NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(millions of dollars, unless otherwise noted)
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of The Sherwin-Williams Company and its wholly owned subsidiaries (collectively, the Company). Inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (US GAAP) requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those amounts.
Nature of Operations
The Company is engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America, with additional operations in the Caribbean region, Europe, Asia and Australia.
Reportable Segments
See Note 21 for further details.
Cash Equivalents
Management considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Derivative Instruments
The Company utilizes derivative instruments as part of its overall financial risk management policy. The Company entered into foreign currency forward contracts with maturity dates of less than twelve months in 2019, 2018, and 2017, primarily to hedge against value changes in foreign currency. See Note 18. There were no material foreign currency option and forward contracts outstanding at December 31, 2019, 2018 and 2017.
On May 9, 2019, the Company entered into a U.S. Dollar to Euro cross currency swap contract with a total notional amount of $400.0 million to hedge the Company's net investment in its European operations. This contract has been designated as a net investment hedge and will mature on January 15, 2022. During the term of the contract, the Company will pay fixed-rate interest in Euros and receive fixed-rate interest in U.S. Dollars, thereby effectively converting a portion of the Company's U.S. Dollar denominated fixed-rate debt to Euro denominated fixed-rate debt. The fair value of the contract as of December 31, 2019 was $1.5 million and is included in Other assets on the balance sheet. The changes in fair value are recognized in the foreign currency translation adjustments component of Accumulated other comprehensive income (loss) (AOCI). For the year ended December 31, 2019, an unrealized gain of $1.1 million, net of tax, was recognized in AOCI.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable were recorded at the time of credit sales net of allowance for credit losses. The Company recorded an allowance for doubtful accounts of $36.5 million, $45.9 million and $53.0 million at December 31, 2019, 2018 and 2017, respectively, to reduce Accounts receivable to their estimated net realizable value. The allowance was based on an analysis of historical bad debts, a review of the aging of Accounts receivable and the current creditworthiness of customers. Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful collection of accounts are included in Selling, general and administrative expenses.
Property, Plant and Equipment
Property, plant and equipment (including leasehold improvements) is stated on the basis of cost. Depreciation is provided by the straight-line method. Depreciation and amortization are included in the appropriate Cost of goods sold or Selling, general and administrative expenses caption on the Statements of Consolidated Income. The major classes of assets and ranges of annual depreciation rates are:
|
|
|
Buildings
|
4.0% – 20.0%
|
Machinery and equipment
|
10.0% – 20.0%
|
Furniture and fixtures
|
6.7% – 33.3%
|
Automobiles and trucks
|
10.0% – 33.3%
|
Goodwill and Intangible Assets
Goodwill represents the cost in excess of fair value of net assets acquired in business combinations accounted for by the purchase method. Intangible assets include indefinite-lived trademarks, customer relationships and intellectual property. In accordance with the Goodwill and Other Intangibles Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), goodwill and indefinite-lived trademarks are not amortized, but instead are tested for impairment on an annual basis, as well as whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred. The costs of finite-lived intangible assets are amortized on a straight-line basis over the expected period of benefit, which ranges primarily from 15 to 20 years. See Note 6.
Impairment of Long-Lived Assets
In accordance with the Property, Plant and Equipment Topic of the ASC, management evaluates the recoverability and remaining lives of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. See Notes 4 and 6.
Non-Traded Investments
The Company has investments in the U.S. affordable housing and historic renovation real estate markets and certain other investments that 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 Accounting Standard Update (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 amounts of the investments, included in Other assets, were $176.2 million, $181.2 million and $189.4 million at December 31, 2019, 2018 and 2017, respectively. The liabilities recorded on the balance sheets for estimated future capital contributions to the investments were $174.4 million, $183.0 million and $179.0 million at December 31, 2019, 2018 and 2017, respectively.
Standby Letters of Credit
The Company occasionally enters into standby letter of credit agreements to guarantee various operating activities. These agreements provide credit availability to the various beneficiaries if certain contractual events occur. Amounts outstanding under these agreements totaled $61.2 million, $65.6 million and $75.3 million at December 31, 2019, 2018 and 2017, respectively.
Product Warranties
The Company offers assurance type product warranties for certain products. The specific terms and conditions of such warranties vary depending on the product or customer contract requirements. Management estimated the costs of unsettled product warranty claims based on historical results and experience and included an amount in Other accruals. Management periodically assesses the adequacy of the accrual for product warranty claims and adjusts the accrual as necessary. Changes in the Company’s accrual for product warranty claims during 2019, 2018 and 2017, including customer satisfaction settlements during the year, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at January 1
|
$
|
57.1
|
|
|
$
|
151.4
|
|
|
$
|
34.4
|
|
Charges to expense
|
32.5
|
|
|
31.7
|
|
|
39.7
|
|
Settlements
|
(47.3
|
)
|
|
(57.8
|
)
|
|
(53.1
|
)
|
Acquisition, divestiture and other adjustments
|
|
|
|
(68.2
|
)
|
|
130.4
|
|
Balance at December 31
|
$
|
42.3
|
|
|
$
|
57.1
|
|
|
$
|
151.4
|
|
Warranty accruals acquired in connection with the Valspar acquisition include warranties for certain products under extended furniture protection plans. The decrease in the accrual for product warranty claims in the year ended December 31, 2018 was primarily due to the divestiture of the furniture protection plan business in the third quarter of 2018.
Defined Benefit Pension and Other Postretirement Benefit Plans
The Company accounts for its defined benefit pension and other postretirement benefit plans in accordance with the Retirement Benefits Topic of the ASC, which requires the recognition of a plan’s funded status as an asset for overfunded plans and as a liability for unfunded or underfunded plans. See Note 8.
Environmental Matters
Capital expenditures for ongoing environmental compliance measures were recorded in Property, plant and equipment, and related expenses were included in the normal operating expenses of conducting business. The Company accrued for environmental-related activities for which commitments or clean-up plans have been developed and when such costs could be reasonably estimated based on industry standards and professional judgment. All accrued amounts were recorded on an undiscounted basis and have not been recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC. Environmental-related expenses included direct costs of investigation and remediation and indirect costs such as compensation and benefits for employees directly involved in the investigation and remediation activities and fees paid to outside engineering, consulting and law firms. See Notes 10 and 18.
Employee Stock Purchase and Savings Plan
The Company accounts for the Employee Stock Purchase and Savings Plan (ESOP) in accordance with the Employee Stock Ownership Plans Subtopic of the Compensation – Stock Ownership Topic of the ASC. The Company recognized compensation expense for amounts contributed to the ESOP. See Note 13.
Stock-Based Compensation
The cost of the Company’s stock-based compensation is recorded in accordance with the Stock Compensation Topic of the ASC. See Note 14.
Other Liabilities
The Company retains risk for certain liabilities, primarily workers’ compensation claims, employee medical and disability benefits, and automobile, property, general and product liability claims. Estimated amounts were accrued for certain workers’ compensation, employee medical and disability benefits, automobile and property claims filed but unsettled, and estimated claims incurred but not reported based upon management’s estimated aggregate liability for claims incurred using historical experience, actuarial assumptions followed in the insurance industry and actuarially-developed models for estimating certain liabilities. Certain estimated general and product liability claims filed but unsettled were accrued based on management’s best estimate of ultimate settlement or actuarial calculations of potential liability using industry experience and actuarial assumptions developed for similar types of claims.
Foreign Currency Translation
All consolidated non-highly inflationary foreign operations use the local currency of the country of operation as the functional currency and translated the local currency asset and liability accounts at year-end exchange rates while income and expense
accounts were translated at average exchange rates. The resulting translation adjustments were included in AOCI, a component of Shareholders’ equity.
Revenue Recognition
The Company recognized revenue when control of the product was transferred to unaffiliated customers. Collectibility of amounts recorded as revenue was probable at the time of recognition. See Note 17.
Customer and Vendor Consideration
The Company offered certain customers rebate and sales incentive programs which were classified as reductions in Net sales. Such programs were in the form of volume rebates, rebates that constituted a percentage of sales or rebates for attaining certain sales goals. The Company received consideration from certain suppliers of raw materials in the form of volume rebates or rebates that constituted a percentage of purchases. These rebates were recognized on an accrual basis by the Company as a reduction of the purchase price of the raw materials and a subsequent reduction of Cost of goods sold when the related product was sold.
Costs of Goods Sold
Included in Costs of goods sold were costs for materials, manufacturing, distribution and related support. Distribution costs included expenses related to the distribution of products including inbound freight charges, purchase and receiving costs, warehousing costs, internal transfer costs and other costs incurred to ship products. Also included in Costs of goods sold were total technical expenditures, which included research and development costs, quality control, product formulation expenditures and other similar items. Research and development costs included in technical expenditures were $103.1 million, $51.9 million and $58.5 million for 2019, 2018 and 2017, respectively.
Selling, General and Administrative Expenses
Selling costs included advertising expenses, marketing costs, employee and store costs and sales commissions. The cost of advertising was expensed as incurred. The Company incurred $355.2 million, $357.8 million and $374.1 million in advertising costs during 2019, 2018 and 2017, respectively. General and administrative expenses included human resources, legal, finance and other support and administrative functions.
Earnings Per Share
Common stock held in a revocable trust (see Note 12) was not included in outstanding shares for basic or diluted income per share calculations. Basic and diluted net income per share were calculated using the treasury stock method in accordance with the Earnings Per Share Topic of the ASC. Basic net income per share amounts were computed based on the weighted-average number of shares outstanding during the year. Diluted net income per share amounts were computed based on the weighted-average number of shares outstanding plus all dilutive securities potentially outstanding during the year. See Note 20.
Reclassifications
Certain amounts in the notes to the consolidated financial statements for 2017 and 2018 have been reclassified to conform to the 2019 presentation.
NOTE 2 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted in 2019
Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, "Leases" (ASC 842). ASC 842 consists of a comprehensive lease accounting standard requiring most leases to be recognized on the balance sheet and significant new disclosures. The Company adopted ASC 842 using the modified retrospective optional transition method. Therefore, the standard was applied starting January 1, 2019 and prior periods were not restated.
The Company applied the 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.
As a result of the adoption of ASC 842, right-of-use assets, current liabilities and non-current liabilities related to operating leases of $1.7 billion, $0.4 billion and $1.4 billion, respectively, were recognized on the balance sheet at December 31, 2019. In addition, the adoption of ASC 842 resulted in a transition adjustment, net of tax, reducing the opening balance of retained earnings by $8.4 million at January 1, 2019. The adoption of ASC 842 did not have a material impact on the Company's results of operations, cash flows or debt covenants. See Note 9 for additional information.
Effective January 1, 2019, the Company adopted ASU 2018-02, "Reclassification of Certain Income Tax Effects from Accumulated Other Comprehensive Income." This standard allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. As a result of this standard, the Company recorded an $8.3 million reclassification from AOCI to retained earnings. See Note 15 for additional information on the impact of the reclassification to each component of AOCI. The adoption of this standard did not have a significant impact on the Company's results of operations, financial condition or liquidity.
Effective January 1, 2019, the Company adopted ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities." This standard better aligns hedging activities and financial reporting for hedging relationships. It eliminates the requirement to separately measure and report hedge ineffectiveness and reduces the complexity of applying certain aspects of hedge accounting. There were no outstanding hedges as of the adoption date. The prospective 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 June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In addition, new disclosures are required. The ASU is effective for fiscal years beginning after December 15, 2019 and for interim periods therein. The adoption of ASU 2016-13 is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The ASU simplifies the accounting for income taxes, changes the accounting for certain income tax transactions, and makes other minor changes. The standards update is effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The amendments are primarily perspective. The Company is currently assessing the impact of this standards update on our consolidated financial statements.
NOTE 3 – ACQUISITIONS
During 2019, the Company completed the acquisition of a domestic packaging company and two European coatings companies for an aggregate purchase price of $84.4 million, including amounts withheld as security for certain representations, warranties and obligations of the sellers. These acquisitions support the growth of the Performance Coatings Group by providing new technologies and an expanded global platform. The acquisitions have been accounted for as business combinations. The preliminary purchase price allocations are expected to be finalized within the allowable measurement period. The results of operations of these companies have been included in the consolidated financial statements since the date of acquisition. Pro forma results of operations have not been presented as the impact on the Company's consolidated financial results was not material.
On June 1, 2017, the Company completed the acquisition of The Valspar Corporation (Valspar) at $113 per share in an all cash transaction for a total purchase price of $8.9 billion, net of divestiture proceeds of $431.0 million. On April 11, 2017, 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 share by $0.44 for the year ended December 31, 2017. 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.
The following table summarizes the allocation of the fair value of the net assets acquired through the Valspar acquisition. This allocation was based on the acquisition method of accounting and third-party valuation appraisals.
|
|
|
|
|
|
Cash
|
|
$
|
129.1
|
|
Accounts receivable
|
|
817.5
|
|
Inventories
|
|
684.4
|
|
Indefinite-lived trademarks
|
|
614.3
|
|
Finite-lived intangible assets
|
|
4,922.9
|
|
Goodwill
|
|
5,888.8
|
|
Property, plant and equipment
|
|
840.7
|
|
All other assets
|
|
235.1
|
|
Accounts payable
|
|
(553.2
|
)
|
Long-term debt
|
|
(1,603.5
|
)
|
Deferred taxes
|
|
(1,915.9
|
)
|
All other liabilities
|
|
(1,120.8
|
)
|
Total
|
|
$
|
8,939.4
|
|
Total, net of cash
|
|
$
|
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 second quarter of 2018 that related to prior periods. Goodwill of $2.0 billion, $1.1 billion, 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 results of operations for Valspar have been included in the Company's consolidated financial statements since the date of acquisition.
NOTE 4 – EXIT OR DISPOSAL ACTIVITIES
Management is continually re-evaluating the Company’s operating facilities, including acquired operating facilities, against its long-term strategic goals. Liabilities associated with exit or disposal activities are recognized as incurred in accordance with the Exit or Disposal Cost Obligations Topic of the ASC. Provisions for qualified exit costs are made at the time a facility is no longer operational. Qualified exit costs primarily include post-closure lease expenses or early lease termination 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. Adjustments to prior provisions and additional impairment charges for property, plant and equipment of closed sites being held for disposal are recorded in Other general expense – net.
The following table summarizes the activity and remaining liabilities associated with qualified exit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at January 1
|
|
$
|
7.1
|
|
|
$
|
13.4
|
|
|
$
|
3.8
|
|
Acquired balances
|
|
|
|
|
|
4.5
|
|
Provisions in Cost of goods sold or SG&A
|
|
8.8
|
|
|
14.9
|
|
|
50.5
|
|
Actual expenditures charged to accrual
|
|
(12.8
|
)
|
|
(21.2
|
)
|
|
(45.4
|
)
|
Balance at December 31
|
|
$
|
3.1
|
|
|
$
|
7.1
|
|
|
$
|
13.4
|
|
NOTE 5 – INVENTORIES
Inventories were stated at the lower of cost or net realizable value, with cost primarily determined on the last-in, first-out (LIFO) method. Management believes that the use of LIFO results in a better matching of costs and revenues.
The following table summarizes the extent to which the Company's Inventories use the LIFO cost method, and presents the effect on inventories had the Company used the first-in, first-out (FIFO) inventory valuation method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Percentage of total inventories on LIFO
|
72
|
%
|
|
72
|
%
|
|
71
|
%
|
Excess of FIFO over LIFO
|
$
|
339.8
|
|
|
$
|
377.1
|
|
|
$
|
288.2
|
|
The Company recorded a reserve for obsolescence of $115.4 million, $105.9 million and $103.7 million at December 31, 2019, 2018 and 2017, respectively, to reduce Inventories to their estimated net realizable value.
NOTE 6 – GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS
In accordance with the Property, Plant and Equipment Topic of the ASC, whenever events or changes in circumstances indicate that the carrying value of long-lived assets may not be recoverable or the useful life may have changed, impairment tests are to be performed. Subsequent to the adoption of ASU 2016-02, right-of-use assets recognized in the consolidated balance sheet are considered to be long-lived assets. Undiscounted cash flows were used to calculate the recoverable value of long-lived assets to determine if such assets were not recoverable. If the carrying value of the assets was deemed to not be recoverable, the impairment to be recognized is the amount by which the carrying value of the assets exceeds the estimated fair value of the assets as determined in accordance with the Fair Value Topic of the ASC. No material impairments of long-lived assets were recorded in 2019, 2018 or 2017.
During 2019, the Company acquired three companies which resulted in the recognition of goodwill of $14.2 million and finite-lived intangibles of $34.9 million. During 2017, the Company recognized goodwill of $5.9 billion, finite-lived intangibles of $4.9 billion and indefinite-lived trademarks of $614.3 million in connection with the acquisition of Valspar in 2017. See Note 3 for additional information related to the acquisitions.
In accordance with the Goodwill and Other Intangibles Topic of the ASC, goodwill and indefinite-lived intangible assets are tested for impairment annually, and interim impairment tests are performed whenever an event occurs or circumstances change that indicate an impairment has more likely than not occurred. October 1 has been established for the annual impairment review. At the time of impairment testing, values are estimated separately for goodwill and trademarks with indefinite lives using a valuation model, incorporating discount rates commensurate with the risks involved for each group of assets. An optional qualitative assessment may alleviate the need to perform the quantitative goodwill impairment test when impairment is unlikely.
During the fourth quarter of 2019, the Company performed a strategic review of its business lines as part of the annual planning cycle. Decisions were made during this review related to certain brands which resulted in a reduction to the long-term forecasted net sales for certain indefinite-lived trademarks acquired in the Valspar acquisition within the Performance Coatings and Consumer Brands Groups. As a result of the strategic decisions made at that time and in conjunction with the annual impairment review performed as of October 1, 2019, the Company recognized non-cash pre-tax impairment charges totaling $122.1 million related to certain recently acquired indefinite-lived trademarks. These charges included impairments totaling $117.0 million in the Performance Coatings Group and $5.1 million in the Consumer Brands Group. In the Performance Coatings Group, $75.6 million related to trademarks in North America directly associated with strategic decisions made to rebrand industrial products to the Sherwin-Williams® brand name, $25.7 million related to trademarks in the Asia Pacific region as a direct result of recent performance that reduced the long-term forecasted net sales and $15.7 million related to other recently acquired trademarks in various regions. The fair values of the indefinite-lived trademarks were calculated using the royalty savings method. The annual impairment review did not result in any goodwill impairment.
The annual impairment reviews performed as of October 1, 2018 did not result in any goodwill or trademark impairment. The annual impairment review performed as of October 1, 2017 resulted in trademark impairment of $2.0 million in The Americas Group related to lower than anticipated sales of an acquired brand and no goodwill impairment.
A summary of changes in the Company’s carrying value of goodwill by Reportable Segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
The Americas Group
|
|
Consumer Brands
Group
|
|
Performance Coatings
Group
|
|
Consolidated
Totals
|
Balance at January 1, 2017 (1)
|
$
|
285.4
|
|
|
$
|
699.9
|
|
|
$
|
141.6
|
|
|
$
|
1,126.9
|
|
Acquisition
|
2,276.1
|
|
|
1,473.2
|
|
|
1,925.9
|
|
|
5,675.2
|
|
Currency and other adjustments
|
(5.9
|
)
|
|
60.1
|
|
|
(42.0
|
)
|
|
12.2
|
|
Balance at December 31, 2017 (1)
|
2,555.6
|
|
|
2,233.2
|
|
|
2,025.5
|
|
|
6,814.3
|
|
Acquisition adjustments
|
(273.9
|
)
|
|
(413.3
|
)
|
|
900.8
|
|
|
213.6
|
|
Currency and other adjustments
|
(25.1
|
)
|
|
(66.1
|
)
|
|
20.0
|
|
|
(71.2
|
)
|
Balance at December 31, 2018 (1)
|
2,256.6
|
|
|
1,753.8
|
|
|
2,946.3
|
|
|
6,956.7
|
|
Acquisitions
|
|
|
|
|
|
|
14.2
|
|
|
14.2
|
|
Currency and other adjustments
|
|
|
|
0.1
|
|
|
33.8
|
|
|
33.9
|
|
Balance at December 31, 2019 (1)
|
$
|
2,256.6
|
|
|
$
|
1,753.9
|
|
|
$
|
2,994.3
|
|
|
$
|
7,004.8
|
|
|
|
(1)
|
Net of accumulated impairment losses of $19.4 million ($10.5 million in The Americas Group, $8.1 million in the Consumer Brands Group and $0.8 million in the Performance Coatings Group).
|
A summary of the Company’s carrying value of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-Lived Intangible Assets
|
|
Trademarks
With
Indefinite
Lives (1)
|
|
Total
Intangible
Assets
|
|
Software
|
|
Customer Relationships
|
|
Intellectual Property
|
|
All Other
|
|
Subtotal
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
166.4
|
|
|
$
|
3,062.8
|
|
|
$
|
1,730.3
|
|
|
$
|
312.9
|
|
|
$
|
5,272.4
|
|
|
|
|
|
Accumulated amortization
|
(134.8
|
)
|
|
(527.5
|
)
|
|
(223.5
|
)
|
|
(260.5
|
)
|
|
(1,146.3
|
)
|
|
|
|
|
Net value
|
$
|
31.6
|
|
|
$
|
2,535.3
|
|
|
$
|
1,506.8
|
|
|
$
|
52.4
|
|
|
$
|
4,126.1
|
|
|
$
|
608.4
|
|
|
$
|
4,734.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
165.2
|
|
|
$
|
3,103.7
|
|
|
$
|
1,730.3
|
|
|
$
|
315.0
|
|
|
$
|
5,314.2
|
|
|
|
|
|
Accumulated amortization
|
(127.3
|
)
|
|
(326.3
|
)
|
|
(137.0
|
)
|
|
(256.2
|
)
|
|
(846.8
|
)
|
|
|
|
|
Net value
|
$
|
37.9
|
|
|
$
|
2,777.4
|
|
|
$
|
1,593.3
|
|
|
$
|
58.8
|
|
|
$
|
4,467.4
|
|
|
$
|
734.2
|
|
|
$
|
5,201.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
165.0
|
|
|
$
|
3,361.7
|
|
|
$
|
1,774.0
|
|
|
$
|
329.4
|
|
|
$
|
5,630.1
|
|
|
|
|
|
Accumulated amortization
|
(116.6
|
)
|
|
(129.6
|
)
|
|
(51.7
|
)
|
|
(257.5
|
)
|
|
(555.4
|
)
|
|
|
|
|
Net value
|
$
|
48.4
|
|
|
$
|
3,232.1
|
|
|
$
|
1,722.3
|
|
|
$
|
71.9
|
|
|
$
|
5,074.7
|
|
|
$
|
927.7
|
|
|
$
|
6,002.4
|
|
|
|
(1)
|
Trademarks with indefinite lives as of December 31, 2019 is net of accumulated impairment losses of $122.1 million. There were no material accumulated impairment losses as of December 31, 2018 and 2017.
|
Amortization of finite-lived intangible assets is estimated as follows for the next five years: $298.7 million in 2020, $297.9 million in 2021, $296.3 million in 2022, $293.9 million in 2023 and $291.3 million in 2024.
Although the Company believes its estimates of fair value related to reporting units and indefinite-lived trademarks are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact and future impairment charges may be required.
NOTE 7 – DEBT
The table below summarizes the carrying value of the Company's outstanding debt, net of capitalized debt issuance costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due Date
|
|
2019
|
|
2018
|
|
2017
|
3.45% Senior Notes (1)
|
2027
|
|
$
|
1,486.8
|
|
|
$
|
1,485.0
|
|
|
$
|
1,483.2
|
|
4.50% Senior Notes (1)
|
2047
|
|
1,230.1
|
|
|
1,229.4
|
|
|
1,228.6
|
|
2.95% Senior Notes
|
2029
|
|
790.7
|
|
|
|
|
|
|
2.75% Senior Notes (1)
|
2022
|
|
757.1
|
|
|
1,242.9
|
|
|
1,240.8
|
|
3.80% Senior Notes
|
2049
|
|
542.5
|
|
|
|
|
|
|
3.125% Senior Notes (1)
|
2024
|
|
497.0
|
|
|
496.3
|
|
|
495.6
|
|
2.25% Senior Notes (1)
|
2020
|
|
428.6
|
|
|
1,496.0
|
|
|
1,493.1
|
|
4.20% Senior Notes (2)
|
2022
|
|
411.3
|
|
|
416.8
|
|
|
422.4
|
|
3.45% Senior Notes
|
2025
|
|
398.0
|
|
|
397.6
|
|
|
397.3
|
|
4.55% Senior Notes
|
2045
|
|
394.3
|
|
|
394.1
|
|
|
393.9
|
|
3.95% Senior Notes (2)
|
2026
|
|
359.3
|
|
|
360.8
|
|
|
362.4
|
|
4.00% Senior Notes
|
2042
|
|
296.4
|
|
|
296.3
|
|
|
296.1
|
|
Floating Rate Loan
|
2021
|
|
251.9
|
|
|
257.4
|
|
|
269.2
|
|
3.30% Senior Notes (2)
|
2025
|
|
249.4
|
|
|
249.3
|
|
|
249.2
|
|
4.40% Senior Notes (2)
|
2045
|
|
239.2
|
|
|
238.7
|
|
|
238.3
|
|
7.375% Debentures
|
2027
|
|
119.1
|
|
|
119.0
|
|
|
119.0
|
|
0.92% Fixed Rate Loan
|
2021
|
|
22.4
|
|
|
22.9
|
|
|
23.9
|
|
7.45% Debentures
|
2097
|
|
3.5
|
|
|
3.5
|
|
|
3.5
|
|
0.53% to 8.00% Promissory Notes
|
Through 2027
|
|
2.9
|
|
|
3.3
|
|
|
3.7
|
|
7.25% Senior Notes (2)
|
2019
|
|
|
|
|
306.0
|
|
|
319.4
|
|
Term Loan
|
2022
|
|
|
|
|
|
|
|
847.3
|
|
Total (3)
|
|
|
8,480.5
|
|
|
9,015.3
|
|
|
9,886.9
|
|
Less amounts due within one year
|
|
|
429.8
|
|
|
307.2
|
|
|
1.2
|
|
Long-term debt
|
|
|
$
|
8,050.7
|
|
|
$
|
8,708.1
|
|
|
$
|
9,885.7
|
|
|
|
(1)
|
Senior notes issued in 2017 to fund the acquisition of Valspar.
|
|
|
(2)
|
Senior notes acquired in 2017 through the acquisition of Valspar.
|
|
|
(3)
|
Net of capitalized debt issuance costs of $50.6 million, $49.1 million and $57.9 million at December 31, 2019, 2018 and 2017, respectively.
|
Maturities of long-term debt are as follows for the next five years: $430.1 million in 2020; $275.2 million in 2021; $1,160.4 million in 2022, $0.3 million in 2023 and $500.1 million in 2024. Interest expense on long-term debt was $321.3 million, $343.1 million and $257.4 million for 2019, 2018 and 2017, respectively.
Among other restrictions, the Company’s notes, debentures and revolving credit agreement contain certain covenants relating to liens, ratings changes, merger and sale of assets, consolidated leverage and change of control, as defined in the agreements. 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. The Company was in compliance with all covenants for all years presented.
In June 2019, the Company repurchased $60.9 million of its 2.25% Senior Notes due May 2020. This repurchase resulted in an insignificant gain.
In August 2019, the Company repurchased $1.010 billion of its 2.25% Senior Notes due May 2020 and $490.0 million of its 2.75% Senior Notes due June 2022. These repurchases resulted in a loss of $14.8 million recorded in other expense (income) - net. See Note 18.
In August 2019, the Company issued $800.0 million of 2.95% Senior Notes due 2029 and $550.0 million of 3.80% Senior Notes due 2049 (collectively the "New Notes") in a public offering. The net proceeds from the issuance of the New Notes are being used for general corporate purposes.
On May 16, 2017, the Company issued $6.0 billion of senior notes in a public offering. The net proceeds from the issuance of these notes were used to fund the acquisition of Valspar. See Note 3. The interest rate locks entered into in 2016 settled in March
2017 resulting in a pretax gain of $87.6 million recognized in AOCI. This gain is being amortized from AOCI to a reduction of interest expense over the terms of the notes. For the years ended December 31, 2019 and 2018, the amortization of the unrealized gain reduced interest expense by $7.8 million and $8.3 million, respectively.
On June 2, 2017, the Company closed its previously announced exchange offers and consent solicitations for the outstanding senior notes of Valspar and issued notes with an aggregate principal amount of approximately $1.478 billion. The notes are unsecured senior obligations of the Company. The Company did not receive any cash proceeds from the issuance of these notes.
In August 2017, the Company entered into a floating rate loan of €225.0 million and a fixed rate loan of €20.0 million. The floating rate loan agreement bears interest at the six-month Euro Interbank Offered Rate plus a margin. The fixed rate loan bears interest at 0.92%. The proceeds are being used for general corporate purposes. The loans mature on August 23, 2021.
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 Valspar 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. During 2018, the Company paid the outstanding balance on the Term Loan and the agreement was terminated.
Short-Term Borrowings
On July 19, 2018, the Company and three of its wholly-owned subsidiaries, Sherwin-Williams Canada, Inc., Sherwin-Williams Luxembourg S.à r.l and Sherwin-Williams UK Holding Limited (all together with the Company, the Borrowers), entered into a new five-year $2.000 billion credit agreement. This credit agreement may be used for general corporate purposes, including the financing of working capital requirements, and replaced a credit agreement dated July 16, 2015, as amended, which was terminated. This 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. On October 8, 2019, the Company amended this credit agreement to, among other things, extend the maturity date to October 8, 2024. At December 31, 2019 and 2018, there were no short-term borrowings under this credit agreement.
In September 2017, the Company entered into a five-year letter of credit agreement, subsequently amended on multiple dates, with an aggregate availability of $625.0 million at December 31, 2019. On May 6, 2016, the Company entered into a five-year credit agreement, subsequently amended on multiple dates. The 2016 credit agreement gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit up to an aggregate availability of $875.0 million at December 31, 2019. Both of these credit agreements are being used for general corporate purposes. At December 31, 2019 and 2018, there were no borrowings outstanding under these credit agreements. There were $350.0 million of borrowings outstanding at December 31, 2017.
Borrowings outstanding under the Company's domestic commercial paper program at December 31, 2019, 2018 and 2017 were $191.9 million, $291.4 million and $274.8 million, respectively with a weighted average interest rate of 2.1%, 3.0% and 1.9%, respectively. Borrowings outstanding under various foreign programs were $12.8 million, $37.0 million and $9.0 million at December 31, 2019, 2018 and 2017, respectively with a weighted average interest rate of 4.3%, 9.3% and 3.2%, respectively.
NOTE 8 – PENSION, HEALTH CARE AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides pension benefits to substantially all full-time employees through primarily noncontributory defined contribution or defined benefit plans and certain health care and life insurance benefits to domestic active employees and eligible retirees. In accordance with the Retirement Benefits Topic of the ASC, the Company recognizes an asset for overfunded defined benefit pension or other postretirement benefit plans and a liability for unfunded or underfunded plans. In addition, actuarial gains and losses and prior service costs of such plans are recorded in AOCI. The amounts recorded in AOCI will continue to be modified as actuarial assumptions and service costs change, and all such amounts will be amortized to expense over a period of years through the net pension cost (credit) and net periodic benefit cost.
Health Care Plans
The Company provides certain domestic health care plans that are contributory and contain cost-sharing features such as deductibles and coinsurance. There were 27,030, 26,323 and 26,565 active employees entitled to receive benefits under these plans at December 31, 2019, 2018 and 2017, respectively. The cost of these benefits for active employees, which includes claims incurred and claims incurred but not reported, amounted to $301.6 million, $298.8 million and $281.2 million for 2019, 2018 and 2017, respectively.
Defined Contribution Pension Plans
The Company’s annual contribution for its domestic defined contribution pension plan was $72.7 million, $65.2 million and $38.4 million for 2019, 2018 and 2017, respectively. The contribution percentage ranges from two percent to seven percent of compensation for covered employees based on an age and service formula. Assets in employee accounts of the domestic defined contribution pension plan are invested in various investment funds as directed by the participants. These investment funds did not own a significant number of shares of the Company’s common stock for any year presented.
The Company’s annual contributions for its foreign defined contribution pension plans, which are based on various percentages of compensation for covered employees up to certain limits, were $24.5 million, $19.5 million and $10.5 million for 2019, 2018 and 2017, respectively. Assets in employee accounts of the foreign defined contribution pension plans are invested in various investment funds. These investment funds did not own a significant number of shares of the Company’s common stock for any year presented.
Defined Benefit Pension Plans
Prior to December 31, 2017, the Company had one salaried and one hourly domestic defined benefit pension plan. In connection with the acquisition of Valspar (see Note 3), the Company acquired Valspar's domestic defined benefit pension plan. Effective December 31, 2017, the three domestic defined benefit pension plans were merged into one plan. In 2018, this plan was split into two separate overfunded plans: one that will continue to operate, and one that was frozen and subsequently terminated during 2018 (Terminated Plan). Active participants in the Terminated Plan were moved to the Company's domestic defined contribution plan (Qualified Replacement Plan). The Company settled the liabilities of the Terminated Plan through a combination of (i) lump sum payments to eligible participants who elected to receive them and (ii) the purchase of annuity contracts for participants who either did not elect lump sums or were already receiving benefit payments. The lump sum payments were paid in December 2018 and resulted in a settlement charge of $37.6 million in 2018. During the first quarter of 2019, the Company purchased annuity contracts to settle the remaining liabilities of the 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 is being used, as prescribed in the applicable regulations, to fund Company contributions to the Qualified Replacement Plan. During 2019, the Company transferred the remaining surplus of $242.2 million to a suspense account held within a trust for the Qualified Replacement Plan. This amount included $131.8 million of Company common stock (300,000 shares). The shares are treated as treasury stock in accordance with ASC 715.
At December 31, 2019, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $103.0 million, fair value of plan assets of $125.9 million and excess plan assets of $22.9 million. The plan was funded in accordance with all applicable regulations at December 31, 2019. At December 31, 2018, the domestic defined benefit pension plans were overfunded, with a projected benefit obligation of $524.7 million, fair value of plan assets of $777.0 million and excess plan assets of $252.3 million. At December 31, 2017, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $916.2 million, fair value of plan assets of $1.189 billion and excess plan assets of $272.4 million.
The Company has thirty-one foreign defined benefit pension plans, twelve of which were acquired through the acquisition of Valspar. At December 31, 2019, twenty-six of the Company’s foreign defined benefit pension plans were unfunded or underfunded, with combined accumulated benefit obligations, projected benefit obligations, fair values of net assets and deficiencies of plan assets of $208.3 million, $236.6 million, $143.8 million and $92.8 million, respectively.
The Company expects to make the following benefit payments for all domestic and foreign defined benefit pension plans: $13.5 million in 2020; $13.1 million in 2021; $14.0 million in 2022; $15.3 million in 2023; $16.5 million in 2024; and $88.9 million in 2025 through 2029. The Company expects to contribute $4.6 million to the foreign plans in 2020.
The estimated net actuarial losses and prior service costs for the defined benefit pension plans that are expected to be amortized from AOCI into the net pension costs in 2020 are $1.0 million and $1.4 million, respectively.
The following table summarizes the components of the net pension costs and AOCI related to the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
Defined Benefit Pension Plans
|
|
Foreign
Defined Benefit Pension Plans
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Net pension cost (credit):
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
3.5
|
|
|
$
|
7.3
|
|
|
$
|
21.7
|
|
|
$
|
5.9
|
|
|
$
|
8.2
|
|
|
$
|
7.0
|
|
Interest cost
|
4.8
|
|
|
32.2
|
|
|
31.1
|
|
|
9.4
|
|
|
9.5
|
|
|
8.2
|
|
Expected return on plan assets
|
(5.3
|
)
|
|
(53.0
|
)
|
|
(48.3
|
)
|
|
(10.3
|
)
|
|
(10.8
|
)
|
|
(9.0
|
)
|
Amortization of prior service cost
|
1.4
|
|
|
3.5
|
|
|
1.4
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
|
|
|
|
|
|
6.2
|
|
|
1.0
|
|
|
1.5
|
|
|
1.8
|
|
Ongoing pension cost (credit)
|
4.4
|
|
|
(10.0
|
)
|
|
12.1
|
|
|
6.0
|
|
|
8.4
|
|
|
8.0
|
|
Settlement cost (credit)
|
32.4
|
|
|
37.6
|
|
|
(2.0
|
)
|
|
0.3
|
|
|
(0.4
|
)
|
|
0.1
|
|
Curtailment cost
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
36.8
|
|
|
28.4
|
|
|
10.1
|
|
|
6.3
|
|
|
8.0
|
|
|
8.1
|
|
Other changes in plan assets and projected benefit
obligation recognized in AOCI (before taxes):
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses arising during the year
|
(22.0
|
)
|
|
29.9
|
|
|
(65.8
|
)
|
|
13.2
|
|
|
(5.1
|
)
|
|
(14.0
|
)
|
Prior service cost arising during the year
|
3.1
|
|
|
4.6
|
|
|
0.8
|
|
|
|
|
|
|
|
Amortization of actuarial losses
|
|
|
|
|
|
|
(6.2
|
)
|
|
(1.0
|
)
|
|
(1.5
|
)
|
|
(1.8
|
)
|
Amortization of prior service cost
|
(1.4
|
)
|
|
(3.5
|
)
|
|
(1.4
|
)
|
|
|
|
|
|
|
(Loss) gain recognized for settlement
|
(32.4
|
)
|
|
(37.6
|
)
|
|
2.0
|
|
|
(0.3
|
)
|
|
0.4
|
|
|
(0.1
|
)
|
Prior service cost recognized for curtailment
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
Loss arising from curtailment
|
|
|
(0.8
|
)
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
Exchange rate gain (loss) recognized during the year
|
|
|
|
|
|
|
1.0
|
|
|
(2.0
|
)
|
|
4.2
|
|
Total recognized in AOCI
|
(52.7
|
)
|
|
(8.2
|
)
|
|
(70.6
|
)
|
|
12.2
|
|
|
(8.2
|
)
|
|
(11.7
|
)
|
Total recognized in net pension cost and AOCI
|
$
|
(15.9
|
)
|
|
$
|
20.2
|
|
|
$
|
(60.5
|
)
|
|
$
|
18.5
|
|
|
$
|
(0.2
|
)
|
|
$
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost is recorded in Cost of goods sold and Selling, general and administrative expense. All other components of Net pension costs are recorded in Other expense (income) - net.
The Company employs a total return investment approach for the domestic and foreign defined benefit pension plan assets. A mix of equities and fixed income investments are used to maximize the long-term return of assets for a prudent level of risk. In determining the expected long-term rate of return on defined benefit pension plan assets, management considers the historical rates of return, the nature of investments and an expectation of future investment strategies. The target allocations for plan assets are 35% – 65% equity securities and 35% – 55% fixed income securities.
The following tables summarize the fair value of the defined benefit pension plan assets at December 31, 2019, 2018 and 2017. The presentation is in accordance with the Retirement Benefits Topic of the ASC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31, 2019
|
|
Quoted Prices
in Active Markets for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Investments at fair value:
|
|
|
|
|
|
|
|
Equity investments (1)
|
$
|
115.7
|
|
|
$
|
7.9
|
|
|
$
|
107.8
|
|
|
|
Fixed income investments (2)
|
173.4
|
|
|
29.7
|
|
|
143.7
|
|
|
|
Other assets (3)
|
36.6
|
|
|
|
|
36.6
|
|
|
|
Total investments in fair value hierarchy
|
325.7
|
|
|
$
|
37.6
|
|
|
$
|
288.1
|
|
|
|
Investments measured at NAV or its equivalent (4)
|
88.3
|
|
|
|
|
|
|
|
Total investments
|
$
|
414.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31, 2018
|
|
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Investments at fair value:
|
|
|
|
|
|
|
|
Equity investments (1)
|
$
|
215.8
|
|
|
$
|
124.0
|
|
|
$
|
91.8
|
|
|
|
Fixed income investments (2)
|
609.9
|
|
|
462.8
|
|
|
147.1
|
|
|
|
Other assets (3)
|
38.4
|
|
|
|
|
38.4
|
|
|
|
Total investments in fair value hierarchy
|
864.1
|
|
|
$
|
586.8
|
|
|
$
|
277.3
|
|
|
|
Investments measured at NAV or its equivalent (4)
|
166.4
|
|
|
|
|
|
|
|
Total investments
|
$
|
1,030.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31, 2017
|
|
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Investments at fair value:
|
|
|
|
|
|
|
|
Equity investments (1)
|
$
|
515.0
|
|
|
$
|
409.9
|
|
|
$
|
105.1
|
|
|
|
Fixed income investments (2)
|
380.9
|
|
|
146.8
|
|
|
234.1
|
|
|
|
Other assets (3)
|
39.2
|
|
|
|
|
39.2
|
|
|
|
Total investments in fair value hierarchy
|
935.1
|
|
|
$
|
556.7
|
|
|
$
|
378.4
|
|
|
|
Investments measured at NAV or its equivalent (4)
|
533.5
|
|
|
|
|
|
|
|
Total investments
|
$
|
1,468.6
|
|
|
|
|
|
|
|
|
|
(1)
|
This category includes actively managed equity assets that track primarily to the S&P 500.
|
|
|
(2)
|
This category includes government and corporate bonds that track primarily to the Barclays Capital Aggregate Bond Index.
|
|
|
(3)
|
This category includes real estate and pooled investment funds.
|
|
|
(4)
|
This category includes pooled investment funds and private equity funds that are measured at NAV or its equivalent using the practical expedient. Therefore, these investments are not classified in the fair value hierarchy.
|
As of December 31, 2018 and December 31, 2017 there were 300,000 shares of the Company's common stock with a market value of $118.0 million and $123.0 million, respectively, included as equity investments in the domestic defined benefit pension plan assets. There were no shares of the Company’s common stock included as equity investments in the domestic defined benefit pension plan assets at December 31, 2019 due to the wind-up of the Terminated Plan.
The following table summarizes the obligations, plan assets and assumptions used for the defined benefit pension plans, which are all measured as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
Defined Benefit Pension Plans
|
|
Foreign
Defined Benefit Pension Plans
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Accumulated benefit obligations
at end of year
|
$
|
97.2
|
|
|
$
|
521.0
|
|
|
$
|
913.4
|
|
|
$
|
331.7
|
|
|
$
|
280.0
|
|
|
$
|
308.2
|
|
Projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Balances at beginning of year
|
$
|
524.7
|
|
|
$
|
916.2
|
|
|
$
|
632.8
|
|
|
$
|
315.8
|
|
|
$
|
349.6
|
|
|
$
|
206.9
|
|
Service cost
|
3.5
|
|
|
7.3
|
|
|
21.7
|
|
|
5.9
|
|
|
8.2
|
|
|
7.0
|
|
Interest cost
|
4.8
|
|
|
32.2
|
|
|
31.1
|
|
|
9.4
|
|
|
9.5
|
|
|
8.2
|
|
Actuarial losses (gains)
|
4.4
|
|
|
(13.6
|
)
|
|
68.0
|
|
|
36.2
|
|
|
(21.0
|
)
|
|
(4.0
|
)
|
Acquisition
|
|
|
|
|
|
246.9
|
|
|
|
|
|
|
|
115.1
|
|
Contributions and other
|
3.1
|
|
|
3.8
|
|
|
0.8
|
|
|
0.7
|
|
|
1.6
|
|
|
1.4
|
|
Settlements
|
(429.3
|
)
|
|
(379.1
|
)
|
|
(43.4
|
)
|
|
(6.6
|
)
|
|
(6.3
|
)
|
|
(0.8
|
)
|
Effect of foreign exchange
|
|
|
|
|
|
|
7.8
|
|
|
(16.3
|
)
|
|
22.9
|
|
Benefits paid
|
(8.2
|
)
|
|
(42.1
|
)
|
|
(41.7
|
)
|
|
(8.5
|
)
|
|
(9.5
|
)
|
|
(7.1
|
)
|
Balances at end of year
|
103.0
|
|
|
524.7
|
|
|
916.2
|
|
|
360.7
|
|
|
315.8
|
|
|
349.6
|
|
Plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Balances at beginning of year
|
777.0
|
|
|
1,188.6
|
|
|
847.0
|
|
|
253.5
|
|
|
280.0
|
|
|
165.0
|
|
Actual returns on plan assets
|
31.7
|
|
|
9.6
|
|
|
182.0
|
|
|
33.3
|
|
|
(4.9
|
)
|
|
16.3
|
|
Acquisition
|
|
|
|
|
|
244.7
|
|
|
|
|
|
|
|
|
82.3
|
|
Contributions and other
|
|
|
|
|
|
|
7.7
|
|
|
8.3
|
|
|
6.1
|
|
Settlements
|
(429.3
|
)
|
|
(379.1
|
)
|
|
(43.4
|
)
|
|
(6.6
|
)
|
|
(6.3
|
)
|
|
(0.8
|
)
|
Transfer related to plan termination
|
(245.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange
|
|
|
|
|
|
|
8.7
|
|
|
(14.1
|
)
|
|
18.2
|
|
Benefits paid
|
(8.2
|
)
|
|
(42.1
|
)
|
|
(41.7
|
)
|
|
(8.5
|
)
|
|
(9.5
|
)
|
|
(7.1
|
)
|
Balances at end of year
|
125.9
|
|
|
777.0
|
|
|
1,188.6
|
|
|
288.1
|
|
|
253.5
|
|
|
280.0
|
|
Excess (deficient) plan assets over
projected benefit obligations
|
$
|
22.9
|
|
|
$
|
252.3
|
|
|
$
|
272.4
|
|
|
$
|
(72.6
|
)
|
|
$
|
(62.3
|
)
|
|
$
|
(69.6
|
)
|
Assets and liabilities recognized in the
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred pension assets
|
$
|
22.9
|
|
|
$
|
252.3
|
|
|
$
|
272.4
|
|
|
$
|
20.1
|
|
|
$
|
18.4
|
|
|
$
|
24.3
|
|
Other accruals
|
|
|
|
|
|
|
(2.3
|
)
|
|
(2.7
|
)
|
|
(2.5
|
)
|
Other long-term liabilities
|
|
|
|
|
|
|
|
(90.4
|
)
|
|
(78.0
|
)
|
|
(91.4
|
)
|
|
$
|
22.9
|
|
|
$
|
252.3
|
|
|
$
|
272.4
|
|
|
$
|
(72.6
|
)
|
|
$
|
(62.3
|
)
|
|
$
|
(69.6
|
)
|
Amounts recognized in AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial losses
|
$
|
(2.0
|
)
|
|
$
|
(56.4
|
)
|
|
$
|
(64.8
|
)
|
|
$
|
(37.9
|
)
|
|
$
|
(25.7
|
)
|
|
$
|
(33.9
|
)
|
Prior service costs
|
(7.4
|
)
|
|
(5.7
|
)
|
|
(5.5
|
)
|
|
|
|
|
|
|
|
$
|
(9.4
|
)
|
|
$
|
(62.1
|
)
|
|
$
|
(70.3
|
)
|
|
$
|
(37.9
|
)
|
|
$
|
(25.7
|
)
|
|
$
|
(33.9
|
)
|
Weighted-average assumptions used to
determine projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.44
|
%
|
|
3.60
|
%
|
|
3.60
|
%
|
|
2.17
|
%
|
|
3.04
|
%
|
|
2.73
|
%
|
Rate of compensation increase
|
3.00
|
%
|
|
3.17
|
%
|
|
3.33
|
%
|
|
3.08
|
%
|
|
3.65
|
%
|
|
3.69
|
%
|
Weighted-average assumptions used to
determine net pension costs:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.60
|
%
|
|
3.60
|
%
|
|
4.15
|
%
|
|
3.04
|
%
|
|
2.73
|
%
|
|
3.88
|
%
|
Expected long-term rate of
return on assets
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
4.09
|
%
|
|
3.84
|
%
|
|
4.75
|
%
|
Rate of compensation increase
|
3.17
|
%
|
|
3.33
|
%
|
|
3.30
|
%
|
|
3.65
|
%
|
|
3.69
|
%
|
|
4.33
|
%
|
Postretirement Benefits Other Than Pensions
Employees of the Company hired in the United States prior to January 1, 1993 who are not members of a collective bargaining unit, and certain groups of employees added through acquisitions, are eligible for health care and life insurance benefits upon retirement, subject to the terms of the unfunded plans. There were 3,481, 3,498 and 3,486 retired employees entitled to receive such postretirement benefits at December 31, 2019, 2018 and 2017, respectively.
The following table summarizes the obligation and the assumptions used for postretirement benefits other than pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits Other than Pensions
|
|
2019
|
|
2018
|
|
2017
|
Benefit obligation:
|
|
|
|
|
|
Balance at beginning of year - unfunded
|
$
|
274.6
|
|
|
$
|
290.8
|
|
|
$
|
265.1
|
|
Service cost
|
1.5
|
|
|
2.0
|
|
|
2.1
|
|
Interest cost
|
11.2
|
|
|
10.2
|
|
|
10.8
|
|
Acquisition
|
|
|
|
|
|
|
17.0
|
|
Actuarial loss (gain)
|
12.8
|
|
|
(9.1
|
)
|
|
11.6
|
|
Plan amendments
|
|
|
|
(0.1
|
)
|
|
|
|
Benefits paid
|
(19.6
|
)
|
|
(19.2
|
)
|
|
(15.8
|
)
|
Balance at end of year - unfunded
|
$
|
280.5
|
|
|
$
|
274.6
|
|
|
$
|
290.8
|
|
Liabilities recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
Postretirement benefits other than pensions
|
$
|
(263.0
|
)
|
|
$
|
(257.6
|
)
|
|
$
|
(274.7
|
)
|
Other accruals
|
(17.5
|
)
|
|
(17.0
|
)
|
|
(16.1
|
)
|
|
$
|
(280.5
|
)
|
|
$
|
(274.6
|
)
|
|
$
|
(290.8
|
)
|
Amounts recognized in AOCI:
|
|
|
|
|
|
Net actuarial losses
|
$
|
(45.1
|
)
|
|
$
|
(32.8
|
)
|
|
$
|
(44.1
|
)
|
Prior service credits
|
1.1
|
|
|
6.1
|
|
|
12.6
|
|
|
$
|
(44.0
|
)
|
|
$
|
(26.7
|
)
|
|
$
|
(31.5
|
)
|
Weighted-average assumptions used to determine benefit obligation:
|
|
|
|
|
|
Discount rate
|
3.22
|
%
|
|
4.21
|
%
|
|
3.61
|
%
|
Health care cost trend rate - pre-65
|
6.38
|
%
|
|
6.69
|
%
|
|
7.00
|
%
|
Health care cost trend rate - post-65
|
5.25
|
%
|
|
4.94
|
%
|
|
5.00
|
%
|
Prescription drug cost increases
|
9.00
|
%
|
|
9.75
|
%
|
|
11.00
|
%
|
Employer Group Waiver Plan (EGWP) trend rate
|
9.00
|
%
|
|
9.75
|
%
|
|
11.00
|
%
|
Weighted-average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
Discount rate
|
4.21
|
%
|
|
3.61
|
%
|
|
4.10
|
%
|
Health care cost trend rate - pre-65
|
6.69
|
%
|
|
7.00
|
%
|
|
6.00
|
%
|
Health care cost trend rate - post-65
|
4.94
|
%
|
|
5.00
|
%
|
|
5.50
|
%
|
Prescription drug cost increases
|
9.75
|
%
|
|
11.00
|
%
|
|
10.50
|
%
|
The following table summarizes the components of the net periodic benefit cost and AOCI related to postretirement benefits other than pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits Other than Pensions
|
|
2019
|
|
2018
|
|
2017
|
Net periodic benefit cost (credit):
|
|
|
|
|
|
Service cost
|
$
|
1.5
|
|
|
$
|
2.0
|
|
|
$
|
2.1
|
|
Interest cost
|
11.2
|
|
|
10.2
|
|
|
10.8
|
|
Amortization of actuarial losses
|
0.5
|
|
|
2.3
|
|
|
|
|
Amortization of prior service credit
|
(5.0
|
)
|
|
(6.6
|
)
|
|
(6.6
|
)
|
Net periodic benefit cost
|
8.2
|
|
|
7.9
|
|
|
6.3
|
|
Settlement credit
|
|
|
|
|
|
(9.3
|
)
|
Net periodic benefit cost (credit)
|
8.2
|
|
|
7.9
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
Other changes in projected benefit obligation recognized in
AOCI (before taxes):
|
|
|
|
|
|
Net actuarial loss (gain) arising during the year
|
12.8
|
|
|
(9.0
|
)
|
|
11.6
|
|
Prior service credit arising during the year
|
|
|
|
(0.1
|
)
|
|
|
|
Amortization of actuarial losses
|
(0.5
|
)
|
|
(2.3
|
)
|
|
|
|
Settlement cost
|
|
|
|
|
|
|
9.3
|
|
Amortization of prior service credit
|
5.0
|
|
|
6.6
|
|
|
6.6
|
|
Total recognized in AOCI
|
17.3
|
|
|
(4.8
|
)
|
|
27.5
|
|
Total recognized in net periodic benefit cost and AOCI
|
$
|
25.5
|
|
|
$
|
3.1
|
|
|
$
|
24.5
|
|
The estimated net actuarial losses and prior service (credits) for postretirement benefits other than pensions that are expected to be amortized from AOCI into net periodic benefit cost in 2020 are $2.0 million and $(1.1) million, respectively.
The assumed health care cost trend rate and prescription drug cost increases used to determine the net periodic benefit cost for postretirement health care benefits for 2020 both decrease in each successive year until reaching 4.5% in 2026.
The Company expects to make retiree health care benefit cash payments as follows:
|
|
|
|
|
|
Expected Cash
Payments
|
2020
|
$
|
17.5
|
|
2021
|
16.8
|
|
2022
|
17.2
|
|
2023
|
17.2
|
|
2024
|
18.7
|
|
2025 through 2029
|
88.3
|
|
Total expected benefit cash payments
|
$
|
175.7
|
|
NOTE 9 – 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. Effective January 1, 2019, the Company adopted ASC 842 using the modified retrospective optional transition method, electing to not restate prior periods. As a result, the required comparative period disclosures below are reported in accordance with the previous accounting standard, ASC 840.
Additional lease information is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
2018
|
2017
|
Operating lease cost (1)
|
|
$
|
452.9
|
|
$
|
552.7
|
|
$
|
464.6
|
|
Short-term lease cost (2)
|
|
39.7
|
|
|
|
Variable lease cost
|
|
73.6
|
|
68.2
|
|
63.3
|
|
|
|
|
|
|
Operating cash outflows from operating leases (2)
|
|
$
|
430.9
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities (2)
|
|
$
|
346.4
|
|
|
|
|
|
(1)
|
Operating lease cost for comparative periods includes short-term lease cost in accordance with ASC 840 disclosure requirements.
|
|
|
(2)
|
Disclosure was not required for comparative periods under ASC 840.
|
At December 31, 2019, the weighted average remaining lease term and discount rate for operating leases was 6.0 years and 3.9%, respectively.
The following table reconciles the undiscounted cash flows for each of the next five years and thereafter to the operating lease liabilities recognized on the balance sheet as of December 31, 2019. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
|
|
|
|
|
Year Ending December 31,
|
|
2020
|
$
|
430.3
|
|
2021
|
377.1
|
|
2022
|
315.4
|
|
2023
|
248.5
|
|
2024
|
187.9
|
|
Thereafter
|
401.9
|
|
Total lease payments
|
1,961.1
|
|
Amount representing interest
|
(218.8
|
)
|
Present value of operating lease liabilities
|
$
|
1,742.3
|
|
During 2018, the Company completed transactions to sell and subsequently leaseback certain real estate properties and received proceeds totaling $225.3 million. The transactions were accounted for as financing transactions primarily due to the Company's continuing involvement resulting from the length of the lease term in comparison to the remaining economic life of the real estate properties. The financing transactions have related future obligations of $212.4 million at December 31, 2019.
NOTE 10 – OTHER LONG-TERM LIABILITIES
The operations of the Company, like those of other companies in its industry, are subject to various domestic and foreign environmental laws and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that the Company conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs designed to protect the environment and promote continued compliance.
The Company is involved with environmental investigation and remediation activities at some of its currently and formerly owned sites (including sites which were previously owned and/or operated by businesses acquired by the Company). In addition, the Company, together with other parties, has been designated a potentially responsible party under federal and state environmental
protection laws for the investigation and remediation of environmental contamination and hazardous waste at a number of third-party sites, primarily Superfund sites. In general, these laws provide that potentially responsible parties may be held jointly and severally liable for investigation and remediation costs regardless of fault. The Company may be similarly designated with respect to additional third-party sites in the future.
The Company initially provides for estimated costs of environmental-related activities relating to its past operations and third-party sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs, which are not discounted, are determined based on currently available facts regarding each site. If the reasonably estimable costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided. The Company 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. At December 31, 2019, 2018 and 2017, the Company had accruals reported on the balance sheet as Other long-term liabilities of $314.8 million, $322.5 million and $179.6 million, respectively. Estimated costs of current investigation and remediation activities of $57.6 million, $51.0 million and $28.6 million are included in Other accruals at December 31, 2019, 2018 and 2017, respectively.
Actual costs incurred may vary from 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. If the Company’s future loss contingency is ultimately determined to be at the unaccrued maximum of the estimated range of possible outcomes for every site for which costs can be reasonably estimated, the Company’s accrual for environmental-related activities would be $115.5 million higher than the minimum accruals at December 31, 2019. Additionally, costs for environmental-related activities may not be reasonably estimable at early stages of investigation and therefore would not be included in the unaccrued maximum amount.
Four of the Company’s currently and formerly owned manufacturing sites ("Major Sites") account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at December 31, 2019. At December 31, 2019, $320.1 million, or 86.0% of the total accrual, related directly to the Major Sites. In the aggregate unaccrued maximum of $115.5 million at December 31, 2019, $91.3 million, or 79.0%, related to the Major Sites. The significant cost components of this liability continue to be related to remedy implementation, regulatory agency interaction, project management and other costs. While different for each specific environmental situation, these components generally each account for approximately 85%, 10%, and 5%, respectively, of the accrued amount and those percentages are subject to change over time. 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.
The largest and most complex of the Major Sites is the Gibbsboro, New Jersey site ("Gibbsboro") which comprises the substantial majority of the environmental-related accrual. Gibbsboro, a former manufacturing plant, and related areas, which ceased operations in 1978, has had various areas included on the National Priorities List since 1999. This location has soil, waterbodies, and groundwater contamination related to the historic operations of the facility. Gibbsboro has been divided by the Environmental Protection Agency ("EPA") into six operable units ("OUs") based on location and characteristics, whose investigation and remediation efforts are likely to occur over an extended period of time. Each of the OUs are in various phases of investigation and remediation with the EPA that provide enough information to reasonably estimate cost ranges and record environmental-related accruals. The most significant assumptions underlying the reliability and precision of remediation cost estimates for the Gibbsboro site are the type and extent of future remedies to be selected by the EPA and the costs of implementing those remedies.
The remaining three Major Sites comprising the majority of the accrual include (1) a multi-party Superfund site that has received a record of decision from the federal EPA and is currently in the remedial design phase for one operable unit and for which a remedial investigation/feasibility study has been submitted for another operable unit, (2) a closed paint manufacturing facility that is in the operation and maintenance phase of remediation under both federal and state EPA programs, and (3) a formerly-owned site containing warehouse and office space that is in the remedial investigation phase under a state EPA program. Each of these three Major Sites are in phases of investigation and remediation that provide sufficient information to reasonably estimate cost ranges and record environmental-related accruals.
Excluding the Major Sites discussed above, no sites are individually material to the total accrual balance. There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution, and securing applicable governmental agency approvals, all of which have the potential to contribute to the uncertainty surrounding these future events. As these events occur and to the extent that the cost estimates of the environmental remediation change, the existing reserve will be adjusted.
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. Unasserted claims could have a material effect on the Company's loss contingency as more information becomes available over time. At December 31, 2019, the Company did not have material loss contingency accruals related to unasserted claims. Management does not expect that a material portion of unrecognized loss contingencies will be recoverable through insurance, indemnification agreements or other sources. 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. Moreover, 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 length 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 indeterminate amount of time to conduct investigation activities at any site, the indeterminate amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indeterminate amount of time necessary to conduct remediation activities.
The Asset Retirement and Environmental Obligations Topic of the ASC requires a liability to be recognized for the fair value of a conditional asset retirement obligation if a settlement date and fair value can be reasonably estimated. The Company recognizes a liability for any conditional asset retirement obligation when sufficient information is available to reasonably estimate a settlement date to determine the fair value of such a liability. The Company has identified certain conditional asset retirement obligations at various current and closed manufacturing, distribution and store facilities. These obligations relate primarily to asbestos abatement, hazardous waste Resource Conservation and Recovery Act (RCRA) closures, well abandonment, transformers and used oil disposals and underground storage tank closures. Using investigative, remediation and disposal methods that are currently available to the Company, the estimated costs of these obligations were accrued and are not significant. The recording of additional liabilities for future conditional asset retirement obligations may result in a material impact on net income for the annual or interim period during which the costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time over which sufficient information may become available regarding the closure or modification of any one or group of the Company’s facilities. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.
NOTE 11 – 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 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. The Company will continue to vigorously defend against any additional lead pigment and lead-based paint litigation that may be filed, including utilizing all avenues of appeal, if necessary.
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. Except with respect to the litigation in California discussed below, the Company has not accrued any amounts for such litigation because the Company does not believe 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 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; the City of St. Louis, Missouri; various cities and counties in the State of New Jersey; various cities in the State of Ohio and the State of Ohio; the City of Chicago, Illinois; the City of Milwaukee, Wisconsin; the County of Santa Clara, California, and other public entities in the State of 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.
Santa Clara County, California Proceeding. 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 (individually, a Prosecuting Jurisdiction). 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 July 16, 2018, the Company filed a Petition for Writ of Certiorari with the Supreme Court of the United States seeking discretionary review. On October 15, 2018, the Supreme Court of the United States denied the Company's Petition for Writ of Certiorari.
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 $730.0 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 $409.1 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 filed a petition for writ of mandate with the Sixth District Court of Appeal seeking to obtain immediate appellate review and reversal of the denial of its motion. On June 20, 2019, the Sixth District Court of Appeal denied the petition for writ of mandate.
On April 8, 2019, the plaintiffs filed a motion to recover attorneys’ fees and litigation costs from the abatement fund. On May 10, 2019, the trial court issued a tentative ruling denying the plaintiffs’ motion for fees and costs.
On July 17, 2019, the Company, ConAgra and NL Industries reached an agreement in principle with the plaintiffs to resolve the litigation. The agreement provides for a mutual release of all pending and related future claims and contribution rights in exchange for certain payments of money over time by the Company and the other two defendants to the plaintiffs. More specifically, the agreement provides that, in full and final satisfaction of any and all claims of the plaintiffs, the Company and the other two defendants collectively shall pay a total of $305.0 million, with the Company and the other two defendants each paying approximately $101.7 million as follows: (i) an initial payment of $25.0 million within sixty days after the entry of a dismissal order and judgment; (ii) subsequent annual payments of $12.0 million one year after the initial payment and for a period of four years thereafter; and (iii) a final payment of approximately $16.7 million on the sixth anniversary of the initial payment. Should NL Industries fail to make any of its payments required under the agreement, the Company has agreed to backstop and pay on behalf of NL Industries a maximum amount of $15.0 million. To implement the agreement, the Company and the other two defendants filed a joint motion to dismiss with prejudice and a motion to stay all proceedings, pending the trial court’s approval of the agreement. On July 24, 2019, the trial court approved the agreement, discharged the receiver, and granted a judgment of dismissal with prejudice in favor of the Company and the other two defendants. The Company made its initial payment of $25.0 million to the plaintiffs on September 23, 2019.
The Company accrued $136.3 million for this litigation in the third quarter of 2018. During the third quarter of 2019, the Company reduced its accrual by $59.6 million as a result of the final court approved agreement to resolve the litigation and the initial payment of $25.0 million to the plaintiffs in accordance with the agreement. The next payment of $12.0 million is due on September 22, 2020 and is included in current liabilities, while the remaining $64.7 million is included in other long-term liabilities.
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 opposed. The federal trial court remanded each action on June 5, 2019. The defendants asked the federal court to stay the order of remand pending appeal, which the federal court granted on June 27, 2019, and the defendants filed a notice of appeal with the United States Court of Appeals for the Third Circuit. On August 12, 2019, the defendants filed their opening brief with the Third Circuit, to which the plaintiffs filed their opposition brief on September 11, 2019, and the defendants filed their reply brief on October 2, 2019. The Third Circuit took the appeal under submission without oral argument, and the parties are awaiting the Third Circuit’s decision.
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 filed a motion to dismiss the Complaint, which the federal trial court granted on October 4, 2019. The Company appealed the federal trial court’s dismissal on November 1, 2019 and filed its opening brief in the Third Circuit on January 21, 2020.
Litigation seeking damages from alleged personal injury. The Company and other companies are defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries. These proceedings include claims by children allegedly injured from ingestion of lead pigment or lead-containing paint and claims for damages allegedly incurred by the children’s parents or guardians. These proceedings generally seek compensatory and punitive damages, and seek other relief including medical monitoring costs. These proceedings include purported claims by individuals, groups of individuals and class actions.
The plaintiff in Thomas v. Lead Industries Association, et al., initiated an action in 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.
The United States District Court for the Eastern District of Wisconsin 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.) for purposes of trial. A trial commenced on May 6, 2019 and ended on May 31, 2019, with a jury verdict for the three plaintiffs in the amount of $2.0 million each for a total of $6.0 million against the Company and two other defendants (Armstrong Containers Inc. and E.I. du Pont de Nemours). The Company filed a motion for judgment in its favor based on public policy factors under Wisconsin law. On September 20, 2019, the trial court denied the motion and entered judgment in favor of the plaintiffs. On October 18, 2019, the Company filed post-trial motions for judgment as a matter of law and for a new trial. If the post-trial motions are denied, the Company intends to appeal the jury verdict.
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. On November 14, 2019, the District Court issued an order scheduling trial in the four cases to commence on June 15, 2020.
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 allowed defendants’ petition for leave to appeal. The defendants filed their opening brief in the Supreme Court of Illinois on April 11, 2019, to which the plaintiffs filed a response brief on June 17, 2019. The defendants filed their reply brief on July 15, 2019. Oral argument was held before the Supreme Court of Illinois on November 14, 2019, and the parties are awaiting the decision.
Insurance coverage litigation. The Company and its liability insurers, including certain underwriters at Lloyd’s of London, initiated legal proceedings against each other to 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, 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. On June 28, 2019, the Company and its liability insurers each filed separate motions for summary judgment seeking various forms of relief. Oral argument regarding those motions occurred on October 24, 2019, and those motions remain pending before the trial court. 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.
Other litigation. On December 18, 2019, the New Jersey Department of Environmental Protection, the Commissioner of the New Jersey Department of Environmental Protection, and the Administrator of the New Jersey Spill Compensation Fund filed a lawsuit against the Company in the Superior Court of New Jersey Law Division in Camden County, New Jersey. The plaintiffs seek to recover natural resource damages, punitive damages, and litigation fees and costs, as well as other costs, damages, declaratory relief, and penalties pursuant to New Jersey state statutes and common law theories in connection with the alleged discharge of hazardous substances and pollutants at the Company’s Gibbsboro, New Jersey site, a former manufacturing plant and related facilities. The Company intends to vigorously defend against this litigation.
NOTE 12 – CAPITAL STOCK
At December 31, 2019, there were 300,000,000 shares of common stock and 30,000,000 shares of serial preferred stock authorized for issuance. Of the authorized serial preferred stock, 3,000,000 shares are designated as cumulative redeemable serial preferred and 1,000,000 shares are designated as convertible serial preferred stock. Under the 2006 Equity and Performance Incentive Plan (2006 Employee Plan), 23,700,000 shares may be issued or transferred. An aggregate of 8,258,768, 9,643,433 and 10,715,939 shares of common stock at December 31, 2019, 2018 and 2017, respectively, were reserved for the exercise and future grants of option rights and future grants of restricted stock and restricted stock units. See Note 14 for additional information related to stock-based compensation. Shares outstanding shown in the following table included 489,783, 489,647 and 489,260 shares of common stock held in a revocable trust at December 31, 2019, 2018 and 2017, respectively. The revocable trust is used to accumulate assets for the purpose of funding the ultimate obligation of certain non-qualified benefit plans. Transactions between the Company and the trust are accounted for in accordance with the Deferred Compensation – Rabbi Trusts Subtopic of the Compensation Topic of the ASC, which requires the assets held by the trust be consolidated with the Company’s accounts.
|
|
|
|
|
|
|
|
Shares
in Treasury
|
|
Shares
Outstanding
|
Balance at January 1, 2017
|
23,577,411
|
|
|
93,013,031
|
|
Shares tendered as payment for option rights exercised
|
16,545
|
|
|
(16,545
|
)
|
Shares issued for exercise of option rights
|
|
|
969,936
|
|
Shares tendered in connection with vesting of restricted stock units
|
82,777
|
|
|
(82,777
|
)
|
Balance at December 31, 2017
|
23,676,733
|
|
|
93,883,645
|
|
Shares tendered as payment for option rights exercised
|
1,159
|
|
|
(1,159
|
)
|
Shares issued for exercise of option rights
|
|
|
661,599
|
|
Shares tendered in connection with vesting of restricted stock units
|
52,144
|
|
|
(52,144
|
)
|
Net shares issued for vesting of restricted stock units
|
|
|
149,821
|
|
Treasury stock purchased
|
1,525,000
|
|
|
(1,525,000
|
)
|
Balance at December 31, 2018
|
25,255,036
|
|
|
93,116,762
|
|
Shares tendered as payment for option rights exercised
|
3,838
|
|
|
(3,838
|
)
|
Shares issued for exercise of option rights
|
|
|
901,878
|
|
Shares tendered in connection with vesting of restricted stock units
|
55,095
|
|
|
(55,095
|
)
|
Net shares issued for vesting of restricted stock units
|
|
|
160,132
|
|
Treasury stock purchased
|
1,675,000
|
|
|
(1,675,000
|
)
|
Shares transferred from defined benefit pension plan (1)
|
300,000
|
|
|
(300,000
|
)
|
Balance at December 31, 2019
|
27,288,969
|
|
|
92,144,839
|
|
|
|
(1)
|
Shares were transferred from the Company's terminated domestic defined benefit pension plan surplus assets in connection with the plan's termination. See Note 8. In accordance with ASC 715, the transferred shares are treated as treasury stock.
|
NOTE 13 – STOCK PURCHASE PLAN
As of December 31, 2019, 41,946 employees contributed to the Company’s ESOP, a voluntary defined contribution plan available to all eligible salaried employees. Participants are allowed to contribute, on a pretax or after-tax basis, up to the lesser of twenty percent of their annual compensation or the maximum dollar amount allowed under the Internal Revenue Code. The Company matches one hundred percent of all contributions up to six percent of eligible employee contributions. Such participant contributions may be invested in a variety of investment funds or a Company common stock fund and may be exchanged between investments as directed by the participant. Participants are permitted to diversify both future and prior Company matching contributions previously allocated to the Company common stock fund into a variety of investment funds.
The Company made contributions to the ESOP on behalf of participating employees, representing amounts authorized by employees to be withheld from their earnings, of $180.5 million, $170.3 million and $138.7 million in 2019, 2018 and 2017, respectively. The Company’s matching contributions to the ESOP charged to operations were $111.9 million, $104.7 million and $90.7 million for 2019, 2018 and 2017, respectively.
At December 31, 2019, there were 8,433,722 shares of the Company’s common stock being held by the ESOP, representing 9.2% of the total number of voting shares outstanding. Shares of Company common stock credited to each member’s account under the ESOP are voted by the trustee under instructions from each individual plan member. Shares for which no instructions are received are voted by the trustee in the same proportion as those for which instructions are received.
NOTE 14 – STOCK-BASED COMPENSATION
The 2006 Employee Plan authorizes the Board of Directors, or a committee of the Board of Directors, to issue or transfer up to an aggregate of 23,700,000 shares of common stock, plus any shares relating to awards that expire, are forfeited or canceled. The Company issues new shares upon exercise of option rights and vesting of restricted stock units (RSUs). The Employee Plan permits the granting of option rights, appreciation rights, restricted stock, RSUs, performance shares and performance units to eligible employees. At December 31, 2019, no appreciation rights, performance shares or performance units had been granted under the 2006 Employee Plan.
The 2006 Stock Plan for Nonemployee Directors (Nonemployee Director Plan) authorizes the Board of Directors, or a committee of the Board of Directors, to issue or transfer up to an aggregate of 200,000 shares of common stock, plus any shares relating to
awards that expire, are forfeited or canceled. The Nonemployee Director Plan permits the granting of option rights, appreciation rights, restricted stock and RSUs to members of the Board of Directors who are not employees of the Company. At December 31, 2019, no option rights or appreciation rights had been granted under the Nonemployee Director Plan.
In connection with the acquisition of Valspar (see Note 3), the Company assumed certain outstanding RSUs of Valspar granted under the Amended and Restated 2015 Omnibus Equity Plan. Upon close of the acquisition, the Valspar RSUs were converted into RSUs relating to common stock of the Company.
The cost of the Company’s stock-based compensation is recorded in accordance with the Stock Compensation Topic of the ASC. At December 31, 2019, the Company had total unrecognized stock-based compensation expense of $143.1 million that is expected to be recognized over a weighted-average period of 1.06 years. Stock-based compensation expense during 2019, 2018 and 2017 was $101.7 million, $82.6 million and $90.3 million, respectively. The related tax benefit was $25.1 million, $20.5 million and $34.3 million during 2019, 2018 and 2017, respectively. Excess tax benefits from share-based payments are recognized as an income tax benefit in the statement of consolidated income when options are exercised and RSUs vest. For the years ended December 31, 2019, 2018 and 2017, the Company's excess tax benefit from options exercised and RSUs vested reduced the income tax provision by $65.2 million, $43.4 million, and $86.5 million respectively.
Option Rights
The fair value of the Company’s option rights was estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following weighted-average assumptions for all options granted:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Risk-free interest rate
|
1.64
|
%
|
|
2.99
|
%
|
|
1.97
|
%
|
Expected life of option rights
|
5.05 years
|
|
|
5.05 years
|
|
|
5.05 years
|
|
Expected dividend yield of stock
|
.87
|
%
|
|
.89
|
%
|
|
0.85
|
%
|
Expected volatility of stock
|
.232
|
|
|
.211
|
|
|
.213
|
|
The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant. The expected life of option rights was calculated using a scenario analysis model. Historical data was used to aggregate the holding period from actual exercises, post-vesting cancellations and hypothetical assumed exercises on all outstanding option rights. The expected dividend yield of stock is the Company’s best estimate of the expected future dividend yield. Expected volatility of stock was calculated using historical and implied volatilities.
Grants of option rights for non-qualified and incentive stock options have been awarded to certain officers and key employees under the 2006 Employee Plan. The option rights generally become exercisable to the extent of one-third of the optioned shares for each full year following the date of grant and generally expire ten years after the date of grant. Unrecognized compensation expense with respect to option rights granted to eligible employees amounted to $67.8 million at December 31, 2019. The unrecognized compensation expense is being amortized on a straight-line basis over the three-year vesting period, net of estimated forfeitures based on historical activity, and is expected to be recognized over a weighted-average period of 1.10 years.
The weighted-average per share grant date fair value of options granted during 2019, 2018 and 2017 was $116.41, $90.86 and $77.14, respectively. The total intrinsic value of option rights exercised during 2019, 2018, and 2017 was $285.8 million, $190.2 million and $255.5 million, respectively. The total fair value of options vested during 2019, 2018 and 2017 was $43.2 million, $38.6 million and $31.3 million, respectively. There were no outstanding option rights for nonemployee directors at December 31, 2019, 2018 and 2017.
A summary of the Company’s non-qualified and incentive stock option right activity is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Optioned
Shares
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Optioned
Shares
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Aggregate
Intrinsic
Value
(in millions)
|
|
Optioned
Shares
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding at
beginning of year
|
4,485,249
|
|
|
$
|
238.53
|
|
|
|
|
4,646,313
|
|
|
$
|
204.33
|
|
|
|
|
5,163,709
|
|
|
$
|
163.61
|
|
|
|
Granted
|
498,886
|
|
|
549.32
|
|
|
|
|
565,336
|
|
|
410.00
|
|
|
|
|
689,506
|
|
|
377.84
|
|
|
|
Exercised
|
(902,166
|
)
|
|
171.37
|
|
|
|
|
(662,218
|
)
|
|
137.03
|
|
|
|
|
(1,154,698
|
)
|
|
123.16
|
|
|
|
Forfeited
|
(40,312
|
)
|
|
380.13
|
|
|
|
|
(60,288
|
)
|
|
327.08
|
|
|
|
|
(49,977
|
)
|
|
267.02
|
|
|
|
Expired
|
(1,928
|
)
|
|
345.68
|
|
|
|
|
(3,894
|
)
|
|
238.26
|
|
|
|
|
(2,227
|
)
|
|
236.97
|
|
|
|
Outstanding at
end of year
|
4,039,729
|
|
|
$
|
290.45
|
|
|
$
|
1,184.0
|
|
|
4,485,249
|
|
|
$
|
238.53
|
|
|
$
|
704.2
|
|
|
4,646,313
|
|
|
$
|
204.33
|
|
|
$
|
955.8
|
|
Exercisable at
end of year
|
2,973,656
|
|
|
$
|
226.51
|
|
|
$
|
1,061.7
|
|
|
3,274,780
|
|
|
$
|
188.48
|
|
|
$
|
671.3
|
|
|
3,288,237
|
|
|
$
|
156.43
|
|
|
$
|
833.9
|
|
The weighted-average remaining term for options outstanding at the end of 2019, 2018 and 2017 was 6.02, 6.09 and 6.28 years, respectively. The weighted-average remaining term for options exercisable at the end of 2019, 2018 and 2017 was 4.95, 5.01 and 5.11 years, respectively.
Shares reserved for future grants of option rights, restricted stock and RSUs were 4,217,446, 5,135,822 and 6,041,092 at December 31, 2019, 2018 and 2017, respectively.
RSUs
Grants of RSUs, which generally require three years of continuous employment from the date of grant before vesting and receiving the stock without restriction, have been awarded to certain officers and key employees under the 2006 Employee Plan. The February 2019, 2018 and 2017 grants consisted of performance-based awards that vest at the end of a three-year period based on the Company’s achievement of specified financial and operating performance goals relating to earnings per share and return on net assets employed.
Unrecognized compensation expense with respect to grants of RSUs to eligible employees amounted to $73.6 million at December 31, 2019 and is being amortized on a straight-line basis over the vesting period and is expected to be recognized over a weighted-average period of 0.93 years.
Grants of RSUs have been awarded to nonemployee directors under the Nonemployee Director Plan. These grants generally vest and stock is received without restriction to the extent of one-third of the RSUs for each year following the date of grant. Unrecognized compensation expense with respect to grants of RSUs to nonemployee directors amounted to $1.7 million at December 31, 2019 and is being amortized on a straight-line basis over the three-year vesting period and is expected to be recognized over a weighted-average period of 0.96 years.
A summary of the Company’s RSU activity for the years ended December 31 is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Outstanding at beginning of year
|
290,402
|
|
|
335,796
|
|
|
397,326
|
|
Granted
|
131,275
|
|
|
116,636
|
|
|
112,647
|
|
Exchanged Valspar awards (net of forfeitures)
|
|
|
|
|
|
|
51,009
|
|
Vested
|
(168,730
|
)
|
|
(150,576
|
)
|
|
(215,433
|
)
|
Forfeited
|
(4,775
|
)
|
|
(11,454
|
)
|
|
(9,753
|
)
|
Outstanding at end of year
|
248,172
|
|
|
290,402
|
|
|
335,796
|
|
The weighted-average per share fair value of RSUs granted during 2019, 2018 and 2017 was $432.55, $404.08 and $313.88, respectively.
NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE LOSS (INCOME)
The components of accumulated other comprehensive loss (income) (AOCI), including the reclassification adjustments for items that were reclassified from AOCI to net income, are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Pension and Other Postretirement Benefits Adjustments
|
|
Unrealized Net Gains on Available-for-Sale Securities
|
|
Unrealized Net (Losses) Gains on Cash Flow Hedges
|
|
Total
|
Balance at January 1, 2017
|
$
|
(501.3
|
)
|
|
$
|
(125.1
|
)
|
|
$
|
1.0
|
|
|
$
|
85.0
|
|
|
$
|
(540.4
|
)
|
Amounts recognized in AOCI
|
148.0
|
|
|
48.0
|
|
|
2.1
|
|
|
(30.8
|
)
|
|
167.3
|
|
Amounts reclassified from AOCI
|
|
|
(7.8
|
)
|
|
(0.8
|
)
|
|
(3.2
|
)
|
|
(11.8
|
)
|
Balance at December 31, 2017
|
(353.3
|
)
|
|
(84.9
|
)
|
|
2.3
|
|
|
51.0
|
|
|
(384.9
|
)
|
Adjustment to initially adopt ASU 2016-01
|
|
|
|
|
(2.3
|
)
|
|
|
|
(2.3
|
)
|
Amounts recognized in AOCI
|
(254.3
|
)
|
|
(13.5
|
)
|
|
|
|
|
|
(267.8
|
)
|
Amounts reclassified from AOCI
|
|
|
31.3
|
|
|
|
|
(6.2
|
)
|
|
25.1
|
|
Balance at December 31, 2018
|
(607.6
|
)
|
|
(67.1
|
)
|
|
—
|
|
|
44.8
|
|
|
(629.9
|
)
|
Reclassifications from AOCI to Retained earnings for adoption of ASU 2018-02
|
|
|
(19.3
|
)
|
|
|
|
11.0
|
|
|
(8.3
|
)
|
Amounts recognized in AOCI
|
(49.8
|
)
|
|
(5.1
|
)
|
|
|
|
|
|
(54.9
|
)
|
Amounts reclassified from AOCI
|
|
|
22.3
|
|
|
|
|
(8.7
|
)
|
|
13.6
|
|
Balance at December 31, 2019
|
$
|
(657.4
|
)
|
|
$
|
(69.2
|
)
|
|
$
|
—
|
|
|
$
|
47.1
|
|
|
$
|
(679.5
|
)
|
NOTE 16 – FAIR VALUE MEASUREMENTS
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
|
|
•
|
Cash and cash equivalents: The carrying amounts reported for Cash and cash equivalents approximate fair value.
|
|
|
•
|
Short-term investments: The carrying amounts reported for short-term investments approximate fair value.
|
|
|
•
|
Investments in securities: Investments classified as available-for-sale are carried at fair market value. See the recurring fair value measurements table below.
|
|
|
•
|
Short-term borrowings: The carrying amounts reported for Short-term borrowings approximate fair value.
|
|
|
•
|
Long-term debt (including current portion): 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-traded debt are classified as level 1 and level 2, respectively, in the fair value hierarchy. See the debt table below.
|
The following table summarizes the Company’s assets and liabilities measured on a recurring basis in accordance with the Fair Value Measurements and Disclosures Topic of the ASC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31,
2019
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Deferred compensation plan assets (1)
|
$
|
61.1
|
|
|
$
|
29.9
|
|
|
$
|
31.2
|
|
|
|
Net investment hedge asset (2)
|
1.5
|
|
|
|
|
1.5
|
|
|
|
|
$
|
62.6
|
|
|
$
|
29.9
|
|
|
$
|
32.7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (3)
|
$
|
76.9
|
|
|
$
|
76.9
|
|
|
|
|
|
|
$
|
76.9
|
|
|
$
|
76.9
|
|
|
—
|
|
|
—
|
|
|
|
(1)
|
The deferred compensation plan assets consists 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 quotes. The cost basis of the investment funds is $54.8 million.
|
|
|
(2)
|
The net investment hedge asset is the fair value of the cross currency swap (see Note 1). The fair value is based on a valuation model that uses observable inputs, including interest rate curves and foreign currency rate.
|
|
|
(3)
|
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.
|
Except for the acquisition-related fair value measurements described in Note 3 and the impairment described in Note 6, there were no assets and liabilities measured at fair value on a nonrecurring basis. The acquisition and impairment-related fair value measurements qualified as level 3 measurements.
The table below summarizes the carrying amounts and fair values of the Company's publicly traded debt and non-traded debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
|
2017
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying Amount
|
|
Fair
Value
|
|
Carrying Amount
|
|
Fair
Value
|
Publicly traded debt
|
$
|
8,203.2
|
|
|
$
|
8,735.8
|
|
|
$
|
8,731.7
|
|
|
$
|
8,330.2
|
|
|
$
|
8,742.7
|
|
|
$
|
9,054.3
|
|
Non-traded debt
|
277.3
|
|
|
270.7
|
|
|
283.6
|
|
|
272.7
|
|
|
1,144.2
|
|
|
1,088.6
|
|
NOTE 17 – REVENUE
On January 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers" (ASC 606) using the modified retrospective method applied to all contracts. Financial results included in the Company's Consolidated Financial Statements for the years ended December 31, 2019 and 2018 are presented under ASC 606, while the year ended December 31, 2017 is presented under the previous accounting standard, ASC 605. The only significant change that resulted from the adoption of ASC 606 was that certain advertising support that was previously classified as Selling, general and administrative expenses is now classified as a reduction of revenue. This reclassification had no effect on Net income, and therefore, there was no adjustment to the opening balance of Retained earnings.
The Company manufactures and sells paint, stains, supplies, equipment and floor covering through 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 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 uses 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”) 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 21 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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable, Less Allowance
|
|
Contract Assets (Current)
|
|
Contract Assets (Long-Term)
|
|
Contract Liabilities (Current)
|
|
Contract Liabilities (Long-Term)
|
Balance sheet caption:
|
Accounts receivable
|
|
Other current assets
|
|
Other assets
|
|
Other accruals
|
|
Other liabilities
|
Balance at January 1, 2019
|
$
|
2,018.8
|
|
|
$
|
51.7
|
|
|
$
|
215.4
|
|
|
$
|
277.1
|
|
|
$
|
17.9
|
|
Balance at December 31, 2019
|
2,088.9
|
|
|
50.5
|
|
|
178.2
|
|
|
242.8
|
|
|
10.4
|
|
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 returns are established and the expected costs continue to be recognized as contra-revenue per ASC 606 when the products are sold. 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 1. Amounts recognized during the year from deferred 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 18 – OTHER EXPENSE (INCOME)
Other General Expense - Net
Included in Other general expense - net were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Provisions for environmental matters - net
|
$
|
23.0
|
|
|
$
|
176.3
|
|
|
$
|
15.4
|
|
Loss on sale or disposition of assets
|
16.1
|
|
|
12.8
|
|
|
5.5
|
|
Total
|
$
|
39.1
|
|
|
$
|
189.1
|
|
|
$
|
20.9
|
|
Provisions for environmental matters–net represent initial provisions for site-specific estimated costs of environmental investigation or remediation and 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. During 2018, the Company reached a series of agreements on remediation plans at one of the Company's four major sites, resulting in a significant
increase to provisions for environmental matters–net for 2018. See Note 10 for further details on the Company’s environmental-related activities.
The loss on sale or disposition of assets represents the net realized losses associated with the sale or disposal of property, plant and equipment and intangible assets previously used in the conduct of the primary business of the Company.
Other Expense (Income) - Net
Included in Other expense (income) - net were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Dividend and royalty income
|
$
|
(12.0
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(7.6
|
)
|
Loss on extinguishment of debt (see Note 7)
|
14.8
|
|
|
|
|
|
Net expense from banking activities
|
10.7
|
|
|
9.7
|
|
|
9.8
|
|
Foreign currency transaction related losses
|
19.7
|
|
|
7.5
|
|
|
0.5
|
|
Domestic pension plan settlement expense
|
32.4
|
|
|
37.6
|
|
|
|
|
Miscellaneous pension expense (income)
|
8.0
|
|
|
(10.8
|
)
|
|
(15.7
|
)
|
Indirect tax credits
|
(38.7
|
)
|
|
|
|
|
Other income
|
(32.8
|
)
|
|
(32.2
|
)
|
|
(32.6
|
)
|
Other expense
|
14.6
|
|
|
12.6
|
|
|
12.9
|
|
Total
|
$
|
16.7
|
|
|
$
|
20.1
|
|
|
$
|
(32.7
|
)
|
The Net expense from banking activities includes the net expense relating to changes in the Company’s financing fees.
Foreign currency transaction related losses include the impact from foreign currency transactions and net realized losses from foreign currency option and forward contracts. There were no material foreign currency option and forward contracts outstanding at December 31, 2019, 2018 and 2017.
See Note 8 for information on the Domestic pension plan settlement expense and Miscellaneous pension expense (income).
Indirect tax credits includes a gain of $33.5 million recognized by Sherwin-Williams do Brasil Industria e Comercio Ltda. (Sherwin-Williams Brazil) in the fourth quarter of 2019 related to the recovery of certain social contribution (PIS/COFINS) taxes paid over gross sales including ICMS receipts, a type of state level value-added tax in Brazil. In 2014, Sherwin-Williams Brazil filed a lawsuit against the Brazilian tax authorities to challenge the inclusion of ICMS on the PIS/COFINS tax base. During 2019, Sherwin-Williams Brazil received a favorable final, non-appealable decision against the Brazilian tax authorities. Upon clarification regarding monetization of the credits, the Company recognized the benefit. The Brazilian Office of the Attorney General of the National Treasury has sought clarification from the Brazilian Federal Supreme Court of certain matters, including the amount (i.e. gross or net credit amount) and timing of these credits. Clarification is expected to be provided in the first half of 2020. If the Brazilian tax authorities challenge the amount or timing of these credits, the Company may become subject to new litigation related to the indirect tax credits already monetized or it could affect the Company's ability to monetize future indirect tax credits.
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 items within Other income or Other expense that were individually significant at December 31, 2019, 2018 and 2017.
NOTE 19 – INCOME TAXES
During 2019, the Company recorded an increase to the tax provision of $74.3 million related to the reversal of net tax benefits recognized in previous tax years from federal renewable energy tax credit funds with DC Solar Solutions, Inc. and certain of its affiliates (“DC Solar”). During 2011 and 2013 through 2017, the Company invested in legal entities ("Funds") that purchased mobile solar generators from DC Solar. In December 2018, the Company became aware of an ongoing investigation by federal authorities, which included the seizure of DC Solar's assets. The Company promptly initiated an investigation. During the second quarter of 2019, based on additional information revealed during the course of the investigation, the Company determined that it is more likely than not that the tax benefits expected to be received by the Company related to its investments in the Funds will no longer be ultimately realizable. The facts relating to Company investments in the Funds continue to be developed and there are, and will continue to be, material differences in facts relevant to each Fund, as well as to funds owned by other investors. The ultimate tax results relating to the Company's investments continue to be uncertain. The Company’s management will continue to use its best judgment based upon the facts and circumstances related to the Company's investments in the Funds when determining
the scope and timing of disclosures. The Company continues to participate with other fund investors to gather facts and obtain expert advice in assessing its tax position in these investments.
On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was enacted. The Tax Act significantly revised the U.S. corporate income tax system by, among other things, lowering corporate income tax rates from 35% to 21%, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. Staff Accounting Bulletin (SAB) No. 118 provided a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under the Tax Act.
In accordance with 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.
During the second quarter of 2018, the Company made purchase accounting adjustments related to the Valspar acquisition which resulted in the reversal of $27.5 million of income tax benefits related to the remeasurement of U.S. deferred tax liabilities. No other material adjustments were made under SAB No. 118 for the 2018 tax year. The Company completed its analysis of the Tax Act and finalized its accounting in the fourth quarter of 2018.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates and laws that are currently in effect. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
Exit costs, environmental and other similar items
|
$
|
83.5
|
|
|
$
|
84.5
|
|
|
$
|
50.2
|
|
Employee related and benefit items
|
129.3
|
|
|
97.0
|
|
|
104.1
|
|
Operating lease liabilities
|
430.6
|
|
|
|
|
|
Other items
|
204.0
|
|
|
161.6
|
|
|
113.2
|
|
Total deferred tax assets
|
847.4
|
|
|
343.1
|
|
|
267.5
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Depreciation and amortization
|
1,232.6
|
|
|
1,303.6
|
|
|
1,506.7
|
|
LIFO inventories
|
80.5
|
|
|
64.5
|
|
|
66.5
|
|
Operating lease right-of-use assets
|
417.8
|
|
|
|
|
|
Other items
|
28.1
|
|
|
29.5
|
|
|
49.7
|
|
Total deferred tax liabilities
|
1,759.0
|
|
|
1,397.6
|
|
|
1,622.9
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
$
|
911.6
|
|
|
$
|
1,054.5
|
|
|
$
|
1,355.4
|
|
As of December 31, 2019, the Company’s net deferred income tax liability relates primarily to deferred tax liabilities recorded for intangible assets acquired through the Valspar acquisition.
Netted against the Company’s other deferred tax assets were valuation allowances of $84.6 million, $73.5 million and $44.1 million at December 31, 2019, 2018 and 2017, respectively. The increase in the valuation allowance in 2019 is primarily due to net operating losses of certain foreign subsidiaries, as well as foreign tax credit carryforwards due to uncertainty of their realization. The Company has $21.3 million of domestic net operating loss carryforwards acquired through acquisitions that have expiration dates through the tax year 2037, foreign tax credits of $22.5 million that expire in calendar years 2027 through 2029 and foreign net operating losses of $311.9 million. The foreign net operating losses are related to various jurisdictions that provide for both indefinite carryforward periods and others with carryforward periods that range from the tax years 2019 to 2039.
Significant components of the provisions for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
440.1
|
|
|
$
|
288.8
|
|
|
$
|
269.3
|
|
Foreign
|
71.1
|
|
|
53.2
|
|
|
53.5
|
|
State and local
|
60.4
|
|
|
52.4
|
|
|
39.3
|
|
Total current
|
571.6
|
|
|
394.4
|
|
|
362.1
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(83.7
|
)
|
|
(102.1
|
)
|
|
(486.6
|
)
|
Foreign
|
(32.3
|
)
|
|
(35.3
|
)
|
|
(42.3
|
)
|
State and local
|
(15.1
|
)
|
|
(6.0
|
)
|
|
(91.8
|
)
|
Total deferred
|
(131.1
|
)
|
|
(143.4
|
)
|
|
(620.7
|
)
|
Total provisions (credits) for income taxes
|
$
|
440.5
|
|
|
$
|
251.0
|
|
|
$
|
(258.6
|
)
|
Under provisions of the Tax Act, the Company received an income tax benefit of $10.4 million and $8.6 million in 2019 and 2018, respectively, related to foreign derived intangible income and incurred income tax expense of $7.9 million and $5.5 million in 2019 and 2018, respectively, related to Global Intangible Low Taxed Income (GILTI). The Company has made an accounting policy election to record GILTI as a period cost.
Significant components of income before income taxes as used for income tax purposes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
$
|
1,899.6
|
|
|
$
|
1,309.3
|
|
|
$
|
1,415.6
|
|
Foreign
|
82.2
|
|
|
50.4
|
|
|
53.7
|
|
|
$
|
1,981.8
|
|
|
$
|
1,359.7
|
|
|
$
|
1,469.3
|
|
A reconciliation of the statutory federal income tax rate to the effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Statutory federal income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
Effect of:
|
|
|
|
|
|
State and local income taxes
|
2.3
|
|
|
3.2
|
|
|
2.1
|
|
Investment vehicles
|
(1.3
|
)
|
|
(1.2
|
)
|
|
(1.4
|
)
|
Domestic production activities
|
|
|
|
|
|
|
(3.1
|
)
|
Employee share-based payments
|
(3.3
|
)
|
|
(3.2
|
)
|
|
(5.9
|
)
|
Research and development credits
|
(1.1
|
)
|
|
(1.3
|
)
|
|
(0.9
|
)
|
Amended returns and refunds
|
0.1
|
|
|
(1.6
|
)
|
|
(0.9
|
)
|
Tax credit reversal
|
3.7
|
|
|
|
|
|
Other - net
|
0.8
|
|
|
(0.3
|
)
|
|
(0.4
|
)
|
Subtotal
|
22.2
|
%
|
|
16.6
|
%
|
|
24.5
|
%
|
Effect of:
|
|
|
|
|
|
Tax Act
|
|
|
|
1.9
|
|
|
(40.8
|
)
|
Subsidiary mergers
|
|
|
|
|
|
|
(4.2
|
)
|
Reported effective tax rate
|
22.2
|
%
|
|
18.5
|
%
|
|
(20.5
|
)%
|
The increase in the effective tax rate for 2019 compared to 2018 was primarily due to an increase to the 2019 tax provision of $74.3 million related to the reversal of net tax benefits recognized in previous tax years from federal renewable energy tax credit funds with DC Solar. In addition, the Company had received tax benefits in 2018 from filing amended U.S. income tax returns. The Company did not receive any significant tax benefits in 2019 related to amended returns. Due to the expiration of various state statutes that reduced potential audit exposure, favorable adjustments to 2018 state income tax returns filed in 2019 and the recognition of favorable tax attributes related to state tax credits the negative impact of state and local income taxes decreased in 2019 compared to 2018. The tax benefit related to employee share based payments in 2019 was consistent with the benefit in 2018. There were no significant adjustments recorded in the 2019 tax year related to the Tax Act.
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, 2015, and 2016 income tax returns. No significant adjustments have been proposed by the IRS at this point in the audits. As of December 31, 2019, the federal statute of limitations has not expired for the 2013 through 2018 tax years.
As of December 31, 2019, the Company is subject to non-U.S. income tax examinations for the tax years of 2013 through 2018. In addition, the Company is subject to state and local income tax examinations for the tax years 1998 through 2019.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Balance at beginning of year
|
$
|
89.5
|
|
|
$
|
59.0
|
|
|
$
|
32.8
|
|
Additions from the Valspar acquisition
|
|
|
|
12.4
|
|
|
18.9
|
|
Additions based on tax positions related to the current year
|
14.9
|
|
|
12.9
|
|
|
6.8
|
|
Additions for tax positions of prior years
|
107.9
|
|
|
11.0
|
|
|
4.0
|
|
Reductions for tax positions of prior years
|
(3.6
|
)
|
|
(2.0
|
)
|
|
(1.2
|
)
|
Settlements
|
|
|
|
(1.4
|
)
|
|
(0.3
|
)
|
Lapses of statutes of limitations
|
(5.7
|
)
|
|
(2.4
|
)
|
|
(2.0
|
)
|
Balance at end of year
|
$
|
203.0
|
|
|
$
|
89.5
|
|
|
$
|
59.0
|
|
The increase in unrecognized tax benefits was primarily due to the reversal of tax benefits recognized in previous tax years from federal renewable energy tax credit funds as discussed above. Other increases in the balance of unrecognized tax benefits at December 31, 2019 were related to a number of positions taken on current and amended income tax returns filed in the U.S. federal, and various state and foreign jurisdictions. At December 31, 2019, 2018 and 2017, the Company had unrecognized tax benefits of $195.3 million, $83.0 million, $49.5 million, respectively, the recognition of which would have an effect on the effective tax rate.
Included in the balance of unrecognized tax benefits at December 31, 2019 is $17.3 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.
The Company classifies all income tax related interest and penalties as income tax expense. During the year ended December 31, 2019, there was an increase in income tax interest and penalties of $1.6 million. There was an increase in income tax interest and penalties of $4.9 million and a decrease of $.8 million for the years ended December 31, 2018 and 2017, respectively. The Company accrued $26.2 million, $24.8 million and $14.6 million at December 31, 2019, 2018 and 2017, respectively, for the potential payment of interest and penalties.
NOTE 20 – NET INCOME PER SHARE
Basic and diluted net income per share are calculated using the treasury stock method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Basic
|
|
|
|
|
|
Average shares outstanding
|
91,803,528
|
|
|
92,992,457
|
|
|
92,908,638
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
Continuing operations
|
$
|
1,541.3
|
|
|
$
|
1,108.7
|
|
|
$
|
1,769.5
|
|
Discontinued operations
|
|
|
|
|
|
|
(41.6
|
)
|
Net income
|
$
|
1,541.3
|
|
|
$
|
1,108.7
|
|
|
$
|
1,727.9
|
|
|
|
|
|
|
|
Basic net income per share:
|
|
|
|
|
|
Continuing operations
|
$
|
16.79
|
|
|
$
|
11.92
|
|
|
$
|
19.04
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.44
|
)
|
Net income per share
|
$
|
16.79
|
|
|
$
|
11.92
|
|
|
$
|
18.60
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
Average shares outstanding
|
91,803,528
|
|
|
92,992,457
|
|
|
92,908,638
|
|
Stock options and other contingently issuable shares (1)
|
1,601,213
|
|
|
1,938,586
|
|
|
1,931,157
|
|
Non-vested restricted stock grants
|
42,101
|
|
|
57,027
|
|
|
87,418
|
|
Average shares outstanding assuming dilution
|
93,446,842
|
|
|
94,988,070
|
|
|
94,927,213
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
Continuing operations
|
$
|
1,541.3
|
|
|
$
|
1,108.7
|
|
|
$
|
1,769.5
|
|
Discontinued operations
|
|
|
|
|
|
|
(41.6
|
)
|
Net income
|
$
|
1,541.3
|
|
|
$
|
1,108.7
|
|
|
$
|
1,727.9
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
Continuing operations
|
$
|
16.49
|
|
|
$
|
11.67
|
|
|
$
|
18.64
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.44
|
)
|
Net income per share
|
$
|
16.49
|
|
|
$
|
11.67
|
|
|
$
|
18.20
|
|
|
|
(1)
|
Stock options and other contingently issuable shares excludes 449,167, 28,321 and 638,795 shares at December 31, 2019, 2018 and 2017, respectively, due to their anti-dilutive effect.
|
NOTE 21 – 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 three reportable operating segments: The Americas Group, Consumer Brands Group and Performance Coatings Group (individually, a Reportable Segment and collectively, the Reportable Segments). Factors considered in determining the three Reportable Segments of the Company include the nature of business activities, the management structure directly accountable to the Company’s chief operating decision maker (CODM) for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors. The Company reports all other business activities and immaterial operating segments that are not reportable in the Administrative segment.
The Company’s CODM has been identified as the Chief Executive Officer because he has final authority over performance assessment and resource allocation decisions. Because of the diverse operations of the Company, the CODM regularly receives discrete financial information about each Reportable Segment as well as a significant amount of additional financial information about certain divisions, business units or subsidiaries of the Company. The CODM uses all such financial information for performance assessment and resource allocation decisions. The CODM evaluates the performance of and allocates resources to the Reportable Segments based on segment profit or loss and cash generated from operations. The accounting policies of the Reportable Segments are the same as those described in Note 1 of this report.
The Americas Group consisted of 4,758 company-operated specialty paint stores in the United States, Canada, Latin America and the Caribbean region at December 31, 2019. Each store in this segment is engaged in servicing the needs of architectural and industrial paint contractors and do-it-yourself homeowners. The Americas Group company-owned stores market and sell Sherwin-Williams® and other controlled brand architectural paint and coatings, protective and marine products, OEM product finishes and related products. The majority of these products are produced by manufacturing facilities in the Consumer Brands Group. In addition, each store sells select purchased associated products. The Americas Group sells a variety of architectural paints, coatings and related products through dedicated dealers, home centers, distributors, hardware stores and other retailers throughout Latin America. The Americas Group meets regional customer demands through developing, licensing, manufacturing, distributing and selling a variety of architectural paints, coatings and related products in North and South America. The loss of any single customer would not have a material adverse effect on the business of this segment. At December 31, 2019, The Americas Group consisted of operations from subsidiaries in 10 foreign countries. During 2019, this segment opened 62 net new stores, consisting of 94 new stores opened (83 in the United States, 7 in Canada, and 4 in South America) and 32 stores closed (6 in the United States, 17 in South America and 9 in Mexico). In 2018 and 2017, this segment opened 76 and 101 net new stores, respectively. The CODM uses discrete financial information about The Americas Group, supplemented with information by geographic region, product type and customer type, to assess performance of and allocate resources to The Americas Group as a whole. In accordance with ASC 280-10-50-9, The Americas Group as a whole is considered the operating segment, and because it meets the criteria in ASC 280-10-50-10, it is also considered a Reportable Segment.
The Consumer Brands Group supplies a broad portfolio of branded and private-label architectural paints, stains, varnishes, industrial products, wood finishes products, wood preservatives, applicators, corrosion inhibitors, aerosols, caulks and adhesives to retailers and distributors throughout North America, as well as in Australia, New Zealand, China and Europe. The Consumer Brands Group also supports the Company's other businesses around the world with new product research and development, manufacturing, distribution and logistics. Approximately 57% of the total sales of the Consumer Brands Group in 2019 were intersegment transfers of products primarily sold through The Americas Group. At December 31, 2019, the Consumer Brands Group consisted of operations in the United States and subsidiaries in 6 foreign countries. Sales and marketing of certain controlled brand and private labeled products is performed by a direct sales staff. The products distributed through third-party customers are intended for resale to the ultimate end-user of the product. The Consumer Brands Group had sales to certain customers that, individually, may be a significant portion of the sales of the segment. However, the loss of any single customer would not have a material adverse effect on the overall profitability of the segment. This segment incurred most of the Company’s capital expenditures related to ongoing environmental compliance measures at sites currently in operation. The CODM uses discrete financial information about the Consumer Brands Group, supplemented with information by product type and customer type, to assess performance of and allocate resources to the Consumer Brands Group as a whole. In accordance with ASC 280-10-50-9, the Consumer Brands Group as a whole is considered the operating segment, and because it meets the criteria in ASC 280-10-50-10, it is also considered a Reportable Segment.
The Performance Coatings Group develops and sells industrial coatings for wood finishing and general industrial (metal and plastic) applications, automotive refinish, protective and marine coatings, coil coatings, packaging coatings and performance-based resins and colorants worldwide. This segment licenses certain technology and trade names worldwide. Sherwin-Williams® and other controlled brand products are distributed through The Americas Group and this segment’s 281 company-operated branches and by a direct sales staff and outside sales representatives to retailers, dealers, jobbers, licensees and other third-party distributors. The Performance Coatings Group had sales to certain customers that, individually, may be a significant portion of the sales of the segment. However, the loss of any single customer would not have a material adverse effect on the overall profitability of the segment. During 2019, this segment opened 3 new branches and closed 4 branches for a net decrease of 1 branch. At December 31, 2019, the Performance Coatings Group consisted of operations in the United States and subsidiaries in 45 foreign countries. The CODM uses discrete financial information about the Performance Coatings Group, supplemented with information about geographic divisions, business units and subsidiaries, to assess performance of and allocate resources to the Performance Coatings Group as a whole. In accordance with ASC 280-10-50-9, the Performance Coatings Group as a whole is considered the operating segment, and because it meets the criteria in ASC 280-10-50-10, it is also considered a Reportable Segment.
The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site. Also included in the Administrative segment is interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which are not directly associated with the Reportable Segments. The Administrative segment does not include any significant foreign operations. Also included in the Administrative segment is 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 represents external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its primary businesses. Material gains and losses from the sale of property are infrequent and not a significant operating factor in determining the performance of the Administrative segment.
Net external sales of all consolidated foreign subsidiaries were $3.679 billion, $4.028 billion and $2.960 billion for 2019, 2018 and 2017, respectively.
Long-lived assets consisted of Property, plant and equipment, Goodwill, Intangible assets, Operating lease right-of-use assets, Deferred pension assets and Other assets. The aggregate total of long-lived assets for the Company was $15.865 billion, $14.790 billion and, $15.493 billion at December 31, 2019, 2018 and 2017, respectively. Long-lived assets of consolidated foreign subsidiaries totaled $3.211 billion, $3.290 billion and $3.691 billion at December 31, 2019, 2018 and 2017, respectively.
Total Assets of the Company were $20.496 billion, $19.134 billion and $19.900 billion at December 31, 2019, 2018 and 2017, respectively. Total assets of consolidated foreign subsidiaries were $4.829 billion, $4.809 billion and $5.254 billion, which represented 23.6%, 25.1% and 26.4% of the Company’s total assets at December 31, 2019, 2018 and 2017, respectively.
No single geographic area outside the United States was significant relative to consolidated net external sales or consolidated long-lived assets. Export sales and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all years presented.
In the reportable segment financial information that follows, Segment profit was total net sales and intersegment transfers less operating costs and expenses. Identifiable assets were those directly identified with each reportable segment. The Administrative segment assets consisted primarily of cash and cash equivalents, investments, deferred pension assets and headquarters property, plant and equipment. The margin for each reportable segment was based upon total net sales and intersegment transfers. Domestic intersegment transfers were primarily accounted for at the approximate fully absorbed manufactured cost, based on normal capacity volumes, plus customary distribution costs for paint products. Non-paint domestic and all international intersegment transfers were accounted for at values comparable to normal unaffiliated customer sales. All intersegment transfers are eliminated within the Administrative segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
The Americas Group
|
|
Consumer Brands
Group
|
|
Performance Coatings Group
|
|
Administrative
|
|
Consolidated
Totals
|
Net external sales
|
$
|
10,171.9
|
|
|
$
|
2,676.8
|
|
|
$
|
5,049.2
|
|
|
$
|
2.9
|
|
|
$
|
17,900.8
|
|
Intersegment transfers
|
|
|
|
3,607.0
|
|
|
116.2
|
|
|
(3,723.2
|
)
|
|
—
|
|
Total net sales and intersegment transfers
|
$
|
10,171.9
|
|
|
$
|
6,283.8
|
|
|
$
|
5,165.4
|
|
|
$
|
(3,720.3
|
)
|
|
$
|
17,900.8
|
|
Segment profit
|
$
|
2,056.5
|
|
|
$
|
373.2
|
|
|
$
|
379.1
|
|
|
|
|
|
$
|
2,808.8
|
|
California litigation expense adjustment
|
|
|
|
|
|
|
$
|
34.7
|
|
|
34.7
|
|
Interest expense
|
|
|
|
|
|
|
$
|
(349.3
|
)
|
|
(349.3
|
)
|
Administrative expenses and other
|
|
|
|
|
|
|
(512.4
|
)
|
|
(512.4
|
)
|
Income before income taxes
|
$
|
2,056.5
|
|
|
$
|
373.2
|
|
|
$
|
379.1
|
|
|
$
|
(827.0
|
)
|
|
$
|
1,981.8
|
|
% to net external sales
|
20.2
|
%
|
|
13.9
|
%
|
|
7.5
|
%
|
|
|
|
|
Identifiable assets
|
$
|
5,399.1
|
|
|
$
|
5,600.8
|
|
|
$
|
8,175.6
|
|
|
$
|
1,320.7
|
|
|
$
|
20,496.2
|
|
Capital expenditures
|
73.3
|
|
|
133.4
|
|
|
84.2
|
|
|
38.0
|
|
|
328.9
|
|
Depreciation
|
72.2
|
|
|
81.1
|
|
|
70.9
|
|
|
37.9
|
|
|
262.1
|
|
Amortization
|
4.8
|
|
|
90.3
|
|
|
212.9
|
|
|
4.8
|
|
|
312.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
The Americas Group
|
|
Consumer Brands
Group
|
|
Performance Coatings
Group
|
|
Administrative
|
|
Consolidated
Totals
|
Net external sales
|
$
|
9,625.1
|
|
|
$
|
2,739.1
|
|
|
$
|
5,166.4
|
|
|
$
|
3.9
|
|
|
$
|
17,534.5
|
|
Intersegment transfers
|
0.5
|
|
|
3,460.2
|
|
|
22.4
|
|
|
(3,483.1
|
)
|
|
|
Total net sales and intersegment transfers
|
$
|
9,625.6
|
|
|
$
|
6,199.3
|
|
|
$
|
5,188.8
|
|
|
$
|
(3,479.2
|
)
|
|
$
|
17,534.5
|
|
Segment profit
|
$
|
1,898.4
|
|
|
$
|
261.1
|
|
|
$
|
452.1
|
|
|
|
|
$
|
2,611.6
|
|
California litigation expense
|
|
|
|
|
|
|
$
|
(136.3
|
)
|
|
(136.3
|
)
|
Interest expense
|
|
|
|
|
|
|
$
|
(366.7
|
)
|
|
(366.7
|
)
|
Administrative expenses and other
|
|
|
|
|
|
|
(748.9
|
)
|
|
(748.9
|
)
|
Income before income taxes
|
$
|
1,898.4
|
|
|
$
|
261.1
|
|
|
$
|
452.1
|
|
|
$
|
(1,251.9
|
)
|
|
$
|
1,359.7
|
|
% to net external sales
|
19.7
|
%
|
|
9.5
|
%
|
|
8.8
|
%
|
|
|
|
|
Identifiable assets
|
$
|
4,070.9
|
|
|
$
|
5,385.3
|
|
|
$
|
8,535.2
|
|
|
$
|
1,142.9
|
|
|
$
|
19,134.3
|
|
Capital expenditures
|
69.5
|
|
|
95.7
|
|
|
60.8
|
|
|
25.0
|
|
|
251.0
|
|
Depreciation
|
72.3
|
|
|
88.8
|
|
|
77.6
|
|
|
39.5
|
|
|
278.2
|
|
Amortization
|
4.8
|
|
|
97.5
|
|
|
210.7
|
|
|
5.1
|
|
|
318.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
The Americas Group
|
|
Consumer Brands
Group
|
|
Performance Coatings
Group
|
|
Administrative
|
|
Consolidated
Totals
|
Net external sales
|
$
|
9,117.3
|
|
|
$
|
2,154.7
|
|
|
$
|
3,706.1
|
|
|
$
|
5.7
|
|
|
$
|
14,983.8
|
|
Intersegment transfers
|
6.0
|
|
|
3,162.1
|
|
|
22.4
|
|
|
(3,190.5
|
)
|
|
—
|
|
Total net sales and intersegment transfers
|
$
|
9,123.3
|
|
|
$
|
5,316.8
|
|
|
$
|
3,728.5
|
|
|
$
|
(3,184.8
|
)
|
|
$
|
14,983.8
|
|
Segment profit
|
$
|
1,769.5
|
|
|
$
|
202.8
|
|
|
$
|
262.8
|
|
|
|
|
$
|
2,235.1
|
|
Interest expense
|
|
|
|
|
|
|
$
|
(263.5
|
)
|
|
(263.5
|
)
|
Administrative expenses and other
|
|
|
|
|
|
|
(502.3
|
)
|
|
(502.3
|
)
|
Income from continuing operations before income taxes
|
$
|
1,769.5
|
|
|
$
|
202.8
|
|
|
$
|
262.8
|
|
|
$
|
(765.8
|
)
|
|
$
|
1,469.3
|
|
% to net external sales
|
19.4
|
%
|
|
9.4
|
%
|
|
7.1
|
%
|
|
|
|
|
Identifiable assets
|
$
|
4,358.9
|
|
|
$
|
5,816.0
|
|
|
$
|
8,264.8
|
|
|
$
|
1,459.8
|
|
|
$
|
19,899.5
|
|
Capital expenditures
|
69.2
|
|
|
95.1
|
|
|
36.8
|
|
|
21.7
|
|
|
222.8
|
|
Depreciation
|
75.0
|
|
|
91.8
|
|
|
69.0
|
|
|
49.2
|
|
|
285.0
|
|
Amortization
|
4.1
|
|
|
60.7
|
|
|
135.3
|
|
|
6.7
|
|
|
206.8
|
|
NOTE 22 – SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables summarize the unaudited quarterly results of operations for the years ended December 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Full Year (1)
|
Net sales
|
$
|
4,040.9
|
|
|
$
|
4,877.8
|
|
|
$
|
4,867.7
|
|
|
$
|
4,114.4
|
|
|
$
|
17,900.8
|
|
Gross profit
|
1,735.1
|
|
|
2,181.4
|
|
|
2,225.6
|
|
|
1,894.0
|
|
|
8,036.1
|
|
Net income
|
245.2
|
|
|
471.0
|
|
|
576.5
|
|
|
248.6
|
|
|
1,541.3
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
2.67
|
|
|
$
|
5.13
|
|
|
$
|
6.28
|
|
|
$
|
2.71
|
|
|
$
|
16.79
|
|
Diluted
|
$
|
2.62
|
|
|
$
|
5.03
|
|
|
$
|
6.16
|
|
|
$
|
2.66
|
|
|
$
|
16.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Full Year (1)
|
Net sales
|
$
|
3,965.0
|
|
|
$
|
4,773.8
|
|
|
$
|
4,731.5
|
|
|
$
|
4,064.2
|
|
|
$
|
17,534.5
|
|
Gross profit
|
1,686.9
|
|
|
2,038.6
|
|
|
2,010.4
|
|
|
1,682.7
|
|
|
7,418.6
|
|
Net income
|
250.1
|
|
|
403.6
|
|
|
354.0
|
|
|
101.0
|
|
|
1,108.7
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
2.68
|
|
|
$
|
4.34
|
|
|
$
|
3.80
|
|
|
$
|
1.09
|
|
|
$
|
11.92
|
|
Diluted
|
$
|
2.62
|
|
|
$
|
4.25
|
|
|
$
|
3.72
|
|
|
$
|
1.07
|
|
|
$
|
11.67
|
|
|
|
(1)
|
The sum of the quarterly earnings per share data may not equal the full year amount as the computations of the weighted average shares outstanding for each quarter and the full year are calculated independently.
|