calculation using historical sales and then utilizing forecast information, estimates the anticipated sales volume each quarter to calculate the expected reduction to sales. The remainder of the transaction price is fixed as agreed upon with the customer, limiting estimation of revenues including constraints.

The Company’s Accounts receivable and current and long-term contract assets and liabilities are summarized in the following table.

(Thousands of dollars)
Accounts Receivable, Less Allowance Contract
Assets
(Current) Contract
Assets
(Long-Term) Contract Liabilities (Current) Contract Liabilities (Long-Term)
Balance at January 1, 2018 $ 2,104,555
$ 33,031
$ 135,150
$ 208,909
$ 8,745
Balance at June 30, 2018 2,625,066
45,678
130,805
180,369
8,745



(Thousands of dollars)
	Accounts Receivable, Less Allowance		Contract Assets (Current)		Contract Assets (Long-Term)		Contract Liabilities (Current)		Contract Liabilities (Long-Term)
Balance at January 1, 2019	$	2,018,768	$	56,598	$	213,954	$	272,857	$	8,745
Balance at March 31, 2019	2,339,551		64,657		205,070		203,848		8,745

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.

Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue per ASC 606 when the products are sold. ~~With the exception of furniture protection plan sales, the~~The Company only offers an assurance type warranty on products sold, and there is no material

service to the customer beyond fixing defects that existed at the time of sale and no warranties are sold separately. Warranty liabilities are excluded from the table above and discussed in Note 7.5. Amounts ~~reclassified~~recognized during the quarter from deferred liabilities to ~~Revenue~~revenue were not material. The Company records a right of return liability within each of its operations to accrue for expected customer returns. Historical actual returns are used to estimate future returns as a percentage of current sales. Obligations for returns and refunds were not material individually or in the aggregate.

NOTE 4—SHAREHOLDERS' EQUITY

~~NOTE 4~~—~~ACQUISITIONS~~

~~On June 1, 2017,~~Dividends paid on common stock during the ~~Company completed the acquisition~~first quarter of ~~The Valspar Corporation (Valspar) at $113~~2019 and 2018 were $1.13 per share ~~in an all cash transaction for a total purchase price of $8.9 billion, net of divestiture proceeds of $431.0 million (Acquisition). On April 11, 2017,~~and $.86 per share, respectively.

The following tables summarize the Company and Valspar entered into a definitive agreement with Axalta Coating Systems Ltd. to divest the assets related to Valspar's North American industrial wood coatings business. The divestiture was also completed on June 1, 2017, and is reported as a discontinued operation with no pre-tax gain or loss but includes the tax expense effect of this separate transaction. Proceeds of $431.0 million were received for the divested assets sold. The divestiture resulted in a tax provision of $41.5 million, which reduced basic and diluted net income per common share for the three and six months ended June 30, 2017 by $.45 and $.44, respectively. The Acquisition expanded the Company's diversified array of brands and technologies, expanded its global platform and added new capabilities in its packaging and coil businesses. See Note 2 to the Consolidated Financial Statementschanges in the ~~Company's Annual Report on Form 10-K for the year ended December 31, 2017 for additional information.~~

~~The preliminary and final allocation~~components of ~~the fair value of the Acquisition is summarized in the following table. The allocation of the fair value is based on the acquisition method of accounting and third-party valuation appraisals.~~

(Millions of dollars)

Preliminary Allocation
(as reported at March 31, 2018)
Measurement Period Adjustments
Final Allocation
(as reported at June 30, 2018)

Cash $ 129.1
$ —
$ 129.1
Accounts receivable 817.5
—
817.5
Inventories 684.4
—
684.4
Indefinite-lived trademarks 775.9
(161.6 ) 614.3
Finite-lived intangible assets 5,071.8
(148.9 ) 4,922.9
Goodwill 5,654.4
234.4
5,888.8
Property, plant and equipment 841.0
(0.3 ) 840.7
All other assets 231.3
3.8
235.1
Accounts payable (553.2 ) —
(553.2 )
Long-term debt (1,603.5 ) —
(1,603.5 )
Deferred taxes (2,015.3 ) 99.4
(1,915.9 )
All other liabilities (1,094.0 ) (26.8 ) (1,120.8 )
Total $ 8,939.4
$ —
$ 8,939.4
Total, net of cash $ 8,810.3
$ —
$ 8,810.3

Finite-lived intangible assets include customer relationships of $3.2 billion and intellectual property and technology of $1.7 billion, which are being amortized over weighted average amortization periods ranging from 15 to 20 years. The measurement period adjustments for finite-lived intangible assets resulted in a $7.7 million reduction of amortization expense in the three months ended June 20, 2018 that related to prior periods ($5.4 million for the year ended December 31, 2017 and $2.3 millionshareholders' equity for the three months ended March 31, ~~2018).Goodwill of $2.0 billion, $1.1 billion,~~2019 and ~~$2.8 billion was recorded in The Americas Group, Consumer Brands Group, and Performance Coatings Group, respectively, and relates primarily to expected synergies.~~

The Company's Net sales and Net income for the three and six months ended June 30, 2018 included net sales of $1.216 billion and $2.284 billion, respectively, and a profit before tax of $108.9 million and $189.1 million, respectively, related to the operations of the Acquisition. Net income for the three and six months ended June 30, 2018 included Acquisition-related costs and purchase accounting amortization impacts of $115.4 million and $235.2 million, respectively, and Acquisition-related interest expense of $69.1 million and $137.7 million, respectively.

The Company's Net sales and Net income from continuing operations for the three and six months ended June 30, 2017 included net sales of $381.0 million and a profit before tax of $46.6 million related to the operations of the Acquisition. Net income from continuing operations for the three and six months ended June 30, 2017 included Acquisition-related costs of $85.4 million and $93.4 million, respectively, and Acquisition-related interest expense of $36.5 million and $41.5 million, respectively.

The following pro forma information presents consolidated financial information as if Valspar had been acquired at the beginning of 2017. Pro forma adjustments have been made to exclude Valspar's divested North American industrial wood coatings business results and certain transaction and integration costs from all periods presented. Interest expense has been adjusted as though total debt related to the Acquisition had been outstanding at January 1, 2017. Amortization of acquired intangibles and fixed asset step-ups has been adjusted as though the amortization period started January 1, 2017. The $54.9 million amortization of inventory cost increases resulting from the purchase accounting has been included in 2017 to reflect the pro forma transaction date of January 1, 2017. The unaudited pro forma consolidated financial information does not necessarily reflect the actual results that would have occurred had the Acquisition taken place on January 1, 2017, nor is it meant to be indicative of future results of operations of the combined companies under the ownership and operation of the Company.

(Thousands of dollars except per share data) Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Net sales $ 4,773,796
$ 4,439,801
$ 8,738,802
$ 8,148,329
Net income from continuing operations 426,077
399,817
708,982
550,527
Net income per common share from continuing operations:
Basic $ 4.59
$ 4.31
$ 7.61
$ 5.94
Diluted $ 4.49
$ 4.21
$ 7.44
$ 5.81

~~NOTE 5—DIVIDENDS~~

~~Dividends paid on common stock during each of the first two quarters of~~ ~~2018~~ ~~and~~ ~~2017~~ ~~were $.86 per common share and $.85 per common share, respectively.~~

~~NOTE 6—CHANGES IN CUMULATIVE OTHER COMPREHENSIVE LOSS~~

~~The following tables summarize the changes in Cumulative other comprehensive loss for the~~ ~~six months~~ ~~ended~~ ~~June 30, 2018~~ ~~and 2017:~~

(Thousands of dollars) Foreign Currency Translation Adjustments Pension and Other Postretirement Benefit Adjustments Unrealized Net Gains on Available-for-Sale Securities Unrealized Net Gains on Cash Flow Hedges Total Cumulative Other Comprehensive (Loss) Income
Balance at December 31, 2017 $ (353,346 ) $ (84,863 ) $ 2,320
$ 51,019
$ (384,870 )
Amounts recognized in Other comprehensive loss
(152,296 ) (152,296 )
Amounts reclassified from Other comprehensive loss ⁽¹⁾

(65 ) (2,320 ) (2,898 ) (5,283 )
Net change (152,296 ) (65 ) (2,320 ) (2,898 ) (157,579 )
Balance at June 30, 2018 $ (505,642 ) $ (84,928 ) $ —
$ 48,121
$ (542,449 )

⁽¹⁾ ~~Net of taxes of $505 for pension and other postretirement benefit adjustments, $760 for realized gains on the sale of available-for-sale securities and $1,195 for realized~~ ~~gains~~ ~~on cash flow hedges.~~

2018.

(Thousands of dollars) Foreign Currency Translation Adjustments Pension and Other Postretirement Benefit Adjustments Unrealized Net Gains on Available-for-Sale Securities Unrealized Net Gains (Losses) on Cash Flow Hedges Total Cumulative Other Comprehensive (Loss) Income
Balance at December 31, 2016 $ (501,277 ) $ (125,096 ) $ 1,015
$ 85,007
$ (540,351 )
Amounts recognized in Other comprehensive loss⁽¹⁾
51,250
870
(30,754 ) 21,366
Amounts reclassified from Other comprehensive loss ⁽²⁾
385
8
(644 ) (251 )
Net change 51,250
385
878
(31,398 ) 21,115
Balance at June 30, 2017 $ (450,027 ) $ (124,711 ) $ 1,893
$ 53,609
$ (519,236 )



(Thousands of dollars except per share data)
	Common Stock		Other Capital		Retained Earnings			Treasury Stock			Cumulative Other Comprehensive Loss			Total
Balance at December 31, 2018	$	118,373	$	2,896,448	$	6,246,548		$	(4,900,690	)	$	(629,934	)	$	3,730,745
Net income					245,237									245,237
Other comprehensive income											6,081			6,081
Adjustment to initially apply ASU 2016-02					(8,415		)							(8,415		)
Adjustment to initially apply ASU 2018-02					8,340						(8,340		)	—
Treasury stock purchased								(305,146		)				(305,146		)
Treasury stock transferred from defined benefit pension plan								(131,781		)				(131,781		)
Stock-based compensation activity	299		47,561					(21,270		)				26,590
Other adjustments			1,512											1,512
Cash dividends					(104,762		)							(104,762		)
Balance at March 31, 2019	$	118,672	$	2,945,521	$	6,386,948		$	(5,358,887	)	$	(632,193	)	$	3,460,061

⁽¹⁾~~Net~~



(Thousands of dollars except per share data)
	Common Stock		Other Capital		Retained Earnings			Treasury Stock			Cumulative Other Comprehensive Loss			Total
Balance at December 31, 2017	$	117,561	$	2,723,183	$	5,458,416		$	(4,266,416	)	$	(384,870	)	$	3,647,874
Net income					250,127									250,127
Other comprehensive income											51,535			51,535
Adjustment to initially apply ASU 2016-01					2,320						(2,320		)	—
Treasury stock purchased								(241,148		)				(241,148		)
Stock-based compensation activity	314		35,821					(20,454		)				15,681
Other adjustments			2,202		488									2,690
Cash dividends					(81,028		)							(81,028		)
Balance at March 31, 2018	$	117,875	$	2,761,206	$	5,630,323		$	(4,528,018	)	$	(335,655	)	$	3,645,731

The treasury stock transferred from defined benefit pension plan relates to the termination of ~~taxes of $(537)~~the Company's domestic defined benefit pension plan as described in Note 7. See Note 2 for ~~unrealized net gains~~information on ~~available-for-sale securities and $18,895 for unrealized net losses on cash flow hedges.~~ASU 2018-02.

⁽²⁾~~Net of taxes of $(195) for pension and other postretirement benefit adjustments, $(5) for realized losses on the sale of available-for-sale securities and $396 for realized gains on cash flow hedges.~~

NOTE 7—5—PRODUCT WARRANTIES

Changes in the Company’s accrual for product warranty claims during the first ~~six~~three months of ~~2018~~2019 and ~~2017~~2018, including customer satisfaction settlements, were as follows:


(Thousands of dollars)
	2018			2017			2019			2018
Balance at January 1	$	151,425		$	34,419		$	57,067		$	151,425
Charges to expense	14,639			16,434			6,460			6,437
Settlements	(8,185		)	(16,698		)	(6,667		)	(4,488		)
Acquisition and other adjustments	(15,309		)	110,461
Balance at June 30	$	142,570		$	144,616
Balance at March 31							$	56,860		$	153,374

Warranty accruals acquired in connection with the Acquisition include warranties for certain products under extended furniture protection plans. In the U.S., revenue related to furniture protection plans is deferred and recognized over the life of the contract.

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, ~~2017~~2018. The furniture protection plan business divestiture in the third quarter of 2018 caused the large decrease in the product warranty claims accrual.

NOTE 8—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 ~~six~~three months ended ~~June 30, 2018~~March 31, 2019, ~~eleven~~two stores in The Americas Group and ~~six~~two branches in the Performance Coatings Group were closed due to lower demand or redundancy. The Company continues to evaluate all legacy operations in response to the ~~Acquisition~~Valspar acquisition in order to optimize restructured operations. These ~~Acquisition-related~~acquisition-related restructuring charges to date are recorded in the Administrative ~~segment as presented in the table below.~~segment. The following table summarizes the activity and remaining liabilities associated with qualified exit costs at ~~June 30, 2018~~March 31, 2019:and2018. The provisions and expenditures relate primarily to acquisition-related restructuring.

(Thousands of dollars)
Provisions Actual
Balance at in Cost of Expenditures Balance at
December 31, Goods Sold Charged to June 30,
Exit Plan 2017 or SG&A Accrual 2018
Administrative segment Acquisition-related restructuring:
Severance and related costs $ 6,019
$ 7,800
$ (10,961 ) $ 2,858
Other qualified exit costs 5,541

(2,501 ) 3,040
Performance Coatings Group facilities shutdown in 2018:
Other qualified exit costs 1,495
(45 ) 1,450
Performance Coatings Group branches shutdown in 2017:
Severance and related costs 14
286
(118 ) 182
Other qualified exit costs 121
360
(95 ) 386
Consumer Brands Group facilities shutdown in 2016:
Severance and related costs 21

(21 )
Performance Coatings Group branches shutdown in 2016:
Other qualified exit costs 111

(41 ) 70
Severance and other qualified exit costs for facilities shutdown prior to 2016 1,558

(543 ) 1,015
Totals $ 13,385
$ 9,941

$ (14,325 ) $ 9,001



(Thousands of dollars)
	2019			2018
Balance at January 1	$	7,052		$	13,385
Provisions in Cost of goods sold or SG&A	949			3,799
Actual expenditures charged to accrual	(437		)	(8,084		)
Balance at March 31	$	7,564		$	9,100

For further details on the Company’s exit or disposal activities, see Note 56 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

NOTE 97—HEALTH CARE, PENSION AND OTHER BENEFITS

Shown below are the components of the Company’s net periodic benefit cost (credit) ~~cost~~ 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
2018 2017 2018 2017 2018 2017
Three Months Ended June 30:
Net periodic benefit (credit) cost:
Service cost $ 1,158
$ 5,459
$ 2,016
$ 2,287
$ 499
$ 471
Interest cost 8,540
7,191
2,351
1,864
2,544
2,593
Expected return on assets (14,382 ) (11,299 ) (2,685 ) (2,008 )
Recognition of:
  Unrecognized prior service cost 406
340

(1,642 ) (1,645 )
Unrecognized actuarial loss

1,662
383
(97 ) 582
5
     Ongoing pension (credit) cost (4,278 ) 3,353
2,065
2,046
1,983
1,424
Settlements

(9,332 )
Net pension (credit) cost $ (4,278 ) $ 3,353
$ 2,065
$ 2,046
$ 1,983
$ (7,908 )

Six Months Ended June 30:
Net periodic benefit (credit) cost:
Service cost $ 5,515
$ 10,772
$ 4,032
$ 4,205
$ 997
$ 1,014
Interest cost 16,692
13,601
4,703
3,502
5,089
5,236
Expected return on assets (28,816 ) (21,608 ) (5,370 ) (3,772 )
Recognition of:
  Unrecognized prior service cost 785
681
(3,284 ) (3,290 )
Unrecognized actuarial loss

3,323
766
(150 ) 1,163
16
Ongoing pension (credit) cost (5,824 ) 6,769
4,131
3,785
3,965
2,976
Settlements and curtailments 825

(9,332 )
Net periodic benefit (credit) cost $ (4,999 ) $ 6,769
$ 4,131
$ 3,785
$ 3,965
$ (6,356 )



(Thousands of dollars)	Domestic Defined Benefit Pension Plans						Foreign Defined Benefit Pension Plans						Postretirement Benefits Other than Pensions
	2019			2018			2019			2018			2019			2018
Three Months Ended March 31:
Net periodic benefit cost (credit):
Service cost	$	933		$	4,357		$	1,490		$	2,016		$	361		$	498
Interest cost	1,198			8,152			2,356			2,352			2,800			2,545
Expected return on assets	(1,332		)	(14,434		)	(2,440		)	(2,685		)
Recognition of:
Unrecognized prior service cost (credit)	349			379									(1,249		)	(1,642		)
Unrecognized actuarial loss							258			383			134			581
Ongoing pension cost (credit)	1,148			(1,546		)	1,664			2,066			2,046			1,982
Curtailment expense				825
Settlement expense	32,410
Net periodic benefit cost (credit)	$	33,558		$	(721	)	$	1,664		$	2,066		$	2,046		$	1,982

Service cost is recorded in Cost of goods sold and Selling, general and administrative expenses. All other components are recorded in Other ~~income~~expense (income) - net. ~~See Note 2 for information on the adoption of ASU No. 2017-07.~~

During the first quarter of ~~2018,~~2019, the ~~Company's~~Company purchased annuity contracts to settle the remaining liabilities of the domestic defined benefit pension plan that was ~~split into two separate overfunded plans: one that will continue to operate (Ongoing Plan) and one that will be~~ terminated ~~(Terminating~~in 2018 (Terminated Plan). The ~~Company provided notice to participants of the Terminating Plan of the intent to terminate the plan and applied for a determination letter. The Terminating Plan was frozen as of March 31, 2018, which~~annuity contract purchase resulted in a ~~curtailment expense.~~settlement charge of $32.4 million in the first quarter of 2019. The remaining surplus of the Terminated Plan will be used, as prescribed in the applicable regulations, to fund future Company contributions to a qualified replacement pension plan, which is the current domestic defined contribution plan (Qualified Replacement Plan). During the ~~second~~first quarter of ~~2018,~~2019, the ~~Terminating Plan was terminated.~~Company transferred $201.8 million of the surplus to a suspense account held within a trust for the Qualified Replacement Plan. This amount included $131.8 million of Company stock (300,000 shares). The ~~Company has begun~~shares are treated as treasury stock in accordance with ASC 715. The remainder of the process of winding up the Terminating Plan, which will include settling plan liabilities by offering lump sum distributions to plan participants or purchasing annuity contracts for those who either do not elect lump sums or are already receiving benefit payments. The Company's settlement obligation will depend on the nature of participant settlements and the prevailing market conditions.

~~The settlement gain recognized in the second quarter of 2017 relates~~surplus related to the ~~termination~~Terminated Plan will be transferred to the Qualified Replacement Plan suspense account after the final expenses associated with the wind-up of ~~a life insurance benefit plan.~~the Terminated Plan have been settled.

For further details on the Company’s health care, pension and other benefits, see Note 67 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

NOTE ~~10—~~8—OTHER LONG-TERM LIABILITIES

The Company initially provides for estimated costs of environmental-related activities relating to its past operations and ~~third party~~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 ~~June 30, 2018~~March 31, 2019, the unaccrued maximum of the estimated range of possible outcomes is $~~101.5~~116.4 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~~the accrued 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~~other long-term liabilities at ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018 were accruals for extended environmental-related activities of $~~215.1~~319.0 million and $~~160.2~~177.8 million, respectively. Estimated costs of current investigation and remediation activities of ~~$27.0~~$51.0 million and $~~30.4~~27.0 million are included in ~~Other~~other accruals at ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, respectively.

Four 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 ~~June 30, 2018~~March 31, 2019. At ~~June 30, 2018~~March 31, 2019, $~~189.5~~323.4 million, or ~~78.3 percent~~87.4% of the total accrual, related directly to these four sites. In the aggregate unaccrued maximum of $~~101.5~~116.4 million at ~~June 30, 2018~~March 31, 2019, $~~85.1~~92.8 million, or ~~83.8 percent~~79.7%, related to the four 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 89 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

NOTE 119 – 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.

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.

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~~Except with respect to the litigation in California discussed below, the Company has not accrued any amounts for such ~~litigation. With respect to such~~ litigation ~~with the exception of the public nuisance litigation in California discussed below,~~because the Company does not believe ~~that~~ it is probable that a loss has occurred, and the Company believes 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 or any such liability is higher than any amount currently accrued for 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,~~Island; the City of St. Louis, ~~Missouri,~~Missouri; various cities and counties in the State of New ~~Jersey,~~Jersey; various cities in the State of Ohio and the State of ~~Ohio,~~Ohio; the City of Chicago, ~~Illinois,~~Illinois; the City of Milwaukee, ~~Wisconsin and~~Wisconsin; the County of Santa Clara, California, and other public entities in the State of ~~California.~~California; and Lehigh and Montgomery Counties in Pennsylvania. Except for the Santa Clara County, California proceeding and the pending Pennsylvania proceedings, 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~~Santa Clara County, California Proceeding. 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, as well as 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. Oral argument before the Sixth District Court of Appeal was held on August 24, 2017. On November 14, 2017, the Sixth District Court of Appeal entered its decision, which affirmed the trial court’s judgment of liability with respect to residences built before 1951 and reversed and vacated the trial court’s judgment with respect to residences built after 1950. The Sixth District Court of Appeal directed the trial court to: (i) recalculate the amount of the abatement fund to limit the fund to the amount necessary to cover the cost of inspecting and remediating pre-1951 residences; and (ii) hold an evidentiary hearing to appoint a suitable receiver. On November 29, 2017, the Company and the two other defendants filed separate Petitions for Rehearing, which the Sixth District Court of Appeal denied on December 6, 2017. The Sixth District Court of Appeal’s decision became final on December 14, 2017. On December 22, 2017, the Company and the two other defendants submitted separate Petitions for Review to the California Supreme Court. On February 14, 2018, the California Supreme Court issued an order denying the Petitions for Review.

On April 17, 2018, the parties filed their briefs with the trial court regarding the recalculation of the amount of the abatement fund. The plaintiffs proposed ~~$730.00~~$730.0 million as the amount of the abatement fund, and the Company and the other two defendants jointly proposed a maximum amount of no more than ~~$409.05~~$409.1 million. On August 17, 2018, the trial court held a hearing regarding the recalculation of the amount of the abatement fund. On September 4, 2018, the trial court ruled that the amount of the abatement fund is $409.1 million. On March 8, 2019, the trial court approved a setoff of $8.0 million to the abatement fund reducing the abatement fund to $401.1 million. On May 17, 2018, NL Industries filed a Motion for Good Faith Settlement, which the Company and ConAgra opposed. The trial court held a hearing on NL Industries’ Motion for Good Faith Settlement on July 12, 2018 and subsequently denied NL Industries' Motion. NL Industries has filed a petition for writ of mandate with the ~~parties are awaiting the trial court’s decision. At such hearing, the trial court scheduled an August 17, 2018 case management conference~~Sixth District Court of Appeal seeking to ~~announce a decision on the amount~~obtain immediate appellate review and reversal of the ~~abatement fund.~~denial of its motion. On July 16, 2018, the Company filed a Petition for Writ of Certiorari with the Supreme Court of the United States seeking discretionary review. ~~The Company expects~~On October 15, 2018, the Supreme Court of the United States ~~to decide whether to accept~~denied the ~~case during~~Company's Petition for Writ of Certiorari.

The trial court has selected a receiver for the ~~fourth quarter~~abatement fund, but the terms of ~~2018.~~an order appointing the receiver have not been determined. The trial court has stayed the entry of judgment pending the decision of the Sixth District Court of Appeal on NL Industries' petition for writ of mandate, but otherwise has ruled that, within sixty days of entry of judgment, the Company, ~~believes that~~ConAgra and NL Industries shall pay into the ~~judgment conflicts with established principles of law and is unsupported by the evidence.~~abatement fund all amounts due.

Although the Company believes it is probable that a loss has occurred, the ~~Company has concluded that it is not possible to reasonably estimate~~ultimate amount of such loss and the ~~range~~timing of ~~potential loss~~any payments remains uncertain and could change in the future due to the numerous possible outcomes and uncertainties, including, but not limited to, (i) the final amount of the abatement fund ~~necessary to cover~~that will be paid, particularly because participation in the ~~cost~~abatement program by eligible homeowners is voluntary and it is uncertain what percentage of ~~inspecting and remediating pre-1951 residences, as recalculated by the trial court,~~eligible homeowners will participate or how claims will be administered, and (ii) the portion of the abatement fund for which the Company, the two other defendants and others are determined to be responsible. IfHowever, the Company ~~concludes that it~~accrued $136.3 million for this litigation in 2018, which is approximately one-third of the amount of the abatement fund. It is possible ~~to reasonably estimate the range of potential loss once more definitive information becomes available,~~that the Company ~~will recognize~~may change the ~~loss~~amount accrued for this litigation based on the facts and ~~disclose such information.~~circumstances. Because of joint and several liability, it is possible the Company could ultimately be liable for the total amount of the abatement fund. In the event any ~~significant~~ liability is ~~determined to be attributable to the Company relating to~~higher than any amount currently accrued for such litigation, the recording of any 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 liability is accrued.

Pennsylvania Proceedings. Two proceedings in Pennsylvania were initiated in October 2018. The County of Montgomery, Pennsylvania filed a Complaint against the Company and several other former lead-based paint and lead pigment manufacturers in the Court of Common Pleas of Montgomery County, Pennsylvania. The County of Lehigh, Pennsylvania also filed a Complaint against the Company and several other former lead-based paint and lead pigment manufacturers in the Court of Common Pleas of Lehigh County, Pennsylvania. The Company removed both actions to the United States District Court for the Eastern District of Pennsylvania on November 28, 2018. The plaintiffs filed a motion for remand in each action on January 7, 2019, which the defendants have opposed. In both actions, the counties request declaratory relief establishing the existence of a public nuisance and the defendants' contribution to it, the abatement of an ongoing public nuisance arising from the presence of lead-based paint in housing throughout the applicable county, an injunction against future illicit conduct, and the costs of litigation and attorneys' fees.

In October 2018, the Company filed a Complaint in the United States District Court for the Eastern District of Pennsylvania against the Pennsylvania Counties of Delaware, Erie and York seeking injunctive and declaratory relief to prevent the violation of the Company's rights under the First Amendment and Due Process Clause of the U.S. Constitution. The Company voluntarily dismissed defendant Erie County on November 9, 2018 and defendant York County on November 21, 2018. Defendant Delaware County has filed a motion to dismiss the Complaint, which is pending.

Litigation seeking damages from alleged personal ~~injury~~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 Wisconsin 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. The case is currently pending in the District Court. ~~Three cases also are pending in the~~

The United States District Court for the Eastern District of Wisconsin has consolidated three cases (Ravon Owens v. American Cyanamid, et al., Cesar Sifuentes v. American Cyanamid, et al., and Glenn Burton, Jr. v. American Cyanamid, et al.) ~~in which dispositive motions have been filed~~for purposes of trial and set a trial date for May 6, 2019. The parties are ~~currently pending.~~ preparing for trial.

In Maniya Allen, et al. v. American Cyanamid, et al., also pending in the United States District Court for the Eastern District of Wisconsin, cases involving six of the 146 plaintiffs were selected for discovery. In Dijonae Trammell, et al. v. American Cyanamid, et al., also pending in the United States District Court for the Eastern District of Wisconsin, discovery for one of the three plaintiffs was consolidated with the six Allen cases referenced above. The parties have selected four of the cases to proceed to expert discovery and to prepare for trial. ~~Discovery has been stayed pending the Court's disposition of the pending~~No dates for expert discovery, pretrial dispositive motions ~~in the Burton, Owens and Sifuentes cases. No~~or trial ~~dates~~ have been set by the District ~~Court.~~Court in the Allen and Trammell cases.

Other lead-based paint and lead pigment litigation. In Mary Lewis v. Lead Industries Association, et al. pending in the Circuit Court of Cook County, Illinois, parents seek to recover the cost of their children’s blood lead testing against the Company and three other defendants that made (or whose alleged corporate predecessors made) white lead pigments. The Circuit Court has certified a statewide class and a Chicago subclass of parents or legal guardians of children who lived in high-risk zip codes identified by the Illinois Department of Health and who were screened for lead toxicity between August 1995 and February 2008. Excluded from the class are those parents or guardians who have incurred no expense, liability or obligation to pay for the cost of their children’s blood lead testing. In 2017, the Company and other defendants moved for summary judgment on the grounds that the three named plaintiffs have not paid and have no obligation or liability to pay for their children’s blood lead testing because Medicaid paid for the children of two plaintiffs and private insurance paid for the third plaintiff without any evidence of a co-pay or deductible. The Circuit Court granted the motion, but on September 7, 2018, the Appellate Court reversed with respect to the two plaintiffs for whom Medicaid paid for their children’s testing. Defendants filed a petition with the Supreme Court of Illinois for discretionary review. By order entered January 31, 2019, that court has allowed defendants’ petition for leave to appeal.

Insurance coverage ~~litigation~~.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~~previously was stayed and inactive. On January 9, 2019, the Company filed an unopposed motion to lift the stay with the trial court, which was granted, allowing the case to proceed. 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, except with respect to the litigation in California discussed above, 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.

NOTE ~~12—~~10—OTHER

Other general (income) expense - net

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


(Thousands of dollars)	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
	2018			2017		2018			2017		2019			2018
Provisions for environmental matters - net	$	31,253		$	1,110	$	32,018		$	1,629	$	592		$	765
(Gain) loss on sale or disposition of assets	(4,274		)	665		(2,049		)	422		(1,050		)	2,225
Total	$	26,979		$	1,775	$	29,969		$	2,051	$	(458	)	$	2,990

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 108 for further details on the Company’s environmental-related activities.

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

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

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


(Thousands of dollars)	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Dividend and royalty income	$	(1,521	)	$	(1,198	)	$	(2,972	)	$	(3,042	)	$	(4,766	)	$	(1,451	)
Net expense from banking activities	2,450			2,513			4,686			4,985			2,668			2,236
Foreign currency transaction related losses (gains)	5,626			976			3,164			(2,610		)
Miscellaneous pension income	(3,903		)	(10,726		)	(7,447		)	(11,793		)
Foreign currency transaction related gains													(2,106		)	(2,462		)
Domestic pension plan settlement expense													32,410
Miscellaneous pension expense (income)													2,074			(3,544		)
Other income	(6,999		)	(5,937		)	(14,108		)	(10,897		)	(8,958		)	(7,109		)
Other expense	3,208			1,876			6,266			5,427			1,987			3,058
Total	$	(1,139	)	$	(12,496	)	$	(10,411	)	$	(17,930	)	$	23,309		$	(9,272	)

Foreign currency transaction related ~~losses (gains)~~gains represent net realized ~~losses (gains)~~gains on U.S. dollar-denominated liabilities of foreign subsidiaries and net realized and unrealized ~~losses (gains)~~gains from foreign currency option and forward contracts. There were no material foreign currency option and forward contracts outstanding at ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

Miscellaneous pension ~~income~~expense (income) consists of the non-service components of net pension costs (credits). See Note 27 for information on Miscellaneous pension income and the ~~adoption of ASU No. 2017-07 and Note 9 for the detail of net~~Domestic pension ~~costs (credits).~~plan settlement expense.

Other income and Other expense included items of revenue, gains, expenses and losses that were unrelated to the primary business purpose of the Company. There were no other items within the other income or other expense caption that were individually significant.

NOTE ~~13—~~11—INCOME TAXES

The effective tax rate ~~for income from continuing operations~~ was ~~25.0 percent~~ ~~and 22.3 percent~~17.9% for the ~~second~~first quarter ~~and first six months~~ of ~~2018~~2019~~, respectively,~~ compared to ~~29.1 percent and 26.5 percent~~17.6% for the ~~second~~first quarter ~~and first six months~~ of ~~2017, respectively.~~2018. The ~~decrease~~increase in the effective tax rate for the ~~second~~first quarter ~~and first six months~~ of ~~2018~~2019 compared to ~~2017~~2018 was primarily due to the overall favorable impact of the Tax Cuts and Jobs Act (Tax Act). The Company received favorable tax benefits from the reduction in the corporate domestic income tax rate from 35 percent to 21 percent and a deduction related to foreign-derived intangible income. The Company also received an income tax benefit relating to an increase in the tax basis of the assets of various foreign subsidiaries in the second quarter of 2018. These benefits were partially offset by a $27.5 million reversal of tax benefits recorded in the fourth quarter of 2017 primarily related to the Tax Act due to purchase accounting adjustments made in the second quarter of 2018 related to the Acquisition. The Tax Act’s elimination of the domestic manufacturing deduction, a reduction in allowable foreign tax credits and a decreased benefit related to international tax rate differences also negatively impacted the effective tax rate for the second quarter and first six months of 2018. The Company recorded an income tax provision of $41.5 million in the second quarter of 2017 related to the divestiture of Valspar's North American industrial wood coatings business, which is reported as a discontinued operation. See Note 4.

In accordance with Staff Accounting Bulletin (SAB) No. 118, based on the information available as of December 31, 2017, the Company recorded a provisional reduction of income taxes of $607.9 million as a result of the Tax Act. The Company's deferred tax liabilities were reduced by $560.2 million due to the lower income tax rate. The remaining $47.7 million is the effects of the implementation of the territorial tax system and the remeasurement of U.S. deferred tax liabilities on unremitted foreign earnings. The final impact of the Tax Act may differ from the provisional amounts recorded at December 31, 2017, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act. During the second quarter of 2018, the Company made purchase accounting adjustments related to the Acquisition which resulted in the reversal of $27.5 million of income tax benefits related to research and development credit refund requests that were claimed in the ~~remeasurement~~first quarter of ~~U.S. deferred tax liabilities.~~2018 that were not available in the first quarter of 2019.

At December 31, ~~2017,~~2018, the Company had ~~$59.0~~$89.5 million in unrecognized tax benefits, the recognition of which would have an effect of ~~$49.5~~$83.0 million on the effective tax rate. Included in the balance of unrecognized tax benefits at December 31, ~~2017~~2018 was ~~$5.2~~$14.5 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 primarily of items related to federal audits of partnership investments and expiring statutes in federal, foreign and state jurisdictions. ~~During~~There were no significant changes to any of the ~~first six months of 2018, the Company added an additional $20.8 million~~balances of unrecognized tax benefits ~~primarily due to purchase accounting adjustments related to~~at December 31, 2018 during the ~~Acquisition.~~first three months of 2019.

The Company classifies all income tax related interest and penalties as income tax expense. At December 31, ~~2017~~2018, the Company had accrued $~~14.6~~24.8 million for the potential payment of income tax interest and penalties. ~~During the first six months of 2018, the Company added an additional $8.4 million of tax-related interest and penalties, primarily due to purchase accounting adjustments related to the Acquisition.~~

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The IRS is currently auditing the Company's 2013, 2014 and 2015 income tax ~~returns, as well as the 2014 and 2015 tax years of a Valspar subsidiary.~~returns. No significant adjustments have been proposed by the IRS. The IRS and the Joint Committee of Taxation have approved refund claims for the 2010, 2011 and 2012 tax years. The Company will receive approximately ~~$7.5~~$5.0 million of tax and interest related to the refund ~~claims by~~claims. In addition, the ~~end~~IRS is reviewing the refund claim audit for the 2014 tax year of Valspar. Once the ~~2018~~review is complete, the IRS will submit the refund request of $5.4 million to the Joint Committee of Taxation for approval. A refund claim for $1.5 million has been filed on behalf of Valspar for the 2015 tax year. As of ~~June 30, 2018,~~March 31, 2019, the federal statute of limitations ~~has~~had not expired for the 2013 ~~2014, 2015 and 2016~~through 2018 tax years.

As of ~~June 30, 2018~~,March 31, 2019, the Company is subject to non-U.S. income tax examinations for the tax years of 2010 through ~~2017.~~2018. In addition, the Company is subject to state and local income tax examinations for the tax years ~~2005~~1998 through ~~2017.~~2018.

NOTE ~~14—~~12—NET INCOME PER ~~COMMON~~ SHARE

Basic and diluted earnings per share are calculated using the treasury stock method.

(Thousands of dollars except per share data) Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Basic
Average common shares outstanding 92,926,421
92,841,148
93,132,993
92,695,853
Net income
Continuing operations $ 403,604
$ 360,651
$ 653,731
$ 599,803
Discontinued operations ⁽²⁾
—
(41,540 ) —
(41,540 )
Net income $ 403,604
$ 319,111
$ 653,731
$ 558,263
Basic net income per common share
Continuing operations $ 4.34
$ 3.89
$ 7.02
$ 6.47
Discontinued operations ⁽²⁾
—
(.45 ) —
(.45 )
Net income per common share $ 4.34
$ 3.44
$ 7.02
$ 6.02

Diluted
Average common shares outstanding 92,926,421
92,841,148
93,132,993
92,695,853
Stock options and other contingently issuable shares ⁽¹⁾
1,903,442
2,055,422
2,064,944
1,935,690
Non-vested restricted stock grants 54,324
72,066
61,019
65,896
Average common shares outstanding assuming dilution 94,884,187
94,968,636
95,258,956
94,697,439
Net income
Continuing operations $ 403,604
$ 360,651
$ 653,731
$ 599,803
Discontinued operations ⁽²⁾
—
(41,540 ) —
(41,540 )
Net income $ 403,604
$ 319,111
$ 653,731
$ 558,263
Diluted net income per common share
Continuing operations $ 4.25
$ 3.80
$ 6.86
$ 6.34
Discontinued operations ⁽²⁾
—
(.44 ) —
(.44 )
Net income per common share $ 4.25
$ 3.36
$ 6.86
$ 5.90



(Thousands of dollars except per share data)	Three Months Ended March 31,
	2019		2018
Basic
Average shares outstanding	91,952,828		93,339,564
Net income	$	245,237	$	250,127
Basic net income per share	$	2.67	$	2.68

Diluted
Average shares outstanding	91,952,828		93,339,564
Stock options and other contingently issuable shares ⁽¹⁾	1,662,297		2,138,874
Non-vested restricted stock grants	53,603		67,714
Average shares outstanding assuming dilution	93,668,728		95,546,152
Net income	$	245,237	$	250,127
Diluted net income per share	$	2.62	$	2.62

⁽¹⁾

Stock options and other contingently issuable shares ~~for the three and six months ended June 30, 2018 excludes 52,427 and 26,873~~excluded 49,501 shares ~~respectively, due to their anti-dilutive effect. There were no stock options and other contingently issuable shares excluded~~ due to their anti-dilutive effect for the three ~~and six~~months endedMarch 31, 2019. There were no options excluded due to their anti-dilutive effect for the three months ended ~~June 30, 2017~~.March 31, 2018.


⁽²⁾	~~Relates to the divestiture of Valspar's North American industrial wood coatings business. See Note 4.~~

NOTE ~~15—~~13—REPORTABLE SEGMENT INFORMATION

The Company reports its 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 Reporting Topic of the ASC. The Company has determined that it has three reportable operating segments: The Americas Group, Consumer Brands Group and Performance Coatings Group (individually, a Reportable Segment and collectively, the Reportable Segments).


(Thousands of dollars)	Three Months Ended June 30, 2018												Three Months Ended March 31, 2019
	The Americas Group		Consumer Brands Group		Performance Coatings Group		Administrative			Consolidated Totals			The Americas Group		Consumer Brands Group		Performance Coatings Group		Administrative			Consolidated Totals
Net external sales	$	2,625,057	$	777,746	$	1,369,324	$	1,669		$	4,773,796		$	2,154,853	$	654,502	$	1,230,798	$	708		$	4,040,861
Intersegment transfers	219		955,270		6,570		(962,059		)				6		792,786		28,486		(821,278		)
Total net sales and intersegment transfers	$	2,625,276	$	1,733,016	$	1,375,894	$	(960,390	)	$	4,773,796		$	2,154,859	$	1,447,288	$	1,259,284	$	(820,570	)	$	4,040,861

Segment profit	$	569,897	$	90,903	$	144,194				$	804,994		$	331,088	$	87,937	$	98,693				$	517,718
Interest expense							$	(93,507	)	(93,507		)							$	(90,994	)	(90,994		)
Administrative expenses and other							(173,401		)	(173,401		)							(127,870		)	(127,870		)
Income from continuing operations before income taxes	$	569,897	$	90,903	$	144,194	$	(266,908	)	$	538,086
Income before income taxes													$	331,088	$	87,937	$	98,693	$	(218,864	)	$	298,854


	Three Months Ended June 30, 2017												Three Months Ended March 31, 2018
	The Americas Group		Consumer Brands Group		Performance Coatings Group		Administrative			Consolidated Totals			The Americas Group		Consumer Brands Group		Performance Coatings Group		Administrative			Consolidated Totals
Net external sales	$	2,437,655	$	536,441	$	761,094	$	627		$	3,735,817		$	2,080,415	$	656,379	$	1,227,775	$	437		$	3,965,006
Intersegment transfers	2,020		864,337		7,231		(873,588		)				53		766,063		5,844		(771,960		)
Total net sales and intersegment transfers	$	2,439,675	$	1,400,778	$	768,325	$	(872,961	)	$	3,735,817		$	2,080,468	$	1,422,442	$	1,233,619	$	(771,523	)	$	3,965,006

Segment profit	$	532,687	$	76,064	$	62,345				$	671,096		$	337,392	$	74,228	$	90,766				$	502,386
Interest expense							$	(56,729	)	(56,729		)							$	(91,547	)	(91,547		)
Administrative expenses and other							(105,364		)	(105,364		)							(107,253		)	(107,253		)
Income from continuing operations before income taxes	$	532,687	$	76,064	$	62,345	$	(162,093	)	$	509,003
Income before income taxes													$	337,392	$	74,228	$	90,766	$	(198,800	)	$	303,586

Six Months Ended June 30, 2018

The Americas
Group
Consumer Brands
Group Performance
Coatings
Group Administrative
Consolidated
Totals
Net external sales $ 4,705,472
$ 1,434,125
$ 2,597,099
$ 2,106
$ 8,738,802
Intersegment transfers 273
1,721,333
12,414
(1,734,020 )
Total net sales and intersegment transfers $ 4,705,745
$ 3,155,458
$ 2,609,513
$ (1,731,914 ) $ 8,738,802

Segment profit $ 907,289
$ 165,131
$ 234,960
$ 1,307,380
Interest expense $ (185,054 ) (185,054 )
Administrative expenses and other (280,654 ) (280,654 )
Income from continuing operations
before income taxes $ 907,289
$ 165,131
$ 234,960
$ (465,708 ) $ 841,672

Six Months Ended June 30, 2017
The Americas
Group Consumer Brands
Group Performance
Coatings
Group Administrative
Consolidated
Totals
Net external sales $ 4,389,401
$ 859,807
$ 1,245,548
$ 2,448
$ 6,497,204
Intersegment transfers 4,361
1,560,175
11,031
(1,575,567 )
Total net sales and intersegment transfers $ 4,393,762
$ 2,419,982
$ 1,256,579
$ (1,573,119 ) $ 6,497,204

Segment profit $ 837,911
$ 131,978
$ 119,457
$ 1,089,346
Interest expense $ (82,424 ) (82,424 )
Administrative expenses and other (191,314 ) (191,314 )
Income from continuing operations
before income taxes $ 837,911
$ 131,978
$ 119,457
$ (273,738 ) $ 815,608

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~~that 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 of all consolidated foreign subsidiaries were ~~$1.018 billion~~$886.0 million and ~~$603.3~~$919.7 million for the ~~second~~first quarter of ~~2018~~2019 and ~~2017, respectively. Net external sales of all consolidated foreign subsidiaries were $1.938 billion and $1.022 billion for the six months ended~~ 2018 ~~and~~ ~~2017~~, respectively. Long-lived assets of these subsidiaries totaled $~~3.485~~3.268 billion and $~~1.698~~3.722 billion at ~~June 30, 2018~~March 31, 2019 and ~~June 30, 2017~~March 31, 2018, respectively. ~~The increase in net external sales and long-lived assets is primarily due to the Acquisition.~~ 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~~10% of consolidated sales during all periods presented.

For further details on the Company's Reportable Segments, see Note 1819 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

NOTE 1614—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. The Company did not have any fair value measurements ~~unrelated to purchase accounting~~ for its non-financial assets and liabilities during the ~~second~~first 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
	June 30,		Identical Assets		Observable Inputs		Inputs	March 31,		Identical Assets		Observable Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)	2019		(Level 1)		(Level 2)		(Level 3)
Assets:
Deferred compensation plan assets ⁽¹⁾	$	63,196	$	35,952	$	27,244		$	57,606	$	29,313	$	28,293

Liabilities:
Deferred compensation plan liabilities ⁽²⁾	$	72,609	$	72,609				$	67,189	$	67,189

⁽¹⁾

The deferred compensation plan assets consist of the investment funds maintained for the future payments under the Company’s executive deferred compensation plans, which are structured as rabbi trusts. 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 ~~$58,222.~~$54,369.

⁽²⁾The deferred compensation plan liabilities are the Company’s liabilities under its deferred compensation plans. The liabilities represent the fair value of the participant shadow accounts, and the value is based on quoted market prices in active markets for identical assets.

NOTE 1715—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-publicly 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-publicly traded debt are classified as level 1 and level 2, respectively, in the fair value hierarchy.

(Thousands of dollars)
June 30, 2018 June 30, 2017

Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Publicly traded debt $ 8,737,229
$ 8,499,644
$ 9,448,274
$ 9,660,353
Non-publicly traded debt 986,868
911,011
2,004,111
1,863,095

~~On February 27, 2018, the Company amended the five-year credit agreement entered into in May 2016 to increase it by $250.0 million up to an aggregate availability of $750.0 million.~~

On July 19, 2018, 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 (SW UK, together with the Company, SW Canada and SW Lux, the Borrowers), entered into a new five-year $2.000 billion credit agreement (New Credit Agreement). The New Credit Agreement may be used for general corporate purposes, including the financing of working capital requirements. The New Credit Agreement replaced that certain credit agreement dated July 16, 2015, as amended, which was terminated. The New Credit Agreement allows the Company to extend the maturity of the facility with two one-year extension options and the Borrowers to increase the aggregate amount of the facility to $2.750 billion, both of which are subject to the discretion of each lender. In addition, the Borrowers may request letters of credit in an amount of up to $250.0 million.



(Thousands of dollars)
	March 31, 2019				March 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Publicly traded debt	$	8,729,040	$	8,683,686	$	8,739,950	$	8,670,864
Non-publicly traded debt	277,486		268,747		1,152,246		1,082,658

NOTE 1816—LEASES

The Company leases retail stores, manufacturing and distribution facilities, office space and equipment under operating lease agreements. Operating lease right-of-use (ROU) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. The majority of the ROU asset and lease liability balances relate to the retail operations of The Americas Group.

Most leases include one or more options to renew. The exercise of lease renewal options is at the Company's discretion and is not reasonably certain at lease commencement. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases relate primarily to common area maintenance, insurance, taxes and utilities associated with the properties. Variable payments for equipment leases relate primarily to hours, miles, or other quantifiable usage factors which are not determinable at the time the lease agreement is entered into by the Company. The Company has made an accounting policy election by class of underlying asset to not apply the recognition requirements of ASC 842 to short-term leases. As a result, certain leases with a term of 12 months or less are not recorded on the balance sheet and expense is recognized on a straight-line basis over the lease term. Most leases do not contain an implicit discount rate. Therefore, the Company’s estimated incremental borrowing rate based on information available at the time of lease inception is used to discount lease payments to present value.

Additional lease information is summarized below:



(Thousands of dollars)
	Three Months Ended
	March 31, 2019

Operating lease cost	$	112,105
Short-term lease cost	10,103
Variable lease cost	17,334

Operating cash outflows from operating leases	106,692

Weighted average remaining lease term for operating leases	6.1 years

Weighted average discount rate for operating leases	4.0		%

The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized on the balance sheet. The reconciliation excludes short-term leases that are not recorded on the balance sheet.



(Thousands of dollars)
	Operating Leases
Year Ending December 31,
2019 (excluding the three months ended March 31, 2019)	$	320,062
2020	393,077
2021	328,670
2022	265,871
2023	199,120
Thereafter	449,256
Total lease payments	1,956,056
Amount representing interest	(228,162		)
Present value of operating lease liabilities	$	1,727,894

NOTE 17—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. 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~~other assets, was $~~208.7~~197.4 million and $~~212.1~~189.5 million at ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, respectively. The liability for estimated future capital contributions to the investments was $~~173.3~~174.3 million and $~~170.4~~167.0 million at ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018, respectively.

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 paints, 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, Asia and Australia. The Company is structured into three reportable segments—The Americas Group, Consumer Brands Group and Performance Coatings Group (collectively, the “Reportable Segments”)—and an Administrative segment in the same way it is internally organized for assessing performance and making decisions regarding allocation of resources. See Note 1513 for more information.

The Company’s financial condition, liquidity and cash flow continued to be strong through the first ~~six~~three months of ~~2018 primarily due to continued improvements~~2019. A decrease in ~~operating results. Net~~net working capital ~~increased $145.0~~of $686.3 million at ~~June 30, 2018~~March 31, 2019 compared to the end of the ~~second~~first quarter of ~~2017~~2018 was due to a significant increase in current ~~assets, offset~~liabilities. Current portion of long-term debt increased $302.7 million while current portion of operating lease liabilities increased $356.5 million as a result of recording operating leases on the balance sheet as required by ~~an increase in current liabilities primarily due to the acquisition of The Valspar Corporation (Valspar or the Acquisition) (see~~ASC 842 (See Note ~~4). The Acquisition annualized on June 1st which resulted in one month of Valspar results in the second quarter~~2 and ~~first six months of 2017 versus 2018 or incremental April and May and first five months of 2018 in second quarter and first six months, respectively.~~Note 16). The Company has been able to arrange sufficient short-term borrowing capacity at reasonable rates, and the Company continues to have sufficient total available borrowing capacity to fund its current operating needs. Net operating cash for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was a cash ~~source~~usage of ~~$579.1~~$36.0 million compared to a cash source of ~~$586.1~~$40.7 million for the same period in ~~2017.~~2018.

Consolidated net sales increased ~~27.8 percent~~1.9% in the ~~second~~first quarter of ~~2018~~2019 to ~~$4.774~~$4.041 billion from ~~$3.736~~$3.965 billion in the ~~second~~first quarter of ~~2017.~~2018. The increase was due primarily to ~~the Acquisition, which increased sales 21.0 percent~~a new customer program launched in ~~the second quarter of~~ 2018, ~~as well as selling price increases and~~ higher paint sales volume in ~~The Americas Group.~~North America, and selling price increases partially offset by soft end market demand outside the U.S. and unfavorable currency translation rate changes. Currency translation rate changes decreased net sales by 2.3% in the quarter. Consolidated gross profit as a percent of consolidated net sales ~~decreased~~increased in the ~~second~~first quarter of ~~2018~~2019 to ~~42.7 percent~~42.9% compared to ~~46.4 percent~~42.5% in the ~~second~~first quarter of ~~2017. The decrease was due primarily to the Acquisition,~~2018. Consolidated gross profit dollars and percent improved as a result of selling price increases and reduced impacts of purchase accounting on cost of goods sold, partially offset by higher raw material costs and unfavorable currency ~~impacts, partially offset by increased paint sales volume.~~translation rate changes. Selling, general and administrative expenses (SG&A) ~~decreased~~increased as a percent of consolidated net sales to ~~27.4 percent~~30.8% in the ~~second~~first quarter of ~~2018~~2019 from ~~30.9 percent~~30.6% in the ~~second~~first quarter of ~~2017.~~2018. The ~~decrease~~increase was primarily due to ~~realized administrative synergies from Valspar operations.~~net new store openings in The Americas Group. Amortization expense ~~increased $45.0~~decreased $6.3 million in the ~~second~~first quarter of ~~2018~~2019 versus ~~2017,~~2018, due to ~~the Acquisition and related~~acquisition-related purchase accounting fair value adjustments. Interest expense ~~increased $36.8~~decreased $0.6 million in the ~~second~~first quarter of ~~2018~~2019 versus ~~2017 primarily due to increased debt levels to fund the Acquisition.~~2018. The effective tax rate was 17.9% for ~~income from continuing operations was~~ ~~25.0 percent~~ ~~and 29.1 percent~~the first quarter of 2019 compared to 17.6% for the ~~second~~first quarter of ~~2018 and~~ ~~2017~~2018~~, respectively. Excluding the impact of share-based payments, the effective tax rate was 25.7 percent for the second quarter of 2018 compared to 32.7 percent for the second quarter of 2017.~~. Diluted net income per ~~common~~ share in the ~~second~~first quarter of 2019 and 2018 ~~increased to $4.25~~was flat at $2.62 per share. First quarter 2019 diluted net income per share ~~from $3.36~~included a $.71 per share charge for acquisition-related costs and a $.27 per share charge for pension plan settlement expense. Currency translation rate changes decreased diluted net income per share in ~~2017 (including~~ the ~~$.44~~first quarter by $.08 per ~~share charge related to the divestiture). Second~~share. First quarter 2018 diluted net income per ~~common~~ share included a ~~$1.23~~$.95 per share charge from Acquisition-related costs, purchase accounting impacts and increased amortization of intangibles. Second quarter 2017 diluted net income per common share included a $.72 per share charge from Acquisition-related costs, inventory purchase accounting adjustments and increased amortization of intangibles.acquisition-related costs.

Consolidated net sales increased 34.5 percent in the first six months of 2018 to $8.739 billion from $6.497 billion in the first six months of 2017. The increase was due primarily to the Acquisition, which increased sales 28.5 percent in the first six months of 2018. Consolidated gross profit as a percent of consolidated net sales decreased to 42.6 percent in the first six months of 2018 from 47.4 percent during the same period in 2017. The decrease was due primarily to the Acquisition, higher raw material costs partially offset by increased paint sales volume and favorable currency impacts. Selling, general and administrative expenses (SG&A) decreased as a percent of consolidated net sales to 28.9 percent in the first six months of 2018 from 33.3 percent during the same period in 2017. The decrease was primarily due to realized administrative synergies from Valspar operations. Amortization expense increased $123.9 million in the first six months of 2018 compared to 2017 due to the Acquisition and related purchase accounting fair value adjustments. Interest expense increased $102.6 million in the first six months of 2018 compared to 2017 primarily due to increased debt levels to fund the Acquisition. The effective tax rate for income from continuing operations was 22.3 percent and 26.5 percent for the first six months of 2018 and 2017, respectively. Excluding the impact of share-based payments, the effective tax rate was 24.5 percent for the first six months of 2018 compared to 32.7 percent for the first six months of 2017. Diluted net income per common share increased to $6.86 per share in the first six months of 2018 from $5.90 per share in the first six months of 2017. Diluted net income per common share for the six months ended June 30, 2018 included a $2.18 per share charge from Acquisition-related costs, purchase accounting impacts and increased amortization of intangibles. Diluted net income per common share for the six months ended June 30, 2017 included

~~an $.80 per share charge from Acquisition-related costs, inventory purchase accounting adjustments and increased amortization of intangibles.~~

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, 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 4645 through ~~50,~~49, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018. There have been no significant changes in critical accounting policies,

management estimates or accounting policies followed since the year ended December 31, ~~2017~~2018, except in connection with the adoption of ASC 842, "Leases," as described in ~~Note 2.~~Notes 2 and 16.

FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW

Overview

On June 1, 2017, the Company completed the Acquisition for a total purchase price of $8.9 billion. On May 16, 2017, the Company issued $6.0 billion of senior notes (collectively, the "New Notes") in a public offering. The net proceeds from the issuance of the New Notes were used to fund the Acquisition. 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.

~~The Acquisition significantly affected the Company’s financial condition, liquidity and cash flow. See Note 4 for a table detailing the opening balance sheet.~~ Net working capital ~~increased $145.0~~decreased $686.3 million at ~~June 30, 2018~~March 31, 2019 compared to the end of the ~~second~~first quarter of ~~2017~~2018 due to ~~a significant increase in current assets partially offset by~~ an increase in current liabilities. Current portion of long-term debt increased $302.7 million while current portion of operating lease liabilities ~~primarily due to~~increased $356.5 million, as a result of recording operating leases on the ~~Acquisition.~~balance sheet as required by ASC 842 (See Note 2 and Note 16). The Company accrued $136.3 million for the California public nuisance litigation expense in the third quarter of 2018. Cash and cash equivalents decreased ~~$55.1~~$64.2 million at ~~June 30, 2018~~March 31, 2019 compared to ~~June 30, 2017. In the first six months of~~March 31, 2018 while accounts receivable increased ~~$520.5~~$13.1 million and inventories increased ~~$73.3 million and other current assets increased $26.8~~$50.7 million when normal seasonal trends typically require significant growth in these ~~categories while~~categories. Other current assets decreased $12.5 million, accounts payable decreased $81.3 million, accrued taxes increased $15.9 million and other accruals increased $55.0 million due to timing of payments. Short-term borrowings decreased $95.2 million and current portion of long-term debt ~~decreased $699.9~~increased $302.7 million resulting from ~~1.35%~~7.25% senior notes becoming due in ~~2017.~~2019. In the first ~~six~~three months of ~~2018,~~2019, cash and cash equivalents decreased ~~$49.2~~$61.1 million while accounts receivable increased $320.8 million, inventories increased $178.2 million, other current assets increased $32.8 million, and accounts payable increased ~~$257.6~~$94.6 million ~~and short-term borrowings increased $17.0 million due to~~when normal ~~operations. In the first six months of 2018, accrued~~seasonal trends typically require significant growth in these categories. Accrued taxes increased ~~$93.1~~$48.2 million, while other accruals decreased $185.8 million and compensation and taxes withheld ~~liabilities~~ decreased ~~$102.4~~$103.8 million ~~and other accruals decreased $62.4 million in the first six months of 2018, all primarily~~ due to ~~the~~ timing of payments. Short-term borrowings increased $496.4 million resulting from treasury stock purchases. Total debt at ~~June 30, 2018~~March 31, 2019 decreased ~~$1.129 billion~~$980.8 million to ~~$10.375~~$9.831 billion from ~~$11.504~~$10.812 billion at ~~June 30, 2017~~March 31, 2018 and decreased as a percentage of total capitalization to ~~73.5 percent~~74.0% from ~~82.8 percent~~74.8% at the end of the ~~second~~first quarter last year. Total debt ~~decreased $145.8~~increased $487.7 million from December 31, ~~2017~~2018 and ~~decreased~~increased as a percentage of total capitalization from ~~74.0 percent~~71.5% to ~~73.5 percent.~~74.0%. At ~~June 30, 2018,~~March 31, 2019, the Company had remaining short-term borrowing ability of ~~$1.985~~$2.732 billion. Net operating cash decreased ~~$7.0~~$76.7 million in the first ~~six~~three months of ~~2018~~2019 to a cash ~~source~~usage of ~~$579.1~~$36.0 million from a cash source of ~~$586.1~~$40.7 million in ~~2017.~~2018. In the twelve month period from ~~July~~April 1, ~~2017~~2018 through ~~June 30, 2018,~~March 31, 2019, the Company generated net operating cash of ~~$1.877~~$1.867 billion.

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

Cash and cash equivalents decreased ~~$49.2~~$61.1 million during the first ~~six~~three months of ~~2018.~~2019. Cash ~~and cash equivalents on hand~~flow from increased short-term borrowings funded cash requirements for ~~increased sales and~~ normal seasonal increases in working capital, treasury stock purchases of ~~$334.2~~$305.1 million, payments of cash dividends of ~~$161.6 million, payments of long-term debt of $151.8~~$104.8 million, and capital expenditures of ~~$101.8~~$51.4 million. At ~~June 30, 2018,~~March 31, 2019, the Company’s current ratio was ~~1.20~~0.96 compared to ~~1.12~~1.01 at December 31, ~~2017~~2018 and ~~1.17~~1.12 a year ago.

Goodwill and intangible assets decreased ~~$359.0~~$74.8 million from December 31, ~~2017~~2018 and decreased ~~$722.9~~$692.8 million from ~~June 30, 2017.~~March 31, 2018. The net decrease during the first ~~six~~three months of ~~2018~~2019 was primarily due to amortization of ~~$158.9~~$78.8 million, ~~purchase accounting adjustments of $96.9 million~~partially offset by capitalized software additions and foreign currency translation ~~and other~~ of ~~$103.1~~$4.0 million. The net decrease over the twelve month period from ~~June 30, 2017~~March 31, 2018 was primarily due to purchase accounting adjustments of ~~$411.5~~$76.1 million, amortization of $311.8 million, and ~~amortization~~foreign currency translation and other of ~~$330.6~~$309.1 million, partially offset by capitalized software additions of ~~$10.0 million and foreign currency translation and other of $9.2~~$4.2 million. Based on final purchase accounting for the Acquisition, goodwill of $2.0 billion, $1.1 billion and $2.8 billion was recognized in The Americas Group, Consumer Brands Group and Performance Coatings Group, respectively. Refer to Note 4 within this report for additional information regarding the Acquisition, including the final purchase price allocation. Additionally, see Note 4,5, on pages 5152 and ~~52,~~53, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for more information concerning the Company's goodwill and intangible assets.

Deferred pension assets ~~increased$4.9~~decreased $234.7 million during the first ~~six~~three months of ~~2018~~2019 and ~~increased$77.0~~decreased $262.5 million from ~~June 30, 2017.~~March 31, 2018. The ~~increase~~decrease in ~~the last twelve months was~~both periods is due to ~~an increase in~~settling the ~~fair value~~majority of the Company's domestic defined benefit pension plan ~~assets partially offset by increased pension benefit obligations primarily due to changes in actuarial assumptions and acquired Valspar plans.~~liabilities. See Note 6,7, on pages 55 through 60, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for more information concerning the Company’s benefit plan assets. During the first quarter of 2019, the Company purchased annuity contracts to settle the remaining liabilities of the domestic defined benefit pension plan that was terminated in 2018 (Terminated Plan). The annuity contract purchase resulted in a settlement charge of $32.4 million in the first quarter of 2019. The remaining surplus of the Terminated Plan will be used, as prescribed in the applicable regulations, to fund future Company contributions to a qualified replacement pension plan, which is the current domestic defined contribution plan (Qualified Replacement Plan). During the first quarter of 2019, the Company transferred $201.8 million of the surplus to a suspense account held within a trust for the Qualified Replacement Plan. This amount included $131.8 million of Company stock (300,000 shares). The shares are treated as treasury stock in accordance with ASC 715. The remainder of the surplus related to the Terminated Plan will be transferred to the Qualified Replacement Plan suspense account after the final expenses associated with the wind-up of the Terminated Plan have been settled.

Other assets at ~~June 30, 2018~~March 31, 2019 increased ~~$79.7~~$16.5 million in the first ~~six~~three months of ~~2018~~2019 and increased ~~$13.6~~$34.5 million from a year ago primarily due to increases in deferred tax ~~assets.~~assets and other investments.

Net property, plant and equipment decreased ~~$100.7~~$13.8 million in the first ~~six~~three months of ~~2018~~2019 and decreased ~~$113.5~~$77.0 million in the twelve months since ~~June 30, 2017.~~March 31, 2018. The decrease in the first ~~six~~three months was primarily due to depreciation expense of ~~$144.1 million and changes in currency translation rates and other adjustments of $66.1~~$64.7 million, partially offset by capital expenditures of ~~$101.8 million and purchase accounting adjustments of $7.7~~$51.4 million. Since ~~June 30, 2017,~~March 31, 2018, the decrease was primarily due to depreciation expense of ~~$334.2~~$271.3 million and sale or disposition of fixed assets and changes in currency translation rates ~~and other adjustments~~ of ~~$35.6~~$65.3 million, partially offset by capital expenditures of ~~$240.4 million and purchase accounting adjustments of $15.9~~$259.9 million. Capital expenditures primarily represented expenditures associated with improvements and normal equipment replacement in manufacturing and distribution facilities in the Consumer Brands Group, normal equipment replacement in The Americas and Performance Coatings Groups, and information systems hardware in the Administrative Segment.

On June 2, 2017, the Company closed its previously announced exchange offers and consent solicitations (collectively, the "Exchange Offer") for the outstanding senior notes of Valspar. Pursuant to the Exchange Offer, the Company issued an aggregate principal amount of approximately $1.478 billion. On May 16, 2017, the Company issued $6.0 billion of senior notes (collectively the "New Notes") in a public offering. The net proceeds from the issuance of the New Notes were used to fund the Acquisition. As previously disclosed, the interest rate locks entered into in 2016 settled inAt March 2017 resulting in a pretax gain of $87.6 million recognized in Cumulative other comprehensive loss. This gain is being amortized from Cumulative other comprehensive loss to a reduction of interest expense over the terms of the New Notes. For the six months ended June 30, 2018, the amortization of the unrealized gain reduced interest expense by $2.1 million. The Company expects to amortize unrealized gains of $8.3 million from Cumulative other comprehensive loss to Interest expense during the next twelve months. In April 2016, the Company entered into agreements for a $7.3 billion Bridge Loan and a $2.0 billion Term Loan as committed financing for the Acquisition. On June 1, 2017, the Company terminated the agreement for the Bridge Loan and borrowed the full $2.0 billion on the Term Loan. As of June 30, 2018, the term loan had an outstanding balance of $700.0 million.

On February 27, 2018, the Company amended the five-year credit agreement entered into in May 2016 to increase the aggregate availability to $750.0 million. In September 2017, the Company entered into a five-year letter of credit agreement, subsequently amended, with an aggregate availability of $500.0 million. The credit agreements are being used for general corporate purposes. At June 30, 2018, there was $200.0 million borrowings outstanding under these credit agreements. See Note 7, on pages 61 and 62, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017 for more information concerning the Company’s debt.~~

~~At June 30, 2018,~~2019, the Company had outstanding borrowings of ~~$414.6~~$768.5 million with a weighted average interest rate of ~~2.4 percent~~2.9% under its commercial paper program. The Company had unused capacity under the global credit agreement of ~~$935.4 million~~$1.232 billion at ~~June 30, 2018.~~March 31, 2019. Short-term borrowings under various other foreign programs were ~~$36.1~~$56.3 million with a weighted average interest rate of ~~7.8 percent.~~4.9%.

Long-term liabilities for postretirement benefits other than pensions did not change significantly from December 31, ~~2017~~2018 and ~~June 30, 2017.~~March 31, 2018. See Note 6,7, on pages 55 through 60, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for more information concerning the Company’s benefit plan obligations.

Deferred income taxes at ~~June 30, 2018 decreased $53.8 million~~March 31, 2019 remained mostly unchanged in the first ~~six~~three months of ~~2018 due to changes in purchase accounting~~2019 and decreased ~~$1.087 billion~~$351.3 million from a year ago primarily due to ~~changes in purchase accounting and~~ the overall favorable impact of the Tax Cuts and Jobs ~~Act (Tax Act).~~Act.

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 ~~six~~three months of ~~2018~~2019. 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 ~~2018~~2019. See Note 108 for further information on environmental-related long-term liabilities.

Contractual Obligations, Commercial Commitments and Warranties

Short-term borrowings increased ~~$17.0~~$496.4 million to ~~$650.7~~$824.8 million at ~~June 30, 2018~~March 31, 2019 from ~~$633.7~~$328.4 million at December 31, ~~2017.~~2018. Total long-term debt decreased ~~$162.8~~$8.7 million to ~~$9.724~~$9.007 billion at ~~June 30, 2018~~March 31, 2019 from ~~$9.887~~$9.015 billion at December 31, ~~2017,~~2018, and decreased ~~$1.728 billion~~$885.7 million from ~~$11.452~~$9.892 billion at ~~June 30, 2017.~~March 31, 2018. There have been no other significant changes to the Company’s contractual obligations and commercial commitments in the ~~second~~first quarter of ~~2018~~2019 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, ~~2017~~2018.

See Note 75 for changes to the Company’s accrual for product warranty claims in the first ~~six~~three months of ~~2018~~2019.

Litigation

See Note 119 for information concerning litigation.

Shareholders’ Equity

Shareholders’ equity ~~increased~~decreased $~~54.9~~270.7 million to ~~$3.747~~$3.460 billion at ~~June 30, 2018~~March 31, 2019 from ~~$3.692~~$3.731 billion at December 31, ~~2017~~2018 and ~~increased $1.356 billion~~decreased $185.7 million from ~~$2.391~~$3.646 billion at ~~June 30, 2017.~~March 31, 2018. The ~~increase~~decrease in Shareholders’ equity for the first ~~six~~three months of ~~2018~~2019 resulted primarily from ~~net income of $653.7 million and an increase in Other capital of $72.0 million, partially offset by~~increased treasury stock of ~~$354.8~~$458.2 million, cash dividends paid on common stock of ~~$161.6~~$104.8 million and an increase in ~~Cumulative~~cumulative other comprehensive loss of ~~$157.6~~$2.3 million primarily due to currency ~~translation. The increase in Shareholders' equity since June 30, 2017 resulted primarily from~~translation, partially offset by net income of ~~$1.868 billion~~$245.2 million and an increase in ~~Other~~other capital of ~~$188.4 million, partially offset by~~$49.1 million. The decrease in Shareholders'

equity since March 31, 2018 resulted primarily from increased treasury stock of ~~$359.1~~$830.9 million, cash dividends paid on common stock of ~~$321.7~~$346.7 million and an increase in ~~Cumulative~~cumulative other comprehensive loss of ~~$23.2~~$296.5 million, partially offset by net income of $1.104 billion and an increase in other capital of $184.3 million.

During the first ~~six~~three months of ~~2018,~~2019, the Company purchased ~~850,000~~750,000 shares of its common stock for treasury purposes through open market purchases. The Company acquires its common stock for general corporate purposes, and depending on its cash position and market conditions, it may acquire additional shares in the future. The Company had remaining authorization at ~~June 30, 2018~~March 31, 2019 to purchase ~~10.80~~9.38 million shares of its common stock. ~~In February 2018,~~On April 17, 2019, the Company's Board of Directors ~~increased~~approved a dividend of $1.13 per share, an increase of 31% over the ~~quarterly cash~~May 2018 dividend, ~~from $.85 per common share~~payable on May 31, 2019 to ~~$.86 per common share. This quarterly dividend will result in an annual dividend for 2018~~shareholders of ~~$3.44 per common share or an 18.4 percent payout of 2017 diluted net income per common share.~~

record on May 17, 2019.

Cash Flow

Net operating cash for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was a cash ~~source~~usage of ~~$579.1~~$36.0 million compared to a cash source of ~~$586.1~~$40.7 million for the same period in ~~2017.~~2018. The decrease in net operating cash was primarily due to an increase in cash requirements for working capital and other long-term items, partially offset by ~~an increase in net income of $95.5 million and higher depreciation and amortization.~~cash requirements for defined benefit pension plans. Net investing cash usage ~~decreased $8.757 billion~~increased $31.7 million in the first ~~six~~three months of ~~2018~~2019 to a usage of ~~$107.0~~$72.2 million from a usage of ~~$8.864 billion~~$40.6 million in ~~2017 primarily~~2018 due to ~~the Acquisition~~an increase in ~~2017.~~other investments, capital expenditures and a decrease in proceeds from sale of assets. Net financing cash ~~decreased $8.120 billion~~increased $78.8 million to a ~~usage~~source of ~~$516.7~~$51.4 million in the first ~~six~~three months of ~~2018~~2019 from a ~~source~~usage of ~~$7.604 billion~~$27.4 million in ~~2017~~2018 primarily due to proceeds from ~~long-term~~short-term debt partially offset by increases in ~~2017 and~~ treasury stock purchases, payments of ~~$334.2 million in 2018.~~cash dividends and payments of other accruals. In the twelve month period from ~~July~~April 1, ~~2017~~2018 through ~~June 30, 2018,~~March 31, 2019, the Company generated net operating cash of ~~$1.877~~$1.867 billion, used ~~$290.1~~$283.3 million in investing activities and used ~~$1.606~~$1.668 billion in financing activities.

Market Risk

Financial Covenant

Certain borrowings contain a consolidated leverage covenant. The covenant states that the Company’s leverage ratio is not to exceed 4.75 to 1.00. The leverage ratio is defined as the ratio of total indebtedness (the sum of Short-term borrowings, Current portion of long-term debt and Long-term debt) at the reporting date to consolidated pro forma “Earnings Before Interest, Taxes, Depreciation, and Amortization” (EBITDA) for the ~~combined companies 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 ~~June 30, 2018~~March 31, 2019, 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 7,8, on pages 61 and 62, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for more information concerning the Company’s debt and related covenant.

RESULTS OF OPERATIONS

Shown below are net sales and income before taxes by segment for the three ~~and six~~ months ended ~~June 30, 2018:~~March 31, 2019:


(Thousands of dollars)	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018		2017		Change		2018		2017		Change		2019		2018		Change
Net Sales:
The Americas Group	$	2,625,057	$	2,437,655	7.7	%	$	4,705,472	$	4,389,401	7.2	%	$	2,154,853	$	2,080,415	3.6	%
Consumer Brands Group	777,746		536,441		45.0	%	1,434,125		859,807		66.8	%	654,502		656,379		-0.3	%
Performance Coatings Group	1,369,324		761,094		79.9	%	2,597,099		1,245,548		108.5	%	1,230,798		1,227,775		0.2	%
Administrative	1,669		627		166.2	%	2,106		2,448		-14.0	%	708		437		62.0	%
Total	$	4,773,796	$	3,735,817	27.8	%	$	8,738,802	$	6,497,204	34.5	%	$	4,040,861	$	3,965,006	1.9	%


(Thousands of dollars)	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended March 31,
	2018			2017			Change		2018			2017			Change		2019			2018			Change
Income Before Income Taxes:
The Americas Group	$	569,897		$	532,687		7.0	%	$	907,289		$	837,911		8.3	%	$	331,088		$	337,392		-1.9	%
Consumer Brands Group	90,903			76,064			19.5	%	165,131			131,978			25.1	%	87,937			74,228			18.5	%
Performance Coatings Group	144,194			62,345			131.3	%	234,960			119,457			96.7	%	98,693			90,766			8.7	%
Administrative	(266,908		)	(162,093		)	-64.7	%	(465,708		)	(273,738		)	-70.1	%	(218,864		)	(198,800		)	-10.1	%
Total	$	538,086		$	509,003		5.7	%	$	841,672		$	815,608		3.2	%	$	298,854		$	303,586		-1.6	%

Three Months Ended ~~June 30, 2018~~March 31, 2019

Consolidated net sales increased in the ~~second~~first quarter of ~~2018~~2019 due primarily to ~~the addition of Valspar sales, selling price increases and~~a new customer program launched in 2018, higher paint sales volume in ~~The Americas Group.~~North America, and selling price increases partially offset by soft end market demand outside the U.S. and unfavorable currency translation rate changes. Currency translation rate changes ~~provided an unfavorable impact on consolidated~~decreased net sales by 2.3% in the ~~quarter for The Americas Group, but were partially offset by favorable impacts for the Performance Coatings and Consumer Brands Groups.~~

quarter. Net sales of all consolidated foreign subsidiaries were ~~up 100.7 percent~~down 3.7% to ~~$1.211 billion~~$886.0 million in the ~~second~~first quarter compared to ~~$603.3~~$919.7 million in the same period last year. The ~~increase~~decrease in net sales for all consolidated foreign subsidiaries in the quarter was due primarily to ~~the addition of Valspar sales.~~unfavorable currency translation rate changes partially offset by selling price increases. Net sales of all operations other than consolidated foreign subsidiaries were up ~~13.7 percent~~3.6% to ~~$3.563~~$3.155 billion in the quarter compared to ~~$3.132~~$3.045 billion in the same period last year.

Net sales in The Americas Group increased in the ~~second~~first quarter of ~~2018~~2019 due primarily to higher ~~architectural~~ paint sales volume across most end ~~market segments~~markets in North American stores and selling price ~~increases.~~increases partially, offset by unfavorable currency translation rate changes. Currency translation rate changes decreased Group net sales by 1.5% in the quarter. Net sales from stores open for more than twelve calendar months in the U.S. and Canada increased ~~6.8 percent~~3.6% in the quarter compared to last year’s comparable period. Sales of non-paint products ~~did not change~~increased 4.1% over last year's ~~second~~first quarter. A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general merchandise sold. Net sales of the Consumer Brands Group ~~increased~~decreased in the ~~second~~first quarter primarily due to soft non-domestic market conditions, the ~~inclusion~~divestiture of ~~Valspar sales~~a furniture protection plan business in the third quarter of 2018, and ~~higher sales volumes,~~unfavorable currency translation rate changes, partially offset by ~~lower~~a new customer program launched in 2018 and selling price ~~realization to some of the Group's retail customers. Valspar sales increased the Consumer Brands Group's Net~~increases. The divestiture negatively impacted Group net sales by ~~42.7 percent~~2.6% in the quarter and currency translation rate changes decreased Group net sales by 1.6% in the quarter. Net sales in the Performance Coatings Group stated in U.S. dollars increased in the ~~second~~first quarter primarily due to ~~the inclusion of Valspar sales and~~ selling price ~~increases. Valspar~~increases, partially offset by soft sales ~~increased the Performance Coatings Group's Net~~outside North America and unfavorable currency translation rate changes. Currency translation rate changes decreased Group net sales by ~~72.9 percent~~3.9% in the quarter. 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 ~~second~~first quarter.

Consolidated gross profit increased ~~$304.0~~$48.2 million in the ~~second~~first quarter of ~~2018~~2019 compared to the same period in ~~2017, primarily due to Valspar sales and increased paint sales volume partially offset by higher raw material costs.~~2018. Consolidated gross profit as a percent of consolidated net sales ~~decreased~~increased in the ~~second~~first quarter of ~~2018~~2019 to ~~42.7 percent,~~42.9%, compared to ~~46.4 percent~~42.5% during the same period in ~~2017, due primarily to~~2018. Consolidated gross profit dollars and percent improved as a result of selling price increases and reduced impacts of purchase accounting on cost of goods sold, partially offset by higher raw material costs and ~~the Acquisition.~~unfavorable currency translation rate changes.

The Americas Group’s gross profit was higher than last year by ~~$89.2~~$27.7 million in the ~~second~~first quarter of ~~2018~~2019 due to ~~higher paint sales volume and~~ selling price increases, partially offset by increased raw material ~~costs.~~costs and unfavorable currency translation rate changes. The Americas Group’s gross profit as a percent of sales ~~was essentially flat~~decreased in the quarter due to increased raw material costs only partially offset by ~~increased paint sales volume and~~ selling price increases. The Consumer Brands Group’s gross profit increased by ~~$61.3~~$6.3 million in the quarter compared to the same period last year due primarily to ~~the inclusion~~selling price increases and reduced impacts of ~~Valspar sales,~~purchase accounting on cost of goods sold, partially offset by ~~increased~~higher raw material costs and ~~lower volume sales to some of the Group’s retail and commercial customers.~~unfavorable currency translation rate changes. The Consumer Brands Group’s gross profit as a percent of sales was ~~down~~up in the quarter compared to the same period last year ~~due to increased raw material costs, only partially offset by the inclusion of Valspar sales.~~for these same reasons. The Performance Coatings Group’s gross profit increased ~~$170.9~~$7.2 million in the ~~second~~first quarter compared to the same period last year, when stated in U.S. dollars, primarily due to ~~the inclusion of Valspar sales and~~ selling price increases and reduced impacts of purchase accounting on cost of goods sold, partially offset by higher raw material ~~costs.~~costs and unfavorable currency translation rate changes. The Performance Coatings Group’s gross profit as a percent of sales was ~~down~~up in the quarter compared to the same period last year ~~primarily due to higher raw material costs, only partially offset by the inclusion of Valspar sales, and selling price increases.~~for these same reasons. The Administrative segment’s gross profit ~~decreased~~increased by ~~$17.4~~$7.1 million in the ~~second~~first quarter compared to the same period last year.

Selling, general and administrative expenses (SG&A) increased ~~$154.1~~$29.5 million in the ~~second~~first quarter of ~~2018~~2019 versus the same period last year due primarily to the inclusion of Valspar operations, increased expenses to support higher sales levels and net new store openings. In the second quarter of 2018, this increase included expenses associated with the Acquisition of $24.9 million compared to $26.6 million during the same period in 2017.year. As a percent of sales, consolidated SG&A ~~decreased~~increased to ~~27.4 percent~~30.8% in the ~~second~~first quarter of ~~2018,~~2019, from ~~30.9 percent~~30.6% in the ~~second~~first quarter of ~~2017,~~2018. These increases to SG&A dollars and percent were primarily due to net new store openings and general comparable store expenses to support higher sales levels partially offset by realized administrative ~~synergies from the Acquisition.~~and selling synergies.

The Americas Group’s SG&A increased ~~$43.6~~$31.0 million in the ~~second~~first quarter due primarily to net new store openings and general comparable store expenses to support higher sales levels. The Consumer Brands Group’s SG&A ~~increased $29.1~~decreased $4.3 million in the quarter compared to the same period last year primarily due to ~~the impact from Valspar operations partially offset by good expense control.~~realized administrative and selling synergies. The Performance Coatings Group’s SG&A ~~increased $62.5~~decreased $1.1 million in the quarter primarily due to ~~the impact from Valspar operations.~~realized administrative and selling synergies. The Administrative segment’s SG&A increased ~~$18.9~~$3.8 million in the ~~quarter primarily due to increased costs associated with the Acquisition.~~

quarter.

Amortization expense ~~increased $45.0~~decreased $6.3 million in the ~~second~~first quarter of ~~2018~~2019 versus the same period in ~~2017,~~2018, primarily due to purchase accounting measurement period adjustments in second quarter 2018 which impacted amortization of acquired intangibles. In the ~~second~~first quarter of 2019, amortization of acquired intangibles was $50.9 million and $21.4 million for the Performance Coatings and Consumer Brands Groups, respectively. In the first quarter of 2018, amortization of acquired intangibles was ~~$44.0~~$54.3 million and ~~$22.4~~$23.2 million for the Performance Coatings and Consumer Brands Groups, respectively.

Interest expense ~~increased $36.8~~decreased $0.6 million in the ~~second~~first quarter of ~~2018~~2019 compared to the same period in ~~2017, due to the Acquisition-related debt incurred.~~2018.

Other general ~~expense—~~(income) expense - net ~~increased $25.2~~decreased $3.4 million in the ~~second~~first quarter of ~~2018,~~2019, compared to the same period in ~~2017,~~2018, primarily due to increased ~~provisions for environmental matters~~gain on sale or disposition of assets in the Administrative segment.

Other ~~income~~expense (income) - net ~~decreased $11.4~~increased $32.6 million in the ~~second~~first quarter as compared to ~~2017~~2018 primarily due to ~~an increase~~a pension plan settlement expense recorded in ~~foreign currency transaction related losses and a decrease in miscellaneous~~the Administrative segment. The settlement expense resulted from the Company's purchase of annuity contracts to settle the remaining liabilities of its overfunded domestic defined benefit pension ~~income.~~plan.

Consolidated income ~~from continuing operations~~ before income taxes ~~increased $29.1~~decreased $4.7 million in the ~~second~~first quarter of ~~2018~~2019 versus the same period last year, primarily due to ~~higher~~a pension plan settlement expense recorded in the Administrative segment ~~profits~~and decreased segment profit in ~~each of our segments,~~The Americas Group, partially offset by ~~Acquisition-related interest costs,~~increased segment profit in the Consumer Brands and ~~increased amortization of intangibles.~~Performance Coatings Groups.

The effective tax rate ~~for income from continuing operations~~ was 25.0 percent for the second quarter of 2018 compared to 29.1 percent for the second quarter of 2017. Excluding the impact of share-based payments, the effective tax rate was 25.7 percent for the second quarter of 2018 compared to 32.7 percent for the second quarter of 2017. The decrease in the effective tax rate for the second quarter of 2018 compared to the second quarter of 2017 was primarily due to the overall favorable impact of the Tax Act. The Company received favorable tax benefits from the reduction in the corporate domestic income tax rate from 35 percent to 21 percent and a deduction related to foreign-derived intangible income. These benefits were partially offset by the Tax Act’s elimination of the domestic manufacturing deduction, a reduction in allowable foreign tax credits as well as a decreased benefit related to international tax rate differences. The Company recorded an income tax provision of $41.5 million in the second quarter of 2017 related to the divestiture of Valspar's North American industrial wood coatings business, which is reported as a discontinued operation. See Note 4.

Diluted net income per common share in the second quarter of 2018 increased to $4.25 per share from $3.36 per share in the second quarter of 2017. Second quarter 2018 diluted net income per common share included a $1.23 per share charge from Acquisition-related costs and increased amortization of intangibles. Currency translation rate changes did not have a significant impact on diluted net income per common share in the quarter. Second quarter 2017 diluted net income per common share included a $.72 per share charge from Acquisition-related costs, inventory purchase accounting adjustments and increased amortization of intangibles. Diluted net income per common share from continuing operations (excluding the $.44 per share charge related to the divestiture) in the second quarter of 2017 was $3.80.

~~Six Months Ended June 30, 2018~~

~~Consolidated net sales increased in the first six months of 2018 due primarily to the addition of Valspar sales.~~

Net sales of all consolidated foreign subsidiaries were up 108.4 percent to $2.131 billion in the first six months of 2018 compared to $1.022 billion in the same period last year. The increase in net sales for all consolidated foreign subsidiaries in the first six months of 2018 was due primarily to the addition of Valspar sales, increased pricing and favorable foreign currency translation impacts. Net sales of all operations other than consolidated foreign subsidiaries were up 20.7 percent to $6.608 billion in the first six months of 2018 as compared to $5.475 billion in the same period last year.

Net sales in The Americas Group increased in the first six months of 2018 due primarily to higher architectural paint sales volume across most end market segments and selling price increases. Net sales from stores open for more than twelve calendar months in the U.S. and Canada increased 6.1 percent in the first six months compared to last year’s comparable period. Sales of non-paint products increased 4.5 percent over last year's first six months. Net sales of the Consumer Brands Group increased in the first six months primarily due to the inclusion of Valspar sales and higher volume sales. Valspar sales increased the Consumer Brands Group's Net sales by 67.4 percent in the first six months. Net sales in the Performance Coatings Group stated in U.S. dollars increased in the first six months due primarily to the inclusion of Valspar sales and selling price increases. Valspar sales increased the Performance Coatings Group's Net sales by 102.2 percent in the first six months. Net sales in the Administrative segment were essentially flat in the first six months.

Consolidated gross profit increased $647.8 million in the first six months of 2018 compared to the same period in 2017, primarily due to Valspar sales and increased paint sales volume partially offset by higher raw material costs. Consolidated gross profit as a percent of consolidated net sales decreased in the first six months of 2018 to 42.6 percent, compared to 47.4 percent, during the same period in 2017, due primarily to higher raw material costs and the Acquisition.

The Americas Group’s gross profit was higher than last year by $150.8 million in the first six months of 2018 due to higher paint sales volume and selling price increases, partially offset by increased raw material costs. The Americas Group’s gross profit as a percent of sales was essentially flat in the first six months due to increased raw material costs, offset by increased paint sales volume and selling price increases. The Consumer Brands Group’s gross profit increased by $164.0 million in the first six months compared to the same period last year due primarily to the inclusion of Valspar sales, partially offset by increased raw material costs. The Consumer Brands Group’s gross profit as a percent of sales was down in the first six months compared to the same period last year due to increased raw material costs and only partially offset by the inclusion of Valspar sales. The Performance Coatings Group’s gross profit increased $354.1 million in the first six months compared to the same period last year, when stated in U.S. dollars, primarily due to the inclusion of Valspar sales and selling price increases, partially offset by higher raw material costs. The Performance Coatings Group’s gross profit as a percent of sales was down in the first six months compared to the same period last year primarily due to higher raw material costs, only partially offset by the inclusion of Valspar sales and selling price increases. The Administrative segment’s gross profit decreased by $21.2 million in the first six months compared to the same period last year.

SG&A increased $357.6 million in the first six months of 2018 versus the same period last year due primarily to the inclusion of Valspar operations and increased expenses to support higher sales levels. In the first six months of 2018, this increase included expenses associated with the Acquisition of $49.5 million, compared to $31.6 million during the same period in 2017. As a percent of sales, consolidated SG&A decreased to 28.9 percent in the first six months of 2018, from 33.3 percent in the first six months of 2017, primarily due to realized administrative synergies from the Acquisition.

The Americas Group’s SG&A increased $74.0 million in the first six months due primarily to general comparable store expenses to support higher sales levels. The Consumer Brands Group’s SG&A increased $90.4 million in the first six months compared to the same period last year primarily due to the impact from Valspar operations partially offset by good expense control. The Performance Coatings Group’s SG&A increased $158.4 million in the first six months primarily due to the impact from Valspar operations, and foreign currency exchange rates. The Administrative segment’s SG&A increased $34.9 million in the first six months primarily due to increased costs associated with the Acquisition.

Amortization expense increased $123.9 million in the first of six months of 2018 versus the same period in 2017, primarily due to amortization of acquired intangibles. In the first six months of 2018, amortization of acquired intangibles was 98.3 million and $45.6 million for the Performance Coatings and Consumer Brands Groups, respectively.

~~Interest expense increased $102.6 million in the first six months of 2018, compared to the same period in 2017, due to the Acquisition-related debt incurred.~~

Other general expense—net increased $27.9 million in the first six months of 2018, compared to the same period in 2017, primarily due to increased provisions for environmental matters in the Administrative segment.

Other income - net decreased $7.5 million in the first six months as compared to 2017 primarily due to an increase in foreign currency transaction related losses and a decrease in miscellaneous pension income.

Consolidated income from continuing operations before income taxes increased $26.1 million in the first six months of 2018 versus the same period last year, primarily due to higher segment profits in each of our segments, partially offset by Acquisition-related interest costs and increased amortization of intangibles.

~~The effective tax rate for income from continuing operations was 22.3 percent~~17.9% for the first ~~six months~~quarter of ~~2018~~2019 compared to ~~26.5 percent~~17.6% for the first ~~six months~~quarter of ~~2017. Excluding the impact of share-based payments, the effective tax rate was 24.5 percent for the first six months of 2018 compared to 32.7 percent for the first six months of 2017.~~2018. The ~~decrease~~increase in the effective tax rate for the first ~~six months~~quarter of ~~2018~~2019 compared to the first ~~six months~~quarter of ~~2017~~2018 was primarily due to ~~the overall favorable impact~~timing of the Tax Act. The Company recorded an income tax provision of $41.5 million in the second quarter of 2017 related to the divestiture of Valspar's North American industrial wood coatings business, which is reported as a discontinued operation. See Note 4.discrete items.

Diluted net income per ~~common~~ share in the first ~~six months~~quarter of 2019 and 2018 ~~increased to $6.86~~was flat at $2.62 per share. First quarter 2019 diluted net income per share ~~from $5.90~~included a $.71 per share charge for acquisition-related costs and a $.27 per share charge for pension plan settlement expense. Currency translation rate changes decreased diluted net income per share in the first ~~six months of 2017. Diluted~~quarter by $.08 per share. First quarter 2018 diluted net income per ~~common~~ share ~~for the first six months of 2018~~ included a ~~$2.18~~$.95 per share charge from Acquisition-related costs and increased amortization of intangibles. Currency translation rate changes did not have a significant impact on diluted net income per common share in the first six months of 2018. Diluted net income per common share for the first six months of 2017 included a $.80 per share charge from Acquisition-related costs, inventory purchase accounting adjustments and increased amortization of intangibles. Diluted net income per common share from continuing operations (excluding the $.44 per share charge related to the divestiture) in the first six months of 2017 was $6.34.acquisition-related costs.

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 June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Net income from continuing operations	$	403,604	$	360,651	$	653,731	$	599,803
Net income									$	245,237	$	250,127
Interest expense	93,507		56,729		185,054		82,424		90,994		91,547
Income taxes	134,482		148,352		187,941		215,805		53,617		53,459
Depreciation	72,542		50,370		144,133		94,965		64,716		71,591
Amortization	73,893		28,918		158,942		35,088		78,771		85,049
EBITDA from continuing operations	$	778,028	$	645,020	$	1,329,801	$	1,028,085
EBITDA									$	533,335	$	551,773

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report constitute “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and the costs and potential liability for environmental-related matters and the lead pigment and lead-based paint litigation. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as "believe," "expect," "may," "will," "should," "project," "could," "plan," "goal," "potential," "seek," "intend" or "anticipate" or the negative thereof or comparable terminology.

Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from such statements and from our historical results and experience. These risks, uncertainties and other factors include such things as:

general business conditions, strengths of retail and manufacturing economies and ~~the~~ growth in the coatings industry;

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;

changes in raw material and energy supplies and pricing;

changes in our relationships with customers and suppliers;

our ability to successfully integrate past and future acquisitions into our existing operations, including Valspar, as well as the performance of the businesses acquired;

risks inherent in the achievement of additional anticipated cost synergies resulting from the Valspar acquisition ~~of Valspar~~ and the timing ~~thereof ;~~thereof;

competitive factors, including pricing pressures and product innovation and quality;

our ability to attain cost savings from productivity initiatives;

risks and uncertainties associated with our expansion into and our operations in Asia, Europe, South America and other foreign markets, including general economic conditions, inflation rates, recessions, foreign currency exchange rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest and other external economic and political factors;

the achievement of growth in foreign markets, such as Asia, Europe and South America;

increasingly stringent domestic and foreign governmental regulations, including those affecting health, safety and the environment;

inherent uncertainties involved in assessing our potential liability for environmental-related activities;

other changes in governmental policies, laws and regulations, including changes in tariff policies, as well as changes in accounting policies and standards and taxation requirements (such as new tax laws and new or revised tax law interpretations);

the nature, cost, quantity and outcome of pending and future litigation and other claims, including the lead pigment and lead-based paint litigation, and the effect of any legislation and administrative regulations relating thereto; and

adverse weather conditions and natural disasters.

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

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, ~~2017.~~2018.

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 ~~President~~ 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 ~~President~~ 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 ~~President~~ and Chief Executive Officer and our Senior Vice President—Finance and Chief Financial Officer, to allow timely decisions regarding required disclosure. ~~We acquired~~ The ~~Valspar Corporation, or Valspar, on June 1, 2017~~Company implemented technology, processes and ~~have not yet included Valspar~~controls related to the global recording of right-of-use assets and lease liabilities in ~~our assessment~~connection with the adoption of the effectiveness of our internal control over financial reporting. For the six months ended June 30, 2018, Valspar accounted for $2.3 billion of our total net sales and as of June 30, 2018 had total assets of $3.8 billion. Valspar will be included in our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018.

~~Except~~ASC 842, "Leases," as described in Notes 2 and 16 of the ~~preceding paragraph,~~financial statements. Otherwise, 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.

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 108 and 119 of the “Notes to Condensed Consolidated Financial Statements,” which is incorporated herein by reference.

Item 1A. Risk Factors

We face a number of risks that could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition. A discussion of our risk factors can be found in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018. During the ~~second~~first quarter ended ~~June 30, 2018,~~March 31, 2019, there were no material changes to our previously disclosed risk factors.

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

A summary of the repurchase activity for the Company’s ~~second~~first 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
April 1 - April 30

Share repurchase program ⁽¹⁾
25,000
$ 372.57
25,000
11,025,000

Employee transactions ⁽²⁾
—
$ —
N/A

May 1 - May 31

Share repurchase program⁽¹⁾
225,000
$ 371.97
225,000
10,800,000

Employee transactions ⁽²⁾
—
$ —
N/A

June 1 - June 30

Share repurchase program⁽¹⁾
—
$ —
—
10,800,000

Employee transactions ⁽²⁾
244
$ 396.84
N/A
Total

Share repurchase program⁽¹⁾
250,000
$ 372.03
250,000
10,800,000

Employee transactions⁽²⁾
244
$ 396.84
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
January 1 - January 31
	Share repurchase program ⁽¹⁾	450,000	$	393.66	450,000	9,675,000
	Employee transactions ⁽²⁾	323	$	389.90		N/A

February 1 - February 28
	Share repurchase program⁽¹⁾	300,000	$	426.67	300,000	9,375,000
	Employee transactions ⁽²⁾	48,427	$	436.98		N/A
	Shares transferred from defined benefit pension plan ⁽³⁾	300,000	$	439.27		N/A

March 1 - March 31
	Share repurchase program⁽¹⁾					9,375,000
	Employee transactions ⁽²⁾	893	$	432.38		N/A
Total
	Share repurchase program⁽¹⁾	750,000	$	406.86	750,000	9,375,000
	Employee transactions⁽²⁾	49,643	$	436.59		N/A
	Shares transferred from defined benefit pension plan ⁽³⁾	300,000	$	439.27		N/A


⁽¹⁾	~~All shares~~Shares were purchased through the Company’s publicly announced share repurchase program. There is no expiration date specified for the program. The Company had remaining authorization at ~~June 30, 2018~~March 31, 2019 to purchase ~~10,800,000~~9,375,000 shares.


⁽²⁾	~~All shares~~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 units vest.


⁽³⁾	Shares were transferred from the Company's terminated domestic defined benefit pension plan surplus assets to a suspense account held within a trust for the Qualified Replacement Plan. In accordance with ASC 715, the transferred shares are treated as treasury stock.

Item 5. Other Information.

During the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019, 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 tax advisory, tax compliance and other advisory services.

Item 6. Exhibits.





10.1*	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 (furnished herewith).

32(b)	Section 1350 Certification of Chief Financial Officer (furnished 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

* Management contract or compensatory plan or arrangement.

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

~~July~~April 25, ~~2018~~2019	By:	/s/ Jane M. Cronin
~~July~~April 25, ~~2018~~2019		Jane M. Cronin
		Senior Vice President -
		Corporate Controller

~~July~~April 25, ~~2018~~2019	By:	/s/ Allen J. Mistysyn
~~July~~April 25, ~~2018~~2019		Allen J. Mistysyn
		Senior Vice President - Finance
		and Chief Financial Officer

4136



(Thousands of dollars)
	Six Months Ended
	June 30, 2018						Six Months Ended June 30, 2017
	Impact of ASU 2017-07			As Reported			As Previously Reported (Without Adoption of ASU 2017-07)			Reclass for ASU 2017-07			As Reported in 2018

Cost of goods sold	$	1,489		$	5,013,327		$	3,416,874		$	2,660		$	3,419,534
Selling, general and administrative expenses	5,958			2,522,426			2,155,667			9,133			2,164,800
Other expense (income) - net	(7,447		)	(10,411		)	(6,137		)	(11,793		)	(17,930		)



(Millions of dollars)
	Preliminary Allocation (as reported at March 31, 2018)			Measurement Period Adjustments			Final Allocation (as reported at June 30, 2018)

Cash	$	129.1		$	—		$	129.1
Accounts receivable	817.5			—			817.5
Inventories	684.4			—			684.4
Indefinite-lived trademarks	775.9			(161.6		)	614.3
Finite-lived intangible assets	5,071.8			(148.9		)	4,922.9
Goodwill	5,654.4			234.4			5,888.8
Property, plant and equipment	841.0			(0.3		)	840.7
All other assets	231.3			3.8			235.1
Accounts payable	(553.2		)	—			(553.2		)
Long-term debt	(1,603.5		)	—			(1,603.5		)
Deferred taxes	(2,015.3		)	99.4			(1,915.9		)
All other liabilities	(1,094.0		)	(26.8		)	(1,120.8		)
Total	$	8,939.4		$	—		$	8,939.4
Total, net of cash	$	8,810.3		$	—		$	8,810.3



(Thousands of dollars)
			Provisions		Actual
	Balance at		in Cost of		Expenditures			Balance at
	December 31,		Goods Sold		Charged to			June 30,
Exit Plan	2017		or SG&A		Accrual			2018
Administrative segment Acquisition-related restructuring:
Severance and related costs	$	6,019	$	7,800	$	(10,961	)	$	2,858
Other qualified exit costs	5,541				(2,501		)	3,040
Performance Coatings Group facilities shutdown in 2018:
Other qualified exit costs			1,495		(45		)	1,450
Performance Coatings Group branches shutdown in 2017:
Severance and related costs	14		286		(118		)	182
Other qualified exit costs	121		360		(95		)	386
Consumer Brands Group facilities shutdown in 2016:
Severance and related costs	21				(21		)
Performance Coatings Group branches shutdown in 2016:
Other qualified exit costs	111				(41		)	70
Severance and other qualified exit costs for facilities shutdown prior to 2016	1,558				(543		)	1,015
Totals	$	13,385	$	9,941	$	(14,325	)	$	9,001




	Six Months Ended June 30, 2018
	The Americas Group		Consumer Brands Group		Performance Coatings Group		Administrative			Consolidated Totals
Net external sales	$	4,705,472	$	1,434,125	$	2,597,099	$	2,106		$	8,738,802
Intersegment transfers	273		1,721,333		12,414		(1,734,020		)
Total net sales and intersegment transfers	$	4,705,745	$	3,155,458	$	2,609,513	$	(1,731,914	)	$	8,738,802

Segment profit	$	907,289	$	165,131	$	234,960				$	1,307,380
Interest expense							$	(185,054	)	(185,054		)
Administrative expenses and other							(280,654		)	(280,654		)
Income from continuing operations before income taxes	$	907,289	$	165,131	$	234,960	$	(465,708	)	$	841,672



(Thousands of dollars)
	June 30, 2018				June 30, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Publicly traded debt	$	8,737,229	$	8,499,644	$	9,448,274	$	9,660,353
Non-publicly traded debt	986,868		911,011		2,004,111		1,863,095