DOCUMENT AND ENTITY INFORMATION
DOCUMENT AND ENTITY INFORMATION (USD $) | ||
In Thousands, except Share data | 3 Months Ended
Mar. 31, 2010 | Jun. 30, 2009
|
Document And Entity Information | ||
Document Type | 10-Q | |
Document Period End Date | 2010-03-31 | |
Amendment Flag | false | |
Entity Registrant Name | SHERWIN WILLIAMS CO. | |
Entity Central Index Key | 0000089800 | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Well Known Seasoned Issuer | Yes | |
Entity Common Stock Shares Outstanding | 109,735,117 | |
Entity Public Float | $6,231,518,290 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 |
STATEMENTS OF CONSOLIDATED INCO
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (USD $) | ||
In Thousands, except Share data, unless otherwise specified | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
STATEMENTS OF CONSOLIDATED INCOME | ||
Net sales | $1,565,482 | $1,550,677 |
Cost of goods sold | 873,514 | 870,071 |
Gross profit | 691,968 | 680,606 |
Percent to net sales | 44.2 | 43.9 |
Selling, general and administrative expenses | 612,875 | 608,848 |
Percent to net sales | 39.1 | 39.3 |
Other general expense - net | 1,906 | 10,405 |
Interest expense | 11,570 | 12,202 |
Interest and net investment income | (639) | (636) |
Other expense (income) - net | 6,798 | (1,106) |
Income before income taxes | 59,458 | 50,893 |
Income taxes | 26,855 | 13,614 |
Net income | $32,603 | $37,279 |
Net income per common share: | ||
Basic | 0.3 | 0.32 |
Diluted | 0.3 | 0.32 |
Average shares outstanding - basic | 107,959,598 | 115,946,629 |
Average shares and equivalents outstanding - diluted | 110,247,174 | 118,029,772 |
CONSOLIDATED BALANCE SHEETS (UN
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) | |||
In Thousands | Mar. 31, 2010
| Dec. 31, 2009
| Mar. 31, 2009
|
Current assets: | |||
Cash and cash equivalents | $91,173 | $69,329 | $42,245 |
Accounts receivable, less allowance | 797,816 | 696,055 | 785,640 |
Inventories: | |||
Finished goods | 673,244 | 630,683 | 734,168 |
Work in process and raw materials | 114,072 | 107,805 | 104,648 |
Total Inventory | 787,316 | 738,488 | 838,816 |
Deferred income taxes | 121,142 | 121,276 | 97,676 |
Other current assets | 152,951 | 144,871 | 143,312 |
Total current assets | 1,950,398 | 1,770,019 | 1,907,689 |
Goodwill | 1,014,911 | 1,014,825 | 1,009,069 |
Intangible assets | 273,377 | 279,413 | 299,629 |
Deferred pension assets | 247,145 | 245,301 | 214,816 |
Other assets | 215,593 | 195,612 | 132,684 |
Property, plant and equipment: | |||
Land | 84,408 | 85,166 | 85,383 |
Buildings | 594,858 | 600,687 | 585,175 |
Machinery and equipment | 1,514,084 | 1,512,218 | 1,521,639 |
Construction in progress | 24,954 | 23,086 | 21,743 |
Total gross property, plant and equipment | 2,218,304 | 2,221,157 | 2,213,940 |
Less allowances for depreciation | 1,410,582 | 1,402,472 | 1,365,471 |
Total net property, plant and equipment | 807,722 | 818,685 | 848,469 |
Total Assets | 4,509,146 | 4,323,855 | 4,412,356 |
Current liabilities: | |||
Short-term borrowings | 245,474 | 22,674 | 765,130 |
Accounts payable | 705,309 | 674,766 | 629,965 |
Compensation and taxes withheld | 140,900 | 176,538 | 127,151 |
Accrued taxes | 62,408 | 76,499 | 51,436 |
Current portion of long-term debt | 12,180 | 12,267 | 14,988 |
Other accruals | 391,471 | 430,924 | 373,482 |
Total current liabilities | 1,557,742 | 1,393,668 | 1,962,152 |
Long-term debt | 783,082 | 782,670 | 297,754 |
Postretirement benefits other than pensions | 284,228 | 283,784 | 249,384 |
Other long-term liabilities | 388,948 | 372,783 | 321,107 |
Shareholders' equity: | |||
Common stock - $1.00 par value: 109,735,117, 109,436,869 and 117,092,100 shares outstanding at March 31, 2010, December 31, 2009 and March 31, 2009, respectively | 229,453 | 228,647 | 227,793 |
Preferred stock - convertible, no par value; 216,753 shares outstanding at March 31, 2010, December 31, 2009 and March 31, 2009 | 216,753 | 216,753 | 216,753 |
Unearned ESOP compensation | (216,753) | (216,753) | (216,753) |
Other capital | 1,101,594 | 1,068,963 | 1,026,439 |
Retained earnings | 4,511,663 | 4,518,428 | 4,241,586 |
Treasury stock, at cost | (4,040,580) | (4,007,633) | (3,499,045) |
Cumulative other comprehensive loss | (306,984) | (317,455) | (414,814) |
Total shareholders' equity | 1,495,146 | 1,490,950 | 1,581,959 |
Total Liabilities and Shareholders' Equity | $4,509,146 | $4,323,855 | $4,412,356 |
1_CONSOLIDATED BALANCE SHEETS (
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parentheticals) | |||
Mar. 31, 2010
| Dec. 31, 2009
| Mar. 31, 2009
| |
Statement Of Financial Position Parentheticals Abstract | |||
Common stock, par value | $1 | $1 | $1 |
Common stock, shares outstanding | 109,735,117 | 109,436,869 | 117,092,100 |
Preferred stock, no par value | $0 | $0 | $0 |
Preferred stock, shares outstanding | 216,753 | 216,753 | 216,753 |
CONDENSED STATEMENTS OF CONSOLI
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (USD $) | ||
In Thousands | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
OPERATING ACTIVITIES | ||
Net income | $32,603 | $37,279 |
Adjustments to reconcile net income to net operating cash: | ||
Depreciation | 33,103 | 35,883 |
Amortization of intangible assets | 6,747 | 6,228 |
Stock-based compensation expense | 10,512 | 2,352 |
Provisions for qualified exit costs | 164 | 6,384 |
Provisions for environmental-related matters | 1,937 | 6,201 |
Defined benefit pension plans net cost | 4,314 | 9,004 |
Net increase in postretirement liability | 600 | 700 |
Other | 6,252 | 4,002 |
Change in working capital accounts - net | (206,444) | (208,088) |
Costs incurred for environmental - related matters | (12,000) | (6,634) |
Costs incurred for qualified exit costs | (4,461) | (2,345) |
Other | 10,855 | (3,234) |
Net operating cash | (115,818) | (112,268) |
INVESTING ACTIVITIES | ||
Capital expenditures | (25,423) | (22,436) |
Acquisitions of businesses, net of cash acquired | 0 | (13,018) |
Proceeds from sale of assets | 520 | 274 |
Increase in other investments | (17,635) | (15,422) |
Net investing cash | (42,538) | (50,602) |
FINANCING ACTIVITIES | ||
Net increase in short-term borrowings | 222,894 | 249,587 |
Net increase (decrease) in long-term borrowings | 882 | (6,624) |
Payments of cash dividends | (39,368) | (41,643) |
Proceeds from stock options exercised | 19,746 | 6,907 |
Income tax effect of stock-based compensation exercises and vesting | 3,123 | 1,407 |
Treasury stock purchased | (25,771) | (22,310) |
Other | (5,960) | (4,275) |
Net financing cash | 175,546 | 183,049 |
Effect of exchange rate changes on cash | 4,654 | (4,146) |
Net increase in cash and cash equivalents | 21,844 | 16,033 |
Cash and cash equivalents at beginning of year | 69,329 | 26,212 |
Cash and cash equivalents at end of period | 91,173 | 42,245 |
Income taxes paid | 8,513 | 12,661 |
Interest paid | $12,738 | $18,393 |
Note 1 - BASIS OF PRESENTATION
Note 1 - BASIS OF PRESENTATION | |
3 Months Ended
Mar. 31, 2010 | |
Basis Of Presentation Abstract | |
NOTE 1 - BASIS OF PRESENTATION | THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Periods ended March 31, 2010 and 2009 NOTE 1BASIS 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, 2009. Accounting estimates were revised as necessary during the first three months of 2010 based on new information and changes in facts and circumstances. In March 2010, the President signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The Acts eliminate the tax deduction previously allowed for the Medicare Part D subsidy beginning in years after December 31, 2012. The Company recognized the deferred tax effects of the reduced deductibility of the subsidy during the first quarter. The resulting one-time increase in income taxes of $11.4 million reduced first quarter basic and diluted earnings per share by $0.11 and $0.10, respectively. See Note 11. The Company uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs are subject to the final year-end LIFO inventory valuation. In addition, interim inventory levels include management's estimates of annual inventory losses due to shrinkage and other factors. The final year-end valuation of inventory is based on an annual physical inventory count performed during the fourth quarter. For further information on inventory valuations and other matters, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2009. The consolidated results for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010. |
Note 2 - IMPACT OF RECENTLY ISS
Note 2 - IMPACT OF RECENTLY ISSUED ACCOUTNING PRONOUNCEMENTS | |
3 Months Ended
Mar. 31, 2010 | |
Impact Of Recently Issued Accounting Pronouncements Abstract | |
NOTE 2 - IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | NOTE 2IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-11, which amends the Subsequent Events Topic of the Accounting Standards Codification (ASC) to eliminate the requirement for public companies to disclose the date through which subsequent events have been evaluated. The Company will continue to evaluate subsequent events through the date of the issuance of the financial statements, however, consistent with the guidance, this date will no longer be disclosed. ASU 2010-11 does not have any impact on the Company's results of operations, financial condition or liquidity. Effective January 1, 2010, the Company adopted FAS No. 166, "Accounting for Transfers of Financial Assets" (now codified in the Transfers and Servicing Topic of the ASC) and FAS No. 167, "Amendments to FASB Interpretation (FIN) No. 46(R)" (now codified in the Consolidation Topic of the ASC). FAS No. 166 removes the concept of a qualifying special-purpose entity (SPE) from FAS No. 140 and eliminates the exception for qualifying SPEs from the consolidation guidance of FIN No. 46(R). FAS No. 167 changes the analysis that must be performed to determine the primary beneficiary of a variable interest entity (VIE), amends certain guidance in FIN No. 46(R) for determining whether an entity is a VIE and requires enhanced disclosures about involvement with VIEs. The statements do not have a significant impact on the Company's results of operations, financial condition, liquidity or disclosures. |
Note 3 - DIVIDENDS
Note 3 - DIVIDENDS | |
3 Months Ended
Mar. 31, 2010 | |
Dividends Disclosure Abstract | |
NOTE 3 - DIVIDENDS | NOTE 3DIVIDENDS Dividends paid on common stock during the first quarter of 2010 and 2009 were $0.360 per common share and $0.355 per common share, respectively. |
Note 4 - COMPREHENSIVE INCOME
Note 4 - COMPREHENSIVE INCOME | |
3 Months Ended
Mar. 31, 2010 | |
Comprehensive Income Disclosure Abstract | |
NOTE 4 - COMPREHENSIVE INCOME | NOTE 4COMPREHENSIVE INCOME Comprehensive income is summarized as follows: (Thousands of dollars) Three Months Ended March 31, 2010 2009 Net income $ 32,603 $ 37,279 Foreign currency translation adjustments 6,486 (8,881) Amortization of net prior service costs and net actuarial losses, net of taxes (1) 3,651 4,639 Adjustments of marketable equity securities and derivative instruments used in cash flow hedges, net of taxes (2) 333 45 Comprehensive income $ 43,073 $ 33,082 (1) The tax effect of amortization of net prior service costs and net actuarial losses was $1,716 and $(2,890) for the three months ended March 31, 2010 and 2009, respectively. (2) The tax effect of adjustments of marketable equity securities and derivative instruments used in cash flow hedges was $(213) and $(35) for the three months ended March 31, 2010 and 2009, respectively. |
Note 5 - PRODUCT WARRANTIES
Note 5 - PRODUCT WARRANTIES | |
3 Months Ended
Mar. 31, 2010 | |
Product Warranties Disclosure Abstract | |
NOTE 5 - PRODUCT WARRANTIES | NOTE 5PRODUCT WARRANTIES Changes in the Company's accrual for product warranty claims during the first three months of 2010 and 2009, including customer satisfaction settlements, were as follows: (Thousands of dollars) 2010 2009 Balance at January 1 $ 22,214 $ 18,029 Charges to expense 4,108 4,297 Settlements (4,822) (4,632) Balance at March 31 $ 21,500 $ 17,694 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, 2009. |
Note 6 - EXIT OR DISPOSAL ACTIV
Note 6 - EXIT OR DISPOSAL ACTIVITIES | |
3 Months Ended
Mar. 31, 2010 | |
Exit Or Disposal Activities Disclosure Abstract | |
NOTE 6 - EXIT OR DISPOSAL ACTIVITIES | NOTE 6EXIT 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 three months ended March 31, 2010, 3 stores in the Paint Stores Group were closed due to lower demand or redundancy. During the three months ended March 31, 2010, amounts charged to SGA included qualified exit costs of $.01 million related to 3 closed stores, and amounts charged to Cost of goods sold included $.4 million for severance costs related to a Consumer Group manufacturing facility closed during 2009. Adjustments to prior provisions of $.3 million related to Global Finishes Group facilities closed during 2009 were recorded in Other general expense net in the three months ended March 31, 2010. The following table summarizes the activity and remaining liabilities associated with qualified exit costs for the three months ended March 31, 2010: (Thousands of dollars) Actual Adjustments to Balance at Provisions in expenditures prior provisions Balance at December 31, Cost of goods charged to in Other general March 31, Exit Plan 2009 sold or SGA accrual expense - net 2010 Paint Stores Group stores shutdown in 2010: Other qualified exit costs $ 7 $ 7 Paint Stores Group stores shutdown in 2009: Other qualified exit costs $ 3,213 $ (331) 2,882 Consumer Group manufacturing facilities shutdown in 2009: Severance and related costs 4,532 429 (2,119) 2,842 Other qualified exit costs 2,258 (64) 2,194 Global Finishes Group manufacturing facility and branches shutdown in 2009: Severance and related costs 204 (92) $ (16) 96 Other qualified exit costs 3,703 (357) (256) 3,090 Paint Stores Group manufacturing and distribution facilities, administrative offices and stores shutdown in 2008: Severance and related costs 70 (36) 34 Other qualified exit costs 5,426 (532) 4,894 Consumer Group manufacturing and distribution facilities shutdown in 2008: Severance and related costs 311 311 Other qualified exit costs 83 (15) 68 Global Finishes Group administrative offices and branches shutdown in 2008: Other qualified exit costs 88 (12) 76 Paint Stores Group manufacturing facility shutdown in 2007: Other qualified exit costs 1,578 (60) 1 |
Note 7 - HEALTH CARE, PENSION A
Note 7 - HEALTH CARE, PENSION AND OTHER BENEFITS | |
3 Months Ended
Mar. 31, 2010 | |
Health Care Pension And Other Benefits Disclosure Abstract | |
NOTE 7 - HEALTH CARE, PENSION AND OTHER BENEFITS | NOTE 7HEALTH CARE, PENSION AND OTHER BENEFITS Shown below are the components of the Company's net periodic benefit cost for domestic defined benefit pension plans, foreign defined benefit pension plans and postretirement benefits other than pensions: (Thousands of dollars) Domestic Defined Foreign Defined Postretirement Benefits Benefit Pension Plans Benefit Pension Plans Other than Pensions 2010 2009 2010 2009 2010 2009 Three Months Ended March 31: Net periodic benefit cost: Service cost $ 4,189 $ 5,316 $ 501 $ 306 $ 883 $ 848 Interest cost 4,440 4,617 1,036 735 4,017 3,924 Expected return on assets (10,515) (9,201) (715) (453) Amortization of: Prior service cost (credit) 415 387 7 11 (164) (164) Actuarial loss 4,691 7,208 347 78 326 72 Net periodic benefit cost $ 3,220 $ 8,327 $ 1,176 $ 677 $ 5,062 $ 4,680 For further details on the Company's health care, pension and other benefits, see Note 7 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. |
Note 8 - OTHER LONG TERM LIABIL
Note 8 - OTHER LONG TERM LIABILITIES | |
3 Months Ended
Mar. 31, 2010 | |
Other Long Term Liabilities Abstract | |
NOTE 8 - OTHER LONG-TERM LIABILITIES | NOTE 8OTHER LONG-TERM LIABILITIES The Company initially provides for estimated costs of environmental-related activities relating to its past operations and third-party sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs are determined based on currently available facts regarding each site. If the best estimate of costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided. At March 31, 2010, the unaccrued maximum of the estimated range of possible outcomes is $100.8 million higher than the minimum. The Company continuously assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Actual costs incurred may vary from these estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site. Included in Other long-term liabilities at March 31, 2010 and 2009 were accruals for extended environmental-related activities of $96.9 million and $128.2 million, respectively. Estimated costs of current investigation and remediation activities of $64.6 million and $52.6 million are included in Other accruals at March 31, 2010 and 2009, 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 March 31, 2010. At March 31, 2010, $119.9 million, or 74.2 percent of the total accrual, related directly to these four sites. In the aggregate unaccrued maximum of $100.8 million at March 31, 2010, $61.9 million, or 61.4 percent, 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 potent |
Note 9 - LITIGATION
Note 9 - LITIGATION | |
3 Months Ended
Mar. 31, 2010 | |
Litigation Disclosure Abstract | |
NOTE 9 - LITIGATION | NOTE 9LITIGATION In the course of its business, the Company is subject to a variety of claims and lawsuits, including 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 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 if even the possibility may be remote. 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 is also a defendant in legal proceedings arising from the manufacture and sale of non-lea |
Note 10 - OTHER EXPENSE
Note 10 - OTHER EXPENSE (INCOME) | |
3 Months Ended
Mar. 31, 2010 | |
Other Expense Income Disclosure Abstract | |
NOTE 10 - OTHER EXPENSE (INCOME) | NOTE 10OTHER EXPENSE (INCOME) Other general expense - net Included in Other general expense - net were the following: Three Months Ended (Thousands of dollars) March 31, 2010 2009 Provisions for environmental matters - net $ 1,937 $ 6,201 Loss on disposition of assets 241 729 Adjustments to prior provisions for qualified exit costs (272) 3,475 Other general expense - net $ 1,906 $ 10,405 Provisions for environmental mattersnet represent site-specific increases or decreases to environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Environmental-related accruals are not recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC. See Note 8 for further details on the Company's environmental-related activities. The loss on disposition of assets represents net realized losses associated with the disposal of fixed assets previously used in the conduct of the primary business of the Company. The adjustments to prior provisions for qualified exit costs represent site specific increases or decreases to accrued qualified exit costs as adjustments for costs of employee terminations are required or as information becomes available upon which more accurate amounts can be reasonably estimated. See Note 6 for further details on the Company's exit or disposal activities. Other expense (income) - net Included in Other expense (income) - net were the following: Three Months Ended (Thousands of dollars) March 31, 2010 2009 Dividend and royalty income $ (966) $ (957) Net expense from financing and investing activities 1,732 416 Foreign currency related losses (gains) 6,002 (101) Other income (2,108) (1,912) Other expense 2,138 1,448 Other expense (income) - net $ 6,798 $ (1,106) The net expense from financing and investing activities includes the net loss relating to the change in the Company's financing fees. Foreign currency related losses (gains) included foreign currency transaction gains and losses and realized and unrealized net gains from foreign currency option and forward contracts. The Company had foreign currency option and forward contracts outstanding at March 31, 2010 and 2009. All of the outstanding contracts had maturity dates of less than twelve months and were undesignated hedges with changes in fair value being recognized in earnings in accordance with the Derivatives and Hedging Topic of the ASC. These derivative instrument values were included in either Other current assets or Other accruals and were insignificant at March 31, 2010 and 2009. Other income and Other expense included items of revenue, gains, expenses and losses that were unrelated to the primary business purpose of the Company. Each individual item within the other income or other expense caption was immaterial; no single category of items exceeded $1.0 million. |
Note 11 - INCOME TAXES
Note 11 - INCOME TAXES | |
3 Months Ended
Mar. 31, 2010 | |
Income Taxes Disclosure Abstract | |
NOTE 11 - INCOME TAXES | NOTE 11INCOME TAXES The effective tax rate was 45.2 percent for the first quarter of 2010, compared to 26.7 percent for the first quarter of 2009. The increase in the effective tax rate for the first quarter of 2010 compared to 2009 was due to the impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act signed into law in March 2010. The Company recognized the deferred tax effects of the reduced deductibility of the postretirement prescription drug coverage during the first quarter of 2010, which resulted in a Federal and State income tax charge of $11.4 million. At December 31, 2009, the Company had $37.0 million in unrecognized tax benefits, the recognition of which would have an affect of $32.5 million on the current provision for income taxes. Included in the balance of unrecognized tax benefits at December 31, 2009 was $9.6 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount represents a decrease in unrecognized tax benefits comprised of items related to assessed state income tax audits, state settlement negotiations currently in progress and expiring statutes in foreign jurisdictions. The Company classifies all income tax related interest and penalties as income tax expense. At December 31, 2009, the Company had accrued $11.8 million for the potential payment of income tax interest and penalties. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Other than as noted below, the Internal Revenue Service (IRS) substantially completed the audit of the 2004 and 2005 tax years. The IRS commenced an examination of the Company's U.S. income tax returns for the 2006 and 2007 tax years in the fourth quarter of 2008. Fieldwork is anticipated to be completed prior to December 31, 2010. At this time, the Company has determined that an insignificant amount of additional tax is due. The IRS is currently examining transactions related to The Sherwin-Williams Company Employee Stock Purchase and Savings Plan. The IRS has indicated it may issue Notices of Proposed Adjustment related to these transactions. During the IRS's examination of the transactions, it requested the Department of Labor to review the transactions. Following the Department of Labor's initial examination, it is coordinating its response with the IRS. As of March 31, 2010, the Company is subject to non-U.S. income tax examinations for the tax years of 2002 through 2009. In addition, the Company is subject to state and local income tax examinations for the tax years 1992 through 2009. There were no significant changes to any of the balances of unrecognized tax benefits at December 31, 2009 during the first quarter of 2010. |
Note 12 - NET INCOME PER COMMON
Note 12 - NET INCOME PER COMMON SHARE | |
3 Months Ended
Mar. 31, 2010 | |
Net Income Per Common Share Disclosure Abstract | |
NOTE 12 - NET INCOME PER COMMON SHARE | NOTE 12NET INCOME PER COMMON SHARE Three Months Ended March 31, (Thousands of dollars except per share data) 2010 2009 Basic Average common shares outstanding 107,959,598 115,946,629 Net income $ 32,603 $ 37,279 Net income per common share $ 0.30 $ 0.32 Diluted Average common shares outstanding 107,959,598 115,946,629 Non-vested restricted stock grants 753,163 1,154,224 Stock options and other contingently issuable shares (1) 1,534,413 928,919 Average common shares assuming dilution 110,247,174 118,029,772 Net income $ 32,603 $ 37,279 Net income per common share $ 0.30 $ 0.32 (1) Stock options and other contingently issuable shares excludes 0.1 million and 4.9 million shares for the three months ended March 31, 2010 and 2009, respectively, due to their anti-dilutive effect. Basic and diluted earnings per share are calculated in accordance with the Earnings Per Share Topic of the ASC. Under the Company's restricted stock award program, non-forfeitable dividends are paid on unvested shares of restricted stock, and the restricted stock is therefore considered a participating security. The two-class method of computing earnings per share is required for all periods presented if it results in basic or diluted earnings per share amounts that are materially different than those calculated under the treasury stock method. If the use of the two-class method does not result in basic or diluted earnings per share amounts that are materially different than those calculated under the treasury stock method, the treasury stock method may still be used. The Company has calculated basic and diluted earnings per share for the three months ended March 31, 2010 and 2009 under both methods. Because the Company's unvested shares of restricted stock do not represent a significant portion of total outstanding shares, the use of the two-class method does not have a material impact on the basic and diluted earnings per share amounts, and the treasury stock method is disclosed. |
Note 13 - REPORTABLE SEGMENT IN
Note 13 - REPORTABLE SEGMENT INFORMATION | |
3 Months Ended
Mar. 31, 2010 | |
Reportable Segment Information Disclosure Abstract | |
NOTE 13 - REPORTABLE SEGMENT INFORMATION | NOTE 13REPORTABLE SEGMENT INFORMATION The Company reports segment information in the same way that management internally organizes its business for assessing performance and making decisions regarding allocation of resources in accordance with the Segment Disclosures Topic of the ASC. (Thousands of dollars) Three Months Ended March 31, 2010 Paint Stores Group Consumer Group Global Finishes Group Administrative Consolidated Totals Net external sales $ 850,912 $ 292,149 $ 421,099 $ 1,322 $ 1,565,482 Intersegment transfers 281,169 22,255 (303,424) Total net sales and intersegment transfers $ 850,912 $ 573,318 $ 443,354 $ (302,102) $ 1,565,482 Segment profit $ 47,755 $ 37,466 $ 23,003 $ 108,224 Interest expense $ (11,569) (11,569) Administrative expenses and other (37,197) (37,197) Income before income taxes $ 47,755 $ 37,466 * $ 23,003 $ (48,766) $ 59,458 Three Months Ended March 31, 2009 Paint Stores Group Consumer Group Global Finishes Group Administrative Consolidated Totals Net external sales $ 898,408 $ 288,152 $ 362,511 $ 1,606 $ 1,550,677 Intersegment transfers 270,813 34,750 (305,563) Total net sales and intersegment transfers $ 898,408 $ 558,965 $ 397,261 $ (303,957) $ 1,550,677 Segment profit $ 56,580 $ 30,204 $ 5,305 $ 92,089 Interest expense $ (12,202) (12,202) Administrative expenses and other (28,994) (28,994) Income before income taxes $ 56,580 $ 30,204 * $ 5,305 $ (41,196) $ 50,893 * Segment profit includes $4,019 and $3,323 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the first quarter of 2010 and 2009, respectively. In the reportable segment financial information, Segment profit was total net sales and intersegment transfers less operating costs and expenses. Domestic intersegment transfers were accounted for at the approximate fully absorbed manufactured cost, based on normal capacity volumes, plus customary distribution costs. International intersegment transfers were accounted for at values comparable to normal unaffiliated customer sales. The Administrative segment includes the administrative expenses of the Company's corporate headquarters site. Also included in the Administrative segment was interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which were not directly associated with the Reportable Operating 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 determ |
Note 14 - ACQUISITIONS
Note 14 - ACQUISITIONS | |
3 Months Ended
Mar. 31, 2010 | |
Acquisitions Disclosure Abstract | |
NOTE 14 - ACQUISITIONS | NOTE 14ACQUISITIONS Effective April 1, 2010, the Company acquired Sayerlack Industrial Coatings (Sayerlack) for $53.8 million, excluding any post-closing adjustments. Headquartered in Pianoro, Italy, Sayerlack is a leading coatings innovator in the joinery, furniture and cabinets markets. The acquisition will strengthen the Global Finishes Group's growing global platform for product finishes. A valuation will be completed in the second quarter, and Sayerlack will be included in the Company's consolidated financial statements after the date of acquisition. During the first quarter of 2009, the Company acquired Altax Sp. zo.o. (Altax). Headquartered in Poznan, Poland, Altax is a leading innovator of protective woodcare coatings and serves multiple channels, including industrial, professional and DIY. Included in the Consumer Group, the acquisition provides a platform for further growth in Central Europe. The aggregate consideration paid for Altax was $11.5 million, net of cash acquired, including the assumption of certain financial obligations. The acquisition resulted in the recognition of goodwill and intangible assets. The following unaudited pro-forma summary presents consolidated financial information as if Altax had been acquired as of the beginning of each period presented. The pro-forma consolidated financial information does not necessarily reflect the actual results that would have occurred had the acquisition taken place on January 1, 2009 or of future results of operations of the combined companies under ownership and operation of the Company. (Thousands of dollars except per share data) Three Months Ended March 31, 2010 2009 Net sales $ 1,565,482 $ 1,550,947 Net income 32,603 36,884 Net income per common share: Basic $ 0.30 $ 0.32 Diluted $ 0.30 $ 0.31 |
Note 15 - FAIR VALUE MEASUREMEN
Note 15 - FAIR VALUE MEASUREMENTS | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value Measurements Abstract | |
NOTE 15- FAIR VALUE MEASUREMENTS | NOTE 15FAIR VALUE MEASUREMENTS The Fair Value Measurements and Disclosures Topic of the ASC applies to the Company's financial and non-financial assets and liabilities. The guidance applies when other standards require or permit the fair value measurement of assets and liabilities. It does not expand the use of fair value measurements. The Company did not have any fair value measurements for its non-financial assets and liabilities during the 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 in Significant Fair Value at Active Markets for Significant Other Unobservable March 31, Identical Assets Observable Inputs Inputs 2010 (Level 1) (Level 2) (Level 3) Assets: Deferred compensation plan asset (1) $ 17,529 $ 14,976 $ 2,553 Net currency derivative asset (2) 53 53 Total assets at fair value $ 17,582 $ 14,976 $ 2,606 Liabilities: Deferred compensation plan liability (3) $ 19,992 $ 19,992 Total liabilities at fair value $ 19,992 $ 19,992 (1) The deferred compensation plan asset consists of the investment funds maintained for the future payments under the Company's executive deferred compensation plan, which is structured as a rabbi trust. The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC. The level 1 investments are valued using quoted market prices multiplied by the number of shares. The level 2 investments are valued based on vendor or broker models. The cost basis of the investment funds is $16,387. (2) The net currency derivative asset represents the fair value of foreign currency swaps. The swaps are valued using the banks' proprietary models. (3) The deferred compensation plan liability is the Company's liability under its executive deferred compensation plan. The liability represents the fair value of the participant shadow accounts, and the value is based on quoted market prices. |
Note 16 - FINANCIAL INSTRUMENTS
Note 16 - FINANCIAL INSTRUMENTS | |
3 Months Ended
Mar. 31, 2010 | |
Financial Instruments Disclosure Abstract | |
NOTE 16 - FINANCIAL INSTRUMENTS | NOTE 16FINANCIAL INSTRUMENTS The table below summarizes the carrying amount and fair value of the Company's publicly traded debt and non-publicly traded debt in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. The fair values of the Company's publicly traded debt are based on quoted market prices. The fair values of the Company's non-traded debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. (Thousands of dollars) March 31, 2010 Carrying Fair Amount Value Publicly traded debt $ 768,313 $ 743,287 Non-traded debt 26,949 25,587 |
Note 17 - NON-TRADED INVESTMENT
Note 17 - NON-TRADED INVESTMENTS | |
3 Months Ended
Mar. 31, 2010 | |
Non Traded Investments Abstract | |
NOTE 17 - NON-TRADED INVESTMENTS | NOTE 17NON-TRADED INVESTMENTS The Company has invested in the U.S. affordable housing and historic renovation real estate markets. These non-traded investments have been identified as variable interest entities. However, because the Company does not have the power to direct the day-to-day operations of the investments and the risk of loss is limited to the amount of contributed capital, the Company is not considered the primary beneficiary. In accordance with the Consolidation Topic of the ASC, the investments are not consolidated. The 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 over the period that the tax credits are recognized. The carrying amount of the investments, included in Other assets, was $96.0 million at March 31, 2010. The liability for estimated future capital contributions to the investments was $78.9 million at March 31, 2010. |