SHERWIN WILLIAMS CO, 10-Q filed on 10/26/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Document and Entity Information [Abstract]
 
Entity Registrant Name
SHERWIN WILLIAMS CO 
Entity Central Index Key
0000089800 
Document Type
10-Q 
Document Period End Date
Sep. 30, 2012 
Amendment Flag
false 
Document Fiscal Year Focus
2012 
Document Fiscal Period Focus
Q3 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Large Accelerated Filer 
Entity Common Stock, Shares Outstanding
103,107,051 
Statements of Consolidated Income (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Income Statement [Abstract]
 
 
 
 
Net sales
$ 2,603,226 
$ 2,484,920 
$ 7,312,592 
$ 6,695,257 
Cost of goods sold
1,452,944 
1,446,621 
4,101,874 
3,836,795 
Gross profit
1,150,282 
1,038,299 
3,210,718 
2,858,462 
Percent to net sales
44.20% 
41.80% 
43.90% 
42.70% 
Selling, general and administrative expenses
799,786 
760,179 
2,367,672 
2,206,857 
Percent to net sales
30.70% 
30.60% 
32.40% 
33.00% 
Other general expense - net
1,123 
1,600 
9,246 
2,074 
Interest expense
10,358 
10,452 
30,925 
32,874 
Interest and net investment income
(793)
(840)
(1,960)
(1,971)
Other (income) expense - net
(3,190)
6,632 
(8,281)
6,623 
Income before income taxes
342,998 
260,276 
813,116 
612,005 
Income taxes
108,045 
80,399 
250,134 
184,697 
Net income
234,953 
179,877 
562,982 
427,308 
Net income per common share:
 
 
 
 
Basic (in dollars per share)
$ 2.29 
$ 1.74 
$ 5.49 
$ 4.06 
Diluted (in dollars per share)
$ 2.24 
$ 1.71 
$ 5.37 
$ 3.98 
Average shares outstanding - basic (in shares)
101,525,658 
102,151,164 
101,680,883 
103,939,552 
Average shares and equivalents outstanding - diluted (in shares)
104,019,320 
104,123,272 
103,968,124 
106,161,544 
Comprehensive income
$ 226,891 
$ 107,174 
$ 573,510 
$ 387,770 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2011
Current assets:
 
 
 
Cash and cash equivalents
$ 55,181 
$ 32,696 
$ 46,026 
Accounts receivable, less allowance
1,263,079 
989,873 
1,173,581 
Inventories:
 
 
 
Finished goods
787,570 
730,727 
743,191 
Work in process and raw materials
176,125 
196,082 
223,565 
Total inventory
963,695 
926,809 
966,756 
Deferred income taxes
149,090 
149,207 
127,090 
Other current assets
178,350 
163,008 
195,940 
Total current assets
2,609,395 
2,261,593 
2,509,393 
Goodwill
1,122,924 
1,108,008 
1,106,654 
Intangible assets
316,926 
305,873 
316,476 
Deferred pension assets
235,011 
228,350 
264,293 
Other assets
397,408 
368,898 
353,837 
Property, plant and equipment:
 
 
 
Land
103,028 
105,010 
106,322 
Buildings
670,470 
668,802 
671,188 
Machinery and equipment
1,726,551 
1,657,874 
1,643,623 
Construction in progress
50,902 
41,264 
46,019 
Total gross property, plant and equipment
2,550,951 
2,472,950 
2,467,152 
Less allowances for depreciation
1,607,350 
1,516,420 
1,527,666 
Total net property, plant and equipment
943,601 
956,530 
939,486 
Total Assets
5,625,265 
5,229,252 
5,490,139 
Current liabilities:
 
 
 
Short-term borrowings
330,148 
346,313 
517,499 
Accounts payable
1,034,921 
965,149 
996,734 
Compensation and taxes withheld
300,152 
251,060 
234,878 
Accrued taxes
157,558 
120,555 
142,717 
Current portion of long-term debt
3,936 
7,823 
10,084 
Other accruals
465,309 
471,761 
452,817 
Total current liabilities
2,292,024 
2,162,661 
2,354,729 
Long-term debt
635,348 
639,231 
641,257 
Postretirement benefits other than pensions
299,438 
297,528 
297,200 
Other long-term liabilities
619,045 
612,913 
547,026 
Shareholders' equity:
 
 
 
Common stock - $1.00 par value: 103,107,051, 103,854,234 and 103,760,672 shares outstanding at September 30, 2012, December 31, 2011 and September 30, 2011, respectively
110,658 
107,454 
106,901 
Preferred stock - convertible, no par value: 115,321, 160,273 and 175,737 shares outstanding at September 30, 2012, December 31, 2011 and September 30, 2011, respectively
115,321 
160,273 
175,737 
Unearned ESOP compensation
(115,321)
(160,273)
(175,737)
Other capital
1,552,202 
1,297,625 
1,304,503 
Retained earnings
1,198,573 
756,372 
779,509 
Treasury stock, at cost
(724,673)
(276,654)
(237,752)
Cumulative other comprehensive loss
(357,350)
(367,878)
(317,859)
The Sherwin-Williams Company shareholders' equity
1,779,410 
1,516,919 
1,635,302 
Noncontrolling interest
 
 
14,625 
Total shareholders' equity
1,779,410 
1,516,919 
1,649,927 
Total Liabilities and Shareholders' Equity
$ 5,625,265 
$ 5,229,252 
$ 5,490,139 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2011
Statement of Financial Position [Abstract]
 
 
 
Common stock, par value
$ 1 
$ 1 
$ 1 
Common stock, shares outstanding
103,107,051 
103,854,234 
103,760,672 
Preferred stock, par value
   
   
   
Preferred stock, shares outstanding
115,321 
160,273 
175,737 
Condensed Statements of Consolidated Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
OPERATING ACTIVITIES
 
 
Net income
$ 562,982 
$ 427,308 
Adjustments to reconcile net income to net operating cash:
 
 
Depreciation
113,336 
112,807 
Amortization of intangible assets
20,099 
23,263 
Stock-based compensation expense
33,044 
31,775 
Provisions for qualified exit costs
6,648 
1,338 
Provisions for environmental-related matters
9,621 
7,344 
Defined benefit pension plans net cost
14,782 
11,848 
Net increase in postretirement liability
2,700 
2,047 
Other
(2,975)
1,742 
Change in working capital accounts - net
(145,124)
(142,813)
Costs incurred for environmental-related matters
(24,614)
(17,920)
Costs incurred for qualified exit costs
(2,374)
(5,090)
Other
(18,860)
(7,686)
Net operating cash
569,265 
445,963 
INVESTING ACTIVITIES
 
 
Capital expenditures
(102,989)
(96,883)
Acquisitions of businesses, net of cash acquired
(46,893)
(29,847)
Proceeds from sale of assets
11,065 
12,198 
Increase in other investments
(36,222)
(66,408)
Net investing cash
(175,039)
(180,940)
FINANCING ACTIVITIES
 
 
Net (decrease) increase in short-term borrowings
(15,230)
128,326 
Proceeds from long-term debt
2,108 
28,908 
Payments of long-term debt
(12,943)
(33,665)
Payments of cash dividends
(120,594)
(115,651)
Proceeds from stock options exercised
162,416 
41,503 
Income tax effect of stock-based compensation exercises and vesting
62,046 
9,538 
Treasury stock purchased
(433,053)
(328,742)
Other
(14,376)
288 
Net financing cash
(369,626)
(269,495)
Effect of exchange rate changes on cash
(2,115)
(8,087)
Net increase (decrease) in cash and cash equivalents
22,485 
(12,559)
Cash and cash equivalents at beginning of year
32,696 
58,585 
Cash and cash equivalents at end of period
55,181 
46,026 
Income taxes paid
164,157 
102,815 
Interest paid
$ 29,850 
$ 31,680 
Basis of Presentation
BASIS OF PRESENTATION
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
There have been no significant changes in critical accounting policies since December 31, 2011. Accounting estimates were revised as necessary during the first nine months of 2012 based on new information and changes in facts and circumstances. Certain amounts in the 2011 condensed consolidated financial statements have been reclassified to conform to the 2012 presentation.
The Company primarily uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs are subject to the final year-end LIFO inventory valuation. In addition, interim inventory levels include management’s estimates of annual inventory losses due to shrinkage and other factors. The final year-end valuation of inventory is based on an annual physical inventory count performed during the fourth quarter. For further information on inventory valuations and other matters, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2011.
The consolidated results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012.
Impact of Recently Issued Accounting Pronouncements
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2012-2, which amends the Intangibles - Goodwill and Other Topic of the Accounting Standards Codification (ASC). The updated standard gives companies the option to perform a qualitative assessment to determine whether indefinite-lived intangible assets are impaired. If the qualitative analysis shows that it is not more likely than not that an indefinite-lived intangible asset is impaired, then the annual fair value calculation does not need to be performed. However, if it is more likely than not that an indefinite-lived intangible asset is impaired, then the annual fair value calculation still must be performed. ASU No. 2012-2 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company will consider performing the optional qualitative assessment as part of its 2012 indefinite-lived intangibles impairment test. It will not affect the Company’s results of operations, financial condition, liquidity or disclosures.
Effective January 1, 2012, the Company adopted ASU No. 2011-5 and 2011-12, which amend the Comprehensive Income Topic of the ASC. The updated guidance requires the components of income and other comprehensive income to be presented in a single continuous statement or two consecutive statements in annual periods. In interim periods, total comprehensive income must be presented in either a single continuous statement or two consecutive statements.
Dividends
DIVIDENDS
DIVIDENDS
Dividends paid on common stock during each of the first three quarters of 2012 and 2011 were $.390 per common share and $.365 per common share, respectively.
Comprehensive Income
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
Comprehensive income is summarized as follows:

(Thousands of dollars)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
234,953

 
$
179,877

 
$
562,982

 
$
427,308

Foreign currency translation adjustments
(11,699
)
 
(74,886
)
 
222

 
(47,998
)
Amortization of net prior service costs and net actuarial losses, net of taxes(1)
3,402

 
2,408

 
10,186

 
9,093

Adjustments of marketable equity securities, net of taxes(2)
235

 
(225
)
 
120

 
(633
)
Comprehensive income
$
226,891

 
$
107,174

 
$
573,510

 
$
387,770

 
(1) 
The tax effect of amortization of net prior service costs and net actuarial losses was $(3,024) and $(9,060) for the three and nine months ended September 30, 2012 and $(3,055) and $(9,016) for the three and nine months ended September 30, 2011.
(2) 
The tax effect of adjustments of marketable equity securities was $(150) and $(77) for the three and nine months ended September 30, 2012 and $144 and $404 for the three and nine months ended September 30, 2011.
Product Warranties
PRODUCT WARRANTIES
PRODUCT WARRANTIES
Changes in the Company’s accrual for product warranty claims during the first nine months of 2012 and 2011, including customer satisfaction settlements, were as follows:
 
(Thousands of dollars)
 
 
 
 
2012
 
2011
Balance at January 1
$
22,071

 
$
23,103

Charges to expense
18,646

 
23,177

Settlements
(19,101
)
 
(19,507
)
Balance at September 30
$
21,616

 
$
26,773


For further details on the Company’s accrual for product warranty claims, see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Exit or Disposal Activities
EXIT OR DISPOSAL ACTIVITIES
EXIT OR DISPOSAL ACTIVITIES
Liabilities associated with exit or disposal activities are recognized as incurred in accordance with the Exit or Disposal Cost Obligations Topic of the ASC. Qualified exit costs primarily include post-closure rent expenses, incremental post-closure costs and costs of employee terminations. Adjustments may be made to liabilities accrued for qualified exit costs if information becomes available upon which more accurate amounts can be reasonably estimated. Concurrently, property, plant and equipment is tested for impairment in accordance with the Property, Plant and Equipment Topic of the ASC, and if impairment exists, the carrying value of the related assets is reduced to estimated fair value. Additional impairment may be recorded for subsequent revisions in estimated fair value.
In the nine months ended September 30, 2012, seven stores in the Paint Stores Group, two branches and two facilities in the Global Finishes Group and five stores in the Latin America Coatings Group were closed due to lower demand or redundancy.
The following table summarizes the activity and remaining liabilities associated with qualified exit costs at September 30, 2012:
 
 
 
 
 
 
Actual
 
Adjustments to
 
 
(Thousands of dollars)
Balance at
 
Provisions in
 
expenditures
 
prior provisions
 
Balance at
 
December 31,
 
Cost of goods
 
charged to
 
in Other general
 
September 30,
Exit Plan
2011
 
sold or SG&A
 
accrual
 
expense—net
 
2012
Global Finishes Group facility shutdown in 2012:
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
$
3,399

 
 
 
 
 
$
3,399

Other qualified exit costs
 
 
3,343

 
 
 
 
 
3,343

Consumer Group manufacturing facilities shutdown in 2011:
 
 
 
 
 
 
 
 
 
Severance and related costs
$
197

 
 
 
$
(133
)
 
$
(64
)
 


Paint Stores Group stores shutdown in 2011:
 
 
 
 
 
 
 
 
 
Other qualified exit costs
156

 
 
 
(144
)
 
(12
)
 


Global Finishes Group branches shutdown in 2011:
 
 
 
 
 
 
 
 
 
Severance and related costs
129

 
 
 
(129
)
 
 
 

Other qualified exit costs
470

 
 
 
(140
)
 
 
 
330

Global Finishes Group branches shutdown in 2010:
 
 
 
 
 
 
 
 
 
Other qualified exit costs
955

 
 
 
(91
)
 
 
 
864

Other qualified exit costs for facilities shutdown prior to 2010
8,493

 
 
 
(1,737
)
 
(18
)
 
6,738

Totals
$
10,400

 
$
6,742

 
$
(2,374
)
 
$
(94
)
 
$
14,674


For further details on the Company’s exit or disposal activities, see Note 6 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Health Care, Pension and Other Benefits
HEALTH CARE, PENSION AND OTHER BENEFITS
HEALTH CARE, PENSION AND OTHER BENEFITS
Shown below are the components of the Company’s net periodic benefit cost for domestic defined benefit pension plans, foreign defined benefit pension plans and postretirement benefits other than pensions:
 
(Thousands of dollars)
Domestic Defined
Benefit Pension Plans
 
Foreign Defined
Benefit Pension Plans
 
Postretirement
Benefits Other than
Pensions
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Three Months Ended September 30:
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
4,732

 
$
4,007

 
$
892

 
$
918

 
$
736

 
$
873

Interest cost
4,330

 
4,707

 
1,725

 
1,061

 
3,380

 
3,895

Expected return on assets
(11,210
)
 
(11,610
)
 
(1,677
)
 
(662
)
 
 
 
 
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
398

 
408

 
 
 
 
 
(164
)
 
(164
)
Actuarial loss
5,486

 
4,876

 
251

 
215

 
429

 
626

Net periodic benefit cost
$
3,736

 
$
2,388

 
$
1,191

 
$
1,532

 
$
4,381

 
$
5,230

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30:
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
14,196

 
$
12,021

 
$
2,677

 
$
2,814

 
$
2,208

 
$
2,621

Interest cost
12,992

 
14,121

 
5,174

 
3,225

 
10,140

 
11,685

Expected return on assets
(33,631
)
 
(34,831
)
 
(5,031
)
 
(2,008
)
 
 
 
 
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
1,194

 
1,226

 
 
 
 
 
(492
)
 
(492
)
Actuarial loss
16,457

 
14,630

 
754

 
650

 
1,286

 
1,878

Net periodic benefit cost
$
11,208

 
$
7,167

 
$
3,574

 
$
4,681

 
$
13,142

 
$
15,692


For further details on the Company’s health care, pension and other benefits, see Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Other Long-term Liabilities
OTHER LONG-TERM LIABILITIES
OTHER LONG-TERM LIABILITIES
The Company initially provides for estimated costs of environmental-related activities relating to its past operations and third-party sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs are determined based on currently available facts regarding each site. If the best estimate of costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided. At September 30, 2012, the unaccrued maximum of the estimated range of possible outcomes is $97.7 million higher than the minimum.
The Company continuously assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Actual costs incurred may vary from these estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site.
Included in Other long-term liabilities at September 30, 2012 and 2011 were accruals for extended environmental-related activities of $80.8 million and $82.2 million, respectively. Estimated costs of current investigation and remediation activities of $42.8 million and $60.1 million are included in Other accruals at September 30, 2012 and 2011, respectively.
Four of the Company’s currently and formerly owned manufacturing sites account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at September 30, 2012. At September 30, 2012, $81.7 million, or 66.1 percent of the total accrual, related directly to these four sites. In the aggregate unaccrued maximum of $97.7 million at September 30, 2012, $66.7 million, or 68.3 percent, related to the four manufacturing sites. While environmental investigations and remedial actions are in different stages at these sites, additional investigations, remedial actions and monitoring will likely be required at each site.
Management cannot presently estimate the ultimate potential loss contingencies related to these sites or other less significant sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed. In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on net income for the annual or interim period during which the additional costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.
Management expects these contingent environmental-related liabilities to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indefinite amount of time to conduct investigation activities at any site, the indefinite amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indefinite amount of time necessary to conduct remediation activities.
For further details on the Company’s Other long-term liabilities, see Note 9 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Litigation
LITIGATION
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 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 is also a defendant in legal proceedings arising from the manufacture and sale of non-lead-based paints that seek recovery based upon various legal theories, including the failure to adequately warn of potential exposure to lead during surface preparation when using non-lead-based paint on surfaces previously painted with lead-based paint. The Company believes that the litigation brought to date is without merit or subject to meritorious defenses and is vigorously defending such litigation. The Company has not settled any lead pigment or lead-based paint litigation. The Company expects that additional lead pigment and lead-based paint litigation may be filed against the Company in the future asserting similar or different legal theories and seeking similar or different types of damages and relief.
Notwithstanding the Company’s views on the merits, litigation is inherently subject to many uncertainties, and the Company ultimately may not prevail. Adverse court rulings or determinations of liability, among other factors, could affect the lead pigment and lead-based paint litigation against the Company and encourage an increase in the number and nature of future claims and proceedings. In addition, from time to time, various legislation and administrative regulations have been enacted, promulgated or proposed to impose obligations on present and former manufacturers of lead pigments and lead-based paints respecting asserted health concerns associated with such products or to overturn the effect of court decisions in which the Company and other manufacturers have been successful.
Due to the uncertainties involved, management is unable to predict the outcome of the lead pigment and lead-based paint litigation, the number or nature of possible future claims and proceedings, or the effect that any legislation and/or administrative regulations may have on the litigation or against the Company. In addition, management cannot reasonably determine the scope or amount of the potential costs and liabilities related to such litigation, or resulting from any such legislation and regulations. The Company has not accrued any amounts for such litigation. With respect to such litigation, including the public nuisance litigation, the Company does not believe that it is probable that a loss has occurred, and it is not possible to estimate the range of potential losses as there is no prior history of a loss of this nature and there is no substantive information upon which an estimate could be based. In addition, any potential liability that may result from any changes to legislation and regulations cannot reasonably be estimated. In the event any significant liability is determined to be attributable to the Company relating to such litigation, the recording of the liability may result in a material impact on net income for the annual or interim period during which such liability is accrued. Additionally, due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to the Company arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition. An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made due to the aforementioned uncertainties.
Public nuisance claim litigation. The Company and other companies are or were defendants in legal proceedings seeking recovery based on public nuisance liability theories, among other theories, brought by the State of Rhode Island, the City of St. Louis, Missouri, various cities and counties in the State of New Jersey, various cities in the State of Ohio and the State of Ohio, the City of Chicago, Illinois, the City of Milwaukee, Wisconsin and the County of Santa Clara, California and other public entities in the State of California. Except for the Santa Clara County, California proceeding, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.
The proceedings initiated by the State of Rhode Island included two jury trials. At the conclusion of the second trial, the jury returned a verdict finding that (i) the cumulative presence of lead pigment in paints and coatings on buildings in the State of Rhode Island constitutes a public nuisance, (ii) the Company, along with two other defendants, caused or substantially contributed to the creation of the public nuisance, and (iii) the Company and two other defendants should be ordered to abate the public nuisance. The Company and two other defendants appealed and, on July 1, 2008, the Rhode Island Supreme Court, among other determinations, reversed the judgment of abatement with respect to the Company and two other defendants. The Rhode Island Supreme Court’s decision reversed the public nuisance liability judgment against the Company on the basis that the complaint failed to state a public nuisance claim as a matter of law.
The Santa Clara County, California proceeding was initiated in March 2000 in the Superior Court of the State of California, County of Santa Clara. In the original complaint, the plaintiffs asserted various claims including fraud and concealment, strict product liability/failure to warn, strict product liability/design defect, negligence, negligent breach of a special duty, public nuisance, private nuisance, and violations of California’s Business and Professions Code. A number of the asserted claims were resolved in favor of the defendants through pre-trial proceedings. The named plaintiffs in the Fourth Amended Complaint, filed on March 16, 2011, are the Counties of Santa Clara, Alameda, Los Angeles, Monterey, San Mateo, Solano and Ventura, and the Cities of Oakland, San Diego and San Francisco. The Fourth Amended Complaint asserts a sole claim for public nuisance, alleging that the presence of lead products for use in paint and coatings in, on and around buildings in the plaintiffs’ jurisdictions constitutes a public nuisance. The plaintiffs seek the abatement of the alleged public nuisance that exists within the plaintiffs’ jurisdictions.
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, claims for damages allegedly incurred by the children’s parents or guardians, and claims for damages allegedly incurred by professional painting contractors. These proceedings generally seek compensatory and punitive damages, and seek other relief including medical monitoring costs. These proceedings include purported claims by individuals, groups of individuals and class actions.
The plaintiff in Thomas v. Lead Industries Association, et al., initiated an action in state court against the Company, other alleged former lead pigment manufacturers and the Lead Industries Association in September 1999. The claims against the Company and the other defendants included strict liability, negligence, negligent misrepresentation and omissions, fraudulent misrepresentation and omissions, concert of action, civil conspiracy and enterprise liability. Implicit within these claims is the theory of “risk contribution” liability (Wisconsin’s theory which is similar to market share liability) 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., has been appealed by the plaintiff.
Insurance coverage litigation. The Company and its liability insurers, including certain Underwriters at Lloyd’s of London, initiated legal proceedings against each other to primarily determine, among other things, whether the costs and liabilities associated with the abatement of lead pigment are covered under certain insurance policies issued to the Company. The Company’s action, filed on March 3, 2006 in the Common Pleas Court, Cuyahoga County, Ohio, is currently stayed and inactive. The liability insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed. An ultimate loss in the insurance coverage litigation would mean that insurance proceeds could be unavailable under the policies at issue to mitigate any ultimate abatement related costs and liabilities. The Company has not recorded any assets related to these insurance policies or otherwise assumed that proceeds from these insurance policies would be received in estimating any contingent liability accrual. Therefore, an ultimate loss in the insurance coverage litigation without a determination of liability against the Company in the lead pigment or lead-based paint litigation will have no impact on the Company’s results of operation, liquidity or financial condition. As previously stated, however, the Company has not accrued any amounts for the lead pigment or lead-based paint litigation and any significant liability ultimately determined to be attributable to the Company relating to such litigation may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.
Department of Labor (DOL) Leveraged ESOP Investigation. As previously disclosed, the DOL’s investigation of transactions related to the Company’s ESOP (the “Leveraged ESOP Transactions”) remains open. On April 19, 2012, the Employee Benefits Security Administration of the DOL notified the Company, certain current and former directors and the ESOP trustee of potential enforcement claims asserting breaches of fiduciary obligations. The DOL is seeking compensatory and equitable remedies, including monetary damages to the ESOP for alleged losses to the ESOP. The Company believes that the DOL’s claims are subject to meritorious defenses and will vigorously defend any proceedings initiated by the DOL. The Company has not accrued any amounts for such claims.
Other
OTHER
OTHER
Other general expense - net
Included in Other general expense - net were the following:
(Thousands of dollars)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Provisions for environmental matters—net
$
528

 
$
2,694

 
$
9,621

 
$
7,344

Loss (gain) on disposition of assets
654

 
(1,094
)
 
(281
)
 
(5,493
)
Adjustments to prior provisions for qualified exit costs
(59
)
 


 
(94
)
 
223

Total
$
1,123

 
$
1,600

 
$
9,246

 
$
2,074


Provisions for environmental matters–net represent site-specific increases or decreases to environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. Environmental-related accruals are not recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC. See Note 8 for further details on the Company’s environmental-related activities.
The loss (gain) on disposition of assets represents net realized losses (gains) associated with the disposal of fixed assets previously used in the conduct of the primary business of the Company.
The adjustments to prior provisions for qualified exit costs represent site specific increases or decreases to accrued qualified exit costs as adjustments for costs of employee terminations are required or as information becomes available upon which more accurate amounts can be reasonably estimated. See Note 6 for further details on the Company’s exit or disposal activities.
Other (income) expense - net
Included in Other (income) expense - net were the following:
 
(Thousands of dollars)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Dividend and royalty income
$
(1,433
)
 
$
(1,067
)
 
$
(3,534
)
 
$
(4,052
)
Net expense from financing activities
2,347

 
1,932

 
6,368

 
5,881

Foreign currency related (gains) losses
(2,604
)
 
8,971

 
(6,308
)
 
11,890

Other income
(3,629
)
 
(5,877
)
 
(12,109
)
 
(14,213
)
Other expense
2,129

 
2,673

 
7,302

 
7,117

Total
$
(3,190
)
 
$
6,632

 
$
(8,281
)
 
$
6,623


The net expense from financing activities includes the net expense relating to the change in the Company’s financing fees.
Foreign currency related (gains) losses included foreign currency transaction gains and losses and realized and unrealized net gains from foreign currency option and forward contracts. The Company had foreign currency option and forward contracts outstanding at September 30, 2012 and 2011. All of the outstanding contracts had maturity dates of less than twelve months and were undesignated hedges with changes in fair value being recognized in earnings in accordance with the Derivatives and Hedging Topic of the ASC. These derivative instrument values were included in either Other current assets or Other accruals and were insignificant at September 30, 2012 and 2011.
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 the other income or other expense caption that were individually significant.
Income Taxes
INCOME TAXES
INCOME TAXES
The effective tax rate was 31.5 percent and 30.8 percent for the third quarter and first nine months of 2012, respectively, compared to 30.9 percent and 30.2 percent for the third quarter and first nine months of 2011, respectively.
At December 31, 2011, the Company had $29.7 million in unrecognized tax benefits, the recognition of which would have an effect of $25.6 million on the current provision for income taxes. At September 30, 2012, the amounts were reduced to $24.1 million and $21.0 million, respectively. Included in the balance of unrecognized tax benefits at December 31, 2011, was $7.8 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. At September 30, 2012, this amount was reduced to $4.3 million. The above reductions in unrecognized tax benefits during the first nine months of 2012 were primarily due to the expiration of the statutes related to the 2006 and 2007 federal income tax years as well as the recognition of the related state income tax benefits. The above recognition of income tax benefits had a favorable impact on the Company’s effective tax rate for the third quarter and first nine months of 2012.
The Company classifies all income tax related interest and penalties as income tax expense. At December 31, 2011, the Company had accrued $8.1 million for the potential payment of income tax interest and penalties. This amount was reduced to $6.4 million at September 30, 2012 primarily due to the expiration of the 2006 and 2007 federal statutes noted above.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As disclosed in Note 15 in the Company’s 2011 Annual Report on Form 10-K, the Company has fully resolved all IRS issues for the 2003 through 2009 tax years relating to the matters challenging the ESOP related federal income tax deductions claimed by the Company. With the exception of $2.0 million of interest related to the 2008 tax year, all ESOP related settlement payments have been made to the IRS. The Department of Labor’s investigation of the Leveraged ESOP Transactions remains open. Refer to Note 9 for more information. The IRS commenced an examination of the Company’s U.S. income tax returns for the 2008 and 2009 tax years in the third quarter of 2011. Field work is expected to be completed during 2012. At this time, the Company has determined that an insignificant refund is due for issues under review during this audit period.
As of September 30, 2012, the Company is subject to non-U.S. income tax examinations for the tax years of 2004 through 2011. In addition, the Company is subject to state and local income tax examinations for the tax years 2002 through 2011.
Net Income Per Common Share
NET INCOME PER COMMON SHARE
NET INCOME PER COMMON SHARE
(Thousands of dollars except per share data)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Basic
 
 
 
 
 
 
 
Average common shares outstanding
101,525,658

 
102,151,164

 
101,680,883

 
103,939,552

 
 
 
 
 
 
 
 
Net income
$
234,953

 
$
179,877

 
$
562,982

 
$
427,308

Less net income allocated to unvested restricted shares
(1,965
)
 
(2,102
)
 
(4,654
)
 
(4,810
)
Net income allocated to common shares
$
232,988

 
$
177,775

 
$
558,328

 
$
422,498

Basic net income per common share
$
2.29

 
$
1.74

 
$
5.49

 
$
4.06

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Average common shares outstanding
101,525,658

 
102,151,164

 
101,680,883

 
103,939,552

Stock options and other contingently issuable shares (1)
2,493,662

 
1,972,108

 
2,287,241

 
2,221,992

Average common shares outstanding assuming dilution
104,019,320

 
104,123,272

 
103,968,124

 
106,161,544

 
 
 
 
 
 
 
 
Net income
$
234,953

 
$
179,877

 
$
562,982

 
$
427,308

Less net income allocated to unvested restricted shares
 
 
 
 
 
 
 
assuming dilution
(1,922
)
 
(2,070
)
 
(4,555
)
 
(4,736
)
Net income allocated to common shares assuming
 
 
 
 
 
 
 
dilution
$
233,031

 
$
177,807

 
$
558,427

 
$
422,572

Diluted net income per common share
$
2.24

 
$
1.71

 
$
5.37

 
$
3.98

 
(1) 
Stock options and other contingently issuable shares excluded 10,924 shares for the nine months ended September 30, 2012 due to their anti-dilutive effect. There were no options excluded due to their anti-dilutive effect for the three months ended September 30, 2012. Stock options and other contingently issuable shares excluded 101,480 shares for the three and nine months ended September 30, 2011 due to their anti-dilutive effect.
The Company has two classes of participating securities: common shares and restricted shares, representing 99% and 1% of outstanding shares, respectively. The restricted shares are shares of unvested restricted stock granted under the Company’s restricted stock award program. Unvested restricted shares granted prior to April 21, 2010 received non-forfeitable dividends. Accordingly, the shares are considered a participating security and the two-class method of calculating basic and diluted earnings per share is required. Effective April 21, 2010, the restricted stock award program was revised and dividends on performance-based restricted shares granted after this date are deferred and payment is contingent upon the awards vesting. Only the time-based restricted shares, which continue to receive non-forfeitable dividends, are considered a participating security. Basic and diluted earnings per share are calculated using the two-class method in accordance with the Earnings Per Share Topic of the ASC.
Reportable Segment Information
REPORTABLE SEGMENT INFORMATION
REPORTABLE SEGMENT INFORMATION
The Company reports segment information in the same way that management internally organizes its business for assessing performance and making decisions regarding allocation of resources in accordance with the Segment Disclosures Topic of the ASC. The Company has determined that it has four reportable segments: Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group (collectively, the “Reportable Segments”).

(Thousands of dollars)
Three Months Ended September 30, 2012
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
1,553,461

 
$
348,001

 
$
491,816

 
$
208,726

 
$
1,222

 
$
2,603,226

Intersegment transfers
 
 
644,400

 
853

 
13,686

 
(658,939
)
 
 
Total net sales and intersegment transfers
$
1,553,461

 
$
992,401

 
$
492,669

 
$
222,412

 
$
(657,717
)
 
$
2,603,226

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
300,563

 
$
57,054

(1) 
$
36,415

 
$
21,931

 
 
 
$
415,963

Interest expense
 
 
 
 
 
 
 
 
$
(10,358
)
 
(10,358
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(62,607
)
 
(62,607
)
Income before income taxes
$
300,563

 
$
57,054

 
$
36,415

 
$
21,931

 
$
(72,965
)
 
$
342,998

 
Three Months Ended September 30, 2011
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
1,417,765

 
$
351,579

 
$
497,023

 
$
217,328

 
$
1,225

 
$
2,484,920

Intersegment transfers
 
 
615,307

 
2,326

 
11,083

 
(628,716
)
 
 
Total net sales and intersegment transfers
$
1,417,765

 
$
966,886

 
$
499,349

 
$
228,411

 
$
(627,491
)
 
$
2,484,920

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
236,886

 
$
41,022

(1) 
$
27,569

 
$
15,939

 
 
 
$
321,416

Interest expense
 
 
 
 
 
 
 
 
$
(10,452
)
 
(10,452
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(50,688
)
 
(50,688
)
Income before income taxes
$
236,886

 
$
41,022

 
$
27,569

 
$
15,939

 
$
(61,140
)
 
$
260,276


(1) Segment profit includes $6,908 and $6,446 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the third quarter of 2012 and 2011, respectively.
 
Nine Months Ended September 30, 2012
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings 
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
4,164,648

 
$
1,066,123

 
$
1,473,584

 
$
604,600

 
$
3,637

 
$
7,312,592

Intersegment transfers
 
 
1,803,175

 
5,118

 
36,310

 
(1,844,603
)
 
 
Total net sales and intersegment transfers
$
4,164,648

 
$
2,869,298

 
$
1,478,702

 
$
640,910

 
$
(1,840,966
)
 
$
7,312,592

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
680,257

 
$
193,117

(2) 
$
113,084

 
$
51,099

 
 
 
$
1,037,557

Interest expense
 
 
 
 
 
 
 
 
$
(30,925
)
 
(30,925
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(193,516
)
 
(193,516
)
Income before income taxes
$
680,257

 
$
193,117

 
$
113,084

 
$
51,099

 
$
(224,441
)
 
$
813,116


 
Nine Months Ended September 30, 2011
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings 
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
3,646,079

 
$
1,022,143

 
$
1,415,035

 
$
608,353

 
$
3,647

 
$
6,695,257

Intersegment transfers
 
 
1,609,877

 
5,696

 
29,060

 
(1,644,633
)
 
 
Total net sales and intersegment transfers
$
3,646,079

 
$
2,632,020

 
$
1,420,731

 
$
637,413

 
$
(1,640,986
)
 
$
6,695,257

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
512,374

 
$
143,484

(2) 
$
77,256

 
$
49,132

 
 
 
$
782,246

Interest expense
 
 
 
 
 
 
 
 
$
(32,874
)
 
(32,874
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(137,367
)
 
(137,367
)
Income before income taxes
$
512,374

 
$
143,484

 
$
77,256

 
$
49,132

 
$
(170,241
)
 
$
612,005


(2) Segment profit includes $21,552 and $18,255 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the first nine months of 2012 and 2011, respectively.
In the reportable segment financial information, Segment profit was total net sales and intersegment transfers less operating costs and expenses. Domestic intersegment transfers were accounted for at the approximate fully absorbed manufactured cost, based on normal capacity volumes, plus customary distribution costs. International intersegment transfers were accounted for at values comparable to normal unaffiliated customer sales. The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site. Also included in the Administrative segment was interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which were not directly associated with the Reportable Segments. The Administrative segment did not include any significant foreign operations. Also included in the Administrative segment was a real estate management unit that is responsible for the ownership, management and leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities. Sales of this segment represented external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its primary businesses. Gains and losses from the sale of property were not a significant operating factor in determining the performance of the Administrative segment.
Net external sales and segment profit of all consolidated foreign subsidiaries were $497.6 million and $37.7 million, respectively, for the third quarter of 2012, and $513.8 million and $22.0 million, respectively, for the third quarter of 2011. Net external sales and segment profit of these subsidiaries were $1.49 billion and $105.0 million, respectively, for the first nine months of 2012, and $1.49 billion and $83.8 million, respectively, for the first nine months of 2011. Long-lived assets of these subsidiaries totaled $648.8 million and $648.2 million at September 30, 2012 and September 30, 2011, respectively. Domestic operations accounted for the remaining net external sales, segment profits and long-lived assets. No single geographic area outside the United States was significant relative to consolidated net external sales, income before taxes, or consolidated long-lived assets.
Export sales and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all periods presented.
Acquisitions
ACQUISITIONS
ACQUISITIONS
Effective June 1, 2012, the Company acquired Geocel Corporation. Geocel manufactures innovative caulks, sealants, and adhesives specially designed for tough construction and repair applications in commercial, residential, industrial and transport non-automotive markets. Geocel has operations in both the United States and United Kingdom. The acquisition strengthens the Consumer Group’s sealant and adhesive market position. The acquisition resulted in the recognition of goodwill and intangible assets.
The Company acquired a controlling interest in Leighs Paints in July 2011 and the remaining interest in December 2011. Headquartered in Bolton, United Kingdom, Leighs Paints is one of the leading industrial fire protection coatings manufacturers in the world, with a growing global platform driven by technology innovation and quality products. The acquisition strengthens the Global Finishes Group’s growing global platform. The acquisition resulted in the recognition of goodwill and intangible assets.
The following unaudited pro-forma summary presents consolidated financial information as if Geocel and Leighs Paints had been acquired as of the beginning of each period presented. The pro-forma consolidated financial information does not necessarily reflect the actual results that would have occurred had the acquisitions taken place on January 1, 2011 or of future results of operations of Geocel and Leighs Paints under ownership and operation of the Company.
 
(Thousands of dollars except per share data)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Net sales
$
2,620,207

 
$
2,520,423

 
$
7,347,190

 
$
6,775,294

Net income
235,763

 
182,012

 
565,529

 
429,575

Net income per common share:
 
 
 
 
 
 
 
Basic
$
2.30

 
$
1.76

 
$
5.52

 
$
4.09

Diluted
$
2.25

 
$
1.73

 
$
5.40

 
$
4.00

Fair Value Measurements
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS
The Fair Value Measurements and Disclosures Topic of the ASC applies to the Company’s financial and non-financial assets and liabilities. The guidance applies when other standards require or permit the fair value measurement of assets and liabilities. It does not expand the use of fair value measurements. The Company did not have any fair value measurements for its non-financial assets and liabilities during the third quarter. The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis, categorized using the fair value hierarchy:
 
(Thousands of dollars)
 
 
 
 
 
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
in Active
 
 
 
Significant
 
Fair Value at
 
Markets for
 
Significant Other
 
Unobservable
 
September 30,
 
Identical Assets
 
Observable Inputs
 
Inputs
 
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Deferred compensation plan asset (1)
$
19,728

 
$
14,870

 
$
4,858

 

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan liability (2)
$
28,024

 
$
28,024

 

 

 
(1) 
The deferred compensation plan asset consists of the investment funds maintained for the future payments under the Company’s executive deferred compensation plan, which is structured as a rabbi trust. The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC. The level 1 investments are valued using quoted market prices multiplied by the number of shares. The level 2 investments are valued based on vendor or broker models. The cost basis of the investment funds is $19,469.

(2) 
The deferred compensation plan liability is the Company’s liability under its executive deferred compensation plan. The liability represents the fair value of the participant shadow accounts, and the value is based on quoted market prices.
Debt
FINANCIAL INSTRUMENTS
DEBT
The table below summarizes the carrying amount and fair value of the Company’s publicly traded debt and non-publicly traded debt in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. The fair values of the Company’s publicly traded debt are based on quoted market prices. The fair values of the Company’s non-traded debt are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The Company’s publicly traded debt and non-traded debt are classified as level 1 and level 2, respectively, in the fair value hierarchy.
(Thousands of dollars)
September 30, 2012
 
September 30, 2011
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Publicly traded debt
$
632,460

 
$
693,681

 
$
632,412

 
$
689,775

Non-traded debt
6,824

 
6,607

 
18,929

 
18,222


On January 30, 2012, the Company entered into a five-year credit agreement, which was amended on February 6, 2012, February 13, 2012 and February 27, 2012. This credit agreement gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit of up to an aggregate availability of $500 million.

On April 23, 2012, the Company entered into a new five-year credit agreement, which was amended on April 25, 2012 and May 7, 2012. This 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 $250 million.
On June 29, 2012, Sherwin-Williams Canada, Inc., a wholly owned subsidiary of the Company, entered into a CAD 75 million five-year revolving credit facility. The credit facility replaced the existing three-year credit facility, and will be used for general corporate purposes, including refinancing indebtedness and for acquisitions.
On September 19, 2012, Sherwin-Williams Luxembourg S.à.r.l., a wholly owned subsidiary of the Company, entered into a €95 million five-year revolving credit facility. The credit facility replaced the existing three-year credit facility, and will be used for general corporate purposes, including refinancing indebtedness.
Non-Traded Investments
NON-TRADED INVESTMENTS
NON-TRADED INVESTMENTS
The Company has invested in the U.S. affordable housing and historic renovation real estate markets. These non-traded investments have been identified as variable interest entities. However, because the Company does not have the power to direct the day-to-day operations of the investments and the risk of loss is limited to the amount of contributed capital, the Company is not considered the primary beneficiary. In accordance with the Consolidation Topic of the ASC, the investments are not consolidated. The Company uses the effective yield method to determine the carrying value of the investments. Under the effective yield method, the initial cost of the investments is amortized over the period that the tax credits are recognized. The carrying amount of the investments, included in Other assets, was $257.6 million and $219.3 million at September 30, 2012 and 2011, respectively. The liability for estimated future capital contributions to the investments was $224.0 million and $173.3 million at September 30, 2012 and 2011, respectively.
Capital Stock
CAPITAL STOCK
CAPITAL STOCK
On March 31, 2011, the Company retired all of its 125.4 million shares of common stock held in treasury at that date, which decreased Treasury stock, Common stock and Retained earnings by $4.5 billion, $0.1 billion and $4.4 billion, respectively.
Impact of Recently Issued Accounting Pronouncements (Policies)
New Accounting Pronouncements, Policy [Policy Text Block]
Effective January 1, 2012, the Company adopted ASU No. 2011-5 and 2011-12, which amend the Comprehensive Income Topic of the ASC. The updated guidance requires the components of income and other comprehensive income to be presented in a single continuous statement or two consecutive statements in annual periods. In interim periods, total comprehensive income must be presented in either a single continuous statement or two consecutive statements.
Comprehensive Income (Tables)
Comprehensive income
Comprehensive income is summarized as follows:

(Thousands of dollars)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
234,953

 
$
179,877

 
$
562,982

 
$
427,308

Foreign currency translation adjustments
(11,699
)
 
(74,886
)
 
222

 
(47,998
)
Amortization of net prior service costs and net actuarial losses, net of taxes(1)
3,402

 
2,408

 
10,186

 
9,093

Adjustments of marketable equity securities, net of taxes(2)
235

 
(225
)
 
120

 
(633
)
Comprehensive income
$
226,891

 
$
107,174

 
$
573,510

 
$
387,770

 
(1) 
The tax effect of amortization of net prior service costs and net actuarial losses was $(3,024) and $(9,060) for the three and nine months ended September 30, 2012 and $(3,055) and $(9,016) for the three and nine months ended September 30, 2011.
(2) 
The tax effect of adjustments of marketable equity securities was $(150) and $(77) for the three and nine months ended September 30, 2012 and $144 and $404 for the three and nine months ended September 30, 2011.
Product Warranties (Tables)
Company's accrual for product warranty claims
Changes in the Company’s accrual for product warranty claims during the first nine months of 2012 and 2011, including customer satisfaction settlements, were as follows:
 
(Thousands of dollars)
 
 
 
 
2012
 
2011
Balance at January 1
$
22,071

 
$
23,103

Charges to expense
18,646

 
23,177

Settlements
(19,101
)
 
(19,507
)
Balance at September 30
$
21,616

 
$
26,773

Exit or Disposal Activities (Tables)
Summary of activity and remaining liabilities associated with qualified exit costs
The following table summarizes the activity and remaining liabilities associated with qualified exit costs at September 30, 2012:
 
 
 
 
 
 
Actual
 
Adjustments to
 
 
(Thousands of dollars)
Balance at
 
Provisions in
 
expenditures
 
prior provisions
 
Balance at
 
December 31,
 
Cost of goods
 
charged to
 
in Other general
 
September 30,
Exit Plan
2011
 
sold or SG&A
 
accrual
 
expense—net
 
2012
Global Finishes Group facility shutdown in 2012:
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
$
3,399

 
 
 
 
 
$
3,399

Other qualified exit costs
 
 
3,343

 
 
 
 
 
3,343

Consumer Group manufacturing facilities shutdown in 2011:
 
 
 
 
 
 
 
 
 
Severance and related costs
$
197

 
 
 
$
(133
)
 
$
(64
)
 


Paint Stores Group stores shutdown in 2011:
 
 
 
 
 
 
 
 
 
Other qualified exit costs
156

 
 
 
(144
)
 
(12
)
 


Global Finishes Group branches shutdown in 2011:
 
 
 
 
 
 
 
 
 
Severance and related costs
129

 
 
 
(129
)
 
 
 

Other qualified exit costs
470

 
 
 
(140
)
 
 
 
330

Global Finishes Group branches shutdown in 2010:
 
 
 
 
 
 
 
 
 
Other qualified exit costs
955

 
 
 
(91
)
 
 
 
864

Other qualified exit costs for facilities shutdown prior to 2010
8,493

 
 
 
(1,737
)
 
(18
)
 
6,738

Totals
$
10,400

 
$
6,742

 
$
(2,374
)
 
$
(94
)
 
$
14,674

Health Care, Pension and Other Benefits (Tables)
Components of net periodic benefit costs for pension and other employee benefit plans
Shown below are the components of the Company’s net periodic benefit cost for domestic defined benefit pension plans, foreign defined benefit pension plans and postretirement benefits other than pensions:
 
(Thousands of dollars)
Domestic Defined
Benefit Pension Plans
 
Foreign Defined
Benefit Pension Plans
 
Postretirement
Benefits Other than
Pensions
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Three Months Ended September 30:
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
4,732

 
$
4,007

 
$
892

 
$
918

 
$
736

 
$
873

Interest cost
4,330

 
4,707

 
1,725

 
1,061

 
3,380

 
3,895

Expected return on assets
(11,210
)
 
(11,610
)
 
(1,677
)
 
(662
)
 
 
 
 
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
398

 
408

 
 
 
 
 
(164
)
 
(164
)
Actuarial loss
5,486

 
4,876

 
251

 
215

 
429

 
626

Net periodic benefit cost
$
3,736

 
$
2,388

 
$
1,191

 
$
1,532

 
$
4,381

 
$
5,230

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30:
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
14,196

 
$
12,021

 
$
2,677

 
$
2,814

 
$
2,208

 
$
2,621

Interest cost
12,992

 
14,121

 
5,174

 
3,225

 
10,140

 
11,685

Expected return on assets
(33,631
)
 
(34,831
)
 
(5,031
)
 
(2,008
)
 
 
 
 
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
1,194

 
1,226

 
 
 
 
 
(492
)
 
(492
)
Actuarial loss
16,457

 
14,630

 
754

 
650

 
1,286

 
1,878

Net periodic benefit cost
$
11,208

 
$
7,167

 
$
3,574

 
$
4,681

 
$
13,142

 
$
15,692

Other (Tables)
Other general expense (income) - net 
Included in Other general expense - net were the following:
(Thousands of dollars)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Provisions for environmental matters—net
$
528

 
$
2,694

 
$
9,621

 
$
7,344

Loss (gain) on disposition of assets
654

 
(1,094
)
 
(281
)
 
(5,493
)
Adjustments to prior provisions for qualified exit costs
(59
)
 


 
(94
)
 
223

Total
$
1,123

 
$
1,600

 
$
9,246

 
$
2,074

Other income - net 
Included in Other (income) expense - net were the following:
 
(Thousands of dollars)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Dividend and royalty income
$
(1,433
)
 
$
(1,067
)
 
$
(3,534
)
 
$
(4,052
)
Net expense from financing activities
2,347

 
1,932

 
6,368

 
5,881

Foreign currency related (gains) losses
(2,604
)
 
8,971

 
(6,308
)
 
11,890

Other income
(3,629
)
 
(5,877
)
 
(12,109
)
 
(14,213
)
Other expense
2,129

 
2,673

 
7,302

 
7,117

Total
$
(3,190
)
 
$
6,632

 
$
(8,281
)
 
$
6,623

Net Income Per Common Share (Tables)
Computation of net income per common share
(Thousands of dollars except per share data)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Basic
 
 
 
 
 
 
 
Average common shares outstanding
101,525,658

 
102,151,164

 
101,680,883

 
103,939,552

 
 
 
 
 
 
 
 
Net income
$
234,953

 
$
179,877

 
$
562,982

 
$
427,308

Less net income allocated to unvested restricted shares
(1,965
)
 
(2,102
)
 
(4,654
)
 
(4,810
)
Net income allocated to common shares
$
232,988

 
$
177,775

 
$
558,328

 
$
422,498

Basic net income per common share
$
2.29

 
$
1.74

 
$
5.49

 
$
4.06

 
 
 
 
 
 
 
 
Diluted
 
 
 
 
 
 
 
Average common shares outstanding
101,525,658

 
102,151,164

 
101,680,883

 
103,939,552

Stock options and other contingently issuable shares (1)
2,493,662

 
1,972,108

 
2,287,241

 
2,221,992

Average common shares outstanding assuming dilution
104,019,320

 
104,123,272

 
103,968,124

 
106,161,544

 
 
 
 
 
 
 
 
Net income
$
234,953

 
$
179,877

 
$
562,982

 
$
427,308

Less net income allocated to unvested restricted shares
 
 
 
 
 
 
 
assuming dilution
(1,922
)
 
(2,070
)
 
(4,555
)
 
(4,736
)
Net income allocated to common shares assuming
 
 
 
 
 
 
 
dilution
$
233,031

 
$
177,807

 
$
558,427

 
$
422,572

Diluted net income per common share
$
2.24

 
$
1.71

 
$
5.37

 
$
3.98

 
(1) 
Stock options and other contingently issuable shares excluded 10,924 shares for the nine months ended September 30, 2012 due to their anti-dilutive effect. There were no options excluded due to their anti-dilutive effect for the three months ended September 30, 2012. Stock options and other contingently issuable shares excluded 101,480 shares for the three and nine months ended September 30, 2011 due to their anti-dilutive effect.
Reportable Segment Information (Tables)
Reportable segment information
(Thousands of dollars)
Three Months Ended September 30, 2012
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
1,553,461

 
$
348,001

 
$
491,816

 
$
208,726

 
$
1,222

 
$
2,603,226

Intersegment transfers
 
 
644,400

 
853

 
13,686

 
(658,939
)
 
 
Total net sales and intersegment transfers
$
1,553,461

 
$
992,401

 
$
492,669

 
$
222,412

 
$
(657,717
)
 
$
2,603,226

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
300,563

 
$
57,054

(1) 
$
36,415

 
$
21,931

 
 
 
$
415,963

Interest expense
 
 
 
 
 
 
 
 
$
(10,358
)
 
(10,358
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(62,607
)
 
(62,607
)
Income before income taxes
$
300,563

 
$
57,054

 
$
36,415

 
$
21,931

 
$
(72,965
)
 
$
342,998

 
Three Months Ended September 30, 2011
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
1,417,765

 
$
351,579

 
$
497,023

 
$
217,328

 
$
1,225

 
$
2,484,920

Intersegment transfers
 
 
615,307

 
2,326

 
11,083

 
(628,716
)
 
 
Total net sales and intersegment transfers
$
1,417,765

 
$
966,886

 
$
499,349

 
$
228,411

 
$
(627,491
)
 
$
2,484,920

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
236,886

 
$
41,022

(1) 
$
27,569

 
$
15,939

 
 
 
$
321,416

Interest expense
 
 
 
 
 
 
 
 
$
(10,452
)
 
(10,452
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(50,688
)
 
(50,688
)
Income before income taxes
$
236,886

 
$
41,022

 
$
27,569

 
$
15,939

 
$
(61,140
)
 
$
260,276


(1) Segment profit includes $6,908 and $6,446 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the third quarter of 2012 and 2011, respectively.
 
Nine Months Ended September 30, 2012
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings 
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
4,164,648

 
$
1,066,123

 
$
1,473,584

 
$
604,600

 
$
3,637

 
$
7,312,592

Intersegment transfers
 
 
1,803,175

 
5,118

 
36,310

 
(1,844,603
)
 
 
Total net sales and intersegment transfers
$
4,164,648

 
$
2,869,298

 
$
1,478,702

 
$
640,910

 
$
(1,840,966
)
 
$
7,312,592

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
680,257

 
$
193,117

(2) 
$
113,084

 
$
51,099

 
 
 
$
1,037,557

Interest expense
 
 
 
 
 
 
 
 
$
(30,925
)
 
(30,925
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(193,516
)
 
(193,516
)
Income before income taxes
$
680,257

 
$
193,117

 
$
113,084

 
$
51,099

 
$
(224,441
)
 
$
813,116


 
Nine Months Ended September 30, 2011
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings 
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
3,646,079

 
$
1,022,143

 
$
1,415,035

 
$
608,353

 
$
3,647

 
$
6,695,257

Intersegment transfers
 
 
1,609,877

 
5,696

 
29,060

 
(1,644,633
)
 
 
Total net sales and intersegment transfers
$
3,646,079

 
$
2,632,020

 
$
1,420,731

 
$
637,413

 
$
(1,640,986
)
 
$
6,695,257

 
 
 
 
 
 
 
 
 
 
 
 
Segment profit
$
512,374

 
$
143,484

(2) 
$
77,256

 
$
49,132

 
 
 
$
782,246

Interest expense
 
 
 
 
 
 
 
 
$
(32,874
)
 
(32,874
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(137,367
)
 
(137,367
)
Income before income taxes
$
512,374

 
$
143,484

 
$
77,256

 
$
49,132

 
$
(170,241
)
 
$
612,005


(2) Segment profit includes $21,552 and $18,255 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the first nine months of 2012 and 2011, respectively.
Acquisitions (Tables)
Summary of pro-forma consolidated financial information
(Thousands of dollars except per share data)
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Net sales
$
2,620,207

 
$
2,520,423

 
$
7,347,190

 
$
6,775,294

Net income
235,763

 
182,012

 
565,529

 
429,575

Net income per common share:
 
 
 
 
 
 
 
Basic
$
2.30

 
$
1.76

 
$
5.52

 
$
4.09

Diluted
$
2.25

 
$
1.73

 
$
5.40

 
$
4.00

Fair Value Measurements (Tables)
Financial assets and liabilities measured at fair value on a recurring basis
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis, categorized using the fair value hierarchy:
 
(Thousands of dollars)
 
 
 
 
 
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
in Active
 
 
 
Significant
 
Fair Value at
 
Markets for
 
Significant Other
 
Unobservable
 
September 30,
 
Identical Assets
 
Observable Inputs
 
Inputs
 
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
Deferred compensation plan asset (1)
$
19,728

 
$
14,870

 
$
4,858

 

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan liability (2)
$
28,024

 
$
28,024

 

 

 
(1) 
The deferred compensation plan asset consists of the investment funds maintained for the future payments under the Company’s executive deferred compensation plan, which is structured as a rabbi trust. The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC. The level 1 investments are valued using quoted market prices multiplied by the number of shares. The level 2 investments are valued based on vendor or broker models. The cost basis of the investment funds is $19,469.

(2) 
The deferred compensation plan liability is the Company’s liability under its executive deferred compensation plan. The liability represents the fair value of the participant shadow accounts, and the value is based on quoted market prices.
Debt (Tables)
Carrying amount and fair value of debt
(Thousands of dollars)
September 30, 2012
 
September 30, 2011
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Publicly traded debt
$
632,460

 
$
693,681

 
$
632,412

 
$
689,775

Non-traded debt
6,824

 
6,607

 
18,929

 
18,222

Dividends (Details)
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Dividends [Abstract]
 
 
Dividends paid per common share
$ 0.390 
$ 0.365 
Comprehensive Income (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
 
 
 
 
Net income
$ 234,953 
$ 179,877 
$ 562,982 
$ 427,308 
Foreign currency translation adjustments
(11,699)
(74,886)
222 
(47,998)
Amortization of net prior service costs and net actuarial losses, net of taxes
3,402 1
2,408 1
10,186 1
9,093 1
Adjustments of marketable equity securities, net of taxes
235 2
(225)2
120 2
(633)2
Comprehensive income
226,891 
107,174 
573,510 
387,770 
Comprehensive income (Textual) [Abstract]
 
 
 
 
Tax effect of amortization of net prior service costs and net actuarial losses
(3,024)
(3,055)
(9,060)
(9,016)
Tax effect of adjustments of marketable equity securities
$ (150)
$ 144 
$ (77)
$ 404 
Product Warranties (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Company's accrual for product warranty claims
 
 
Balance at January 1
$ 22,071 
$ 23,103 
Charges to expense
18,646 
23,177 
Settlements
(19,101)
(19,507)
Balance at September 30
$ 21,616 
$ 26,773 
Exit or Disposal Activities (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
$ 10,400 
 
Provisions in Cost of Goods Sold or SG&A
 
 
6,742 
 
Costs incurred for qualified exit costs
 
 
(2,374)
(5,090)
Adjustments to prior provisions in Other general expense - net
(59)
   
(94)
223 
Ending Balance at September 30, 2012
14,674 
 
14,674 
 
Facilities Shutdown Prior to 2010 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
8,493 
 
Costs incurred for qualified exit costs
 
 
(1,737)
 
Adjustments to prior provisions in Other general expense - net
 
 
(18)
 
Ending Balance at September 30, 2012
6,738 
 
6,738 
 
Paint Stores Group [Member]
 
 
 
 
Exit or Disposal Activities (Textual) [Abstract]
 
 
 
 
Branches closed
 
 
7 
 
Global Finishes Group [Member]
 
 
 
 
Exit or Disposal Activities (Textual) [Abstract]
 
 
 
 
Branches closed
 
 
2 
 
Facility closed
 
 
2 
 
Latin America Coatings Group [Member]
 
 
 
 
Exit or Disposal Activities (Textual) [Abstract]
 
 
 
 
Branches closed
 
 
5 
 
Severance and related costs [Member] |
Global Finishes Group [Member] |
Facility Shutdown in 2012 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Provisions in Cost of Goods Sold or SG&A
 
 
3,399 
 
Ending Balance at September 30, 2012
3,399 
 
3,399 
 
Severance and related costs [Member] |
Global Finishes Group [Member] |
Branches Shutdown in 2011 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
129 
 
Costs incurred for qualified exit costs
 
 
(129)
 
Ending Balance at September 30, 2012
   
 
   
 
Severance and related costs [Member] |
Consumer Group [Member] |
Manufacturing facilities shutdown in 2011[Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
197 
 
Costs incurred for qualified exit costs
 
 
(133)
 
Adjustments to prior provisions in Other general expense - net
 
 
(64)
 
Ending Balance at September 30, 2012
   
 
   
 
Other qualified exit costs [Member] |
Paint Stores Group [Member] |
Branches Shutdown in 2011 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
156 
 
Costs incurred for qualified exit costs
 
 
(144)
 
Adjustments to prior provisions in Other general expense - net
 
 
(12)
 
Ending Balance at September 30, 2012
   
 
   
 
Other qualified exit costs [Member] |
Global Finishes Group [Member] |
Facility Shutdown in 2012 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Provisions in Cost of Goods Sold or SG&A
 
 
3,343 
 
Ending Balance at September 30, 2012
3,343 
 
3,343 
 
Other qualified exit costs [Member] |
Global Finishes Group [Member] |
Branches Shutdown in 2011 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
470 
 
Costs incurred for qualified exit costs
 
 
(140)
 
Ending Balance at September 30, 2012
330 
 
330 
 
Other qualified exit costs [Member] |
Global Finishes Group [Member] |
Branches Shutdown in 2010 [Member]
 
 
 
 
Summary of activity and remaining liabilities associated with qualified exit costs
 
 
 
 
Beginning Balance, at December 31, 2011
 
 
955 
 
Costs incurred for qualified exit costs
 
 
(91)
 
Ending Balance at September 30, 2012
$ 864 
 
$ 864 
 
Health Care, Pension and Other Benefits (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Domestic Defined Benefit Pension Plans [Member]
 
 
 
 
Net periodic benefit cost:
 
 
 
 
Service cost
$ 4,732 
$ 4,007 
$ 14,196 
$ 12,021 
Interest cost
4,330 
4,707 
12,992 
14,121 
Expected return on assets
(11,210)
(11,610)
(33,631)
(34,831)
Amortization of:
 
 
 
 
Prior service cost (credit)
398 
408 
1,194 
1,226 
Actuarial loss
5,486 
4,876 
16,457 
14,630 
Net periodic benefit cost
3,736 
2,388 
11,208 
7,167 
Foreign Defined Benefit Pension Plans [Member]
 
 
 
 
Net periodic benefit cost:
 
 
 
 
Service cost
892 
918 
2,677 
2,814 
Interest cost
1,725 
1,061 
5,174 
3,225 
Expected return on assets
(1,677)
(662)
(5,031)
(2,008)
Amortization of:
 
 
 
 
Actuarial loss
251 
215 
754 
650 
Net periodic benefit cost
1,191 
1,532 
3,574 
4,681 
Postretirement Benefits Other than Pensions [Member]
 
 
 
 
Net periodic benefit cost:
 
 
 
 
Service cost
736 
873 
2,208 
2,621 
Interest cost
3,380 
3,895 
10,140 
11,685 
Amortization of:
 
 
 
 
Prior service cost (credit)
(164)
(164)
(492)
(492)
Actuarial loss
429 
626 
1,286 
1,878 
Net periodic benefit cost
$ 4,381 
$ 5,230 
$ 13,142 
$ 15,692 
Other Long-Term Liabilities (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
ManufacturingSites
Sep. 30, 2011
Other Long-Term Liabilities (Textual) [Abstract]
 
 
Amount by which unaccrued maximum of estimated range exceeds minimum
$ 97.7 
 
Accruals for extended environmental-related activities
80.8 
82.2 
Estimated costs of current investigation and remediation activities included in Other accruals
42.8 
60.1 
Number of manufacturing sites accounting for the majority of the accrual for environmental-related activities
4 
 
Accruals for environmental-related activities of four sites
81.7 
 
Percentage of accrual for environmental-related activities related to four sites
66.10% 
 
Amount of unaccrued maximum related to four sites
$ 66.7 
 
Percentage of aggregate unaccrued maximum related to four sites
68.30% 
 
Other (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Other general expense (income) - net
 
 
 
 
Provisions for environmental matters - net
$ 528 
$ 2,694 
$ 9,621 
$ 7,344 
Loss (gain) on disposition of assets
654 
(1,094)
(281)
(5,493)
Adjustments to prior provisions for qualified exit costs
(59)
   
(94)
223 
Total
1,123 
1,600 
9,246 
2,074 
Other income - net
 
 
 
 
Dividend and royalty income
(1,433)
(1,067)
(3,534)
(4,052)
Net expense from financing activities
2,347 
1,932 
6,368 
5,881 
Foreign currency related (gains) losses
(2,604)
8,971 
(6,308)
11,890 
Other income
(3,629)
(5,877)
(12,109)
(14,213)
Other expense
2,129 
2,673 
7,302 
7,117 
Total
$ (3,190)
$ 6,632 
$ (8,281)
$ 6,623 
Income Taxes (Details Textual) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Income Taxes (Textual) [Abstract]
 
 
 
 
 
Effective tax rate
31.50% 
30.90% 
30.80% 
30.20% 
 
Unrecognized tax benefits
$ 24.1 
 
$ 24.1 
 
$ 29.7 
Unrecognized tax benefits adjusted
21.0 
 
21.0 
 
25.6 
Amount of unrecognized tax benefits where significant change is reasonably possible
4.3 
 
4.3 
 
7.8 
Accrued income tax interest and penalties
6.4 
 
6.4 
 
8.1 
Interest related to 2008 tax year due to ESOP settlement
 
 
$ 2.0 
 
 
Net Income Per Common Share (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
ParticipatingSecurities
Sep. 30, 2011
Basic
 
 
 
 
Average common shares outstanding (in shares)
101,525,658 
102,151,164 
101,680,883 
103,939,552 
Net income
$ 234,953 
$ 179,877 
$ 562,982 
$ 427,308 
Less net income allocated to unvested restricted shares
(1,965)
(2,102)
(4,654)
(4,810)
Net income allocated to common shares
232,988 
177,775 
558,328 
422,498 
Basic net income per common share (in dollars per share)
$ 2.29 
$ 1.74 
$ 5.49 
$ 4.06 
Diluted
 
 
 
 
Average common shares outstanding (in shares)
101,525,658 
102,151,164 
101,680,883 
103,939,552 
Stock options and other contingently issuable shares (in shares)
2,493,662 1
1,972,108 1
2,287,241 1
2,221,992 1
Average common shares outstanding assuming dilution (in shares)
104,019,320 
104,123,272 
103,968,124 
106,161,544 
Net income
234,953 
179,877 
562,982 
427,308 
Less net income allocated to unvested restricted shares assuming dilution
(1,922)
(2,070)
(4,555)
(4,736)
Net income allocated to common shares assuming dilution
$ 233,031 
$ 177,807 
$ 558,427 
$ 422,572 
Diluted net income per common share (in dollars per share)
$ 2.24 
$ 1.71 
$ 5.37 
$ 3.98 
Average common shares outstanding, anti-dilutive
0 
101,480 
10,924 
101,480 
Classes of participating securities
 
 
2 
 
Percent common shares representing outstanding shares
99.00% 
 
99.00% 
 
Percent restricted shares representing outstanding shares
1.00% 
 
1.00% 
 
Reportable Segment Information (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Reportable segment information
 
 
 
 
Income before income taxes
$ 342,998 
$ 260,276 
$ 813,116 
$ 612,005 
Paint Stores Group [Member]
 
 
 
 
Reportable segment information
 
 
 
 
Net external sales
1,553,461 
1,417,765 
4,164,648 
3,646,079 
Total net sales and intersegment transfers
1,553,461 
1,417,765 
4,164,648 
3,646,079 
Segment profit
300,563 
236,886 
680,257 
512,374 
Income before income taxes
300,563 
236,886 
680,257 
512,374 
Consumer Group [Member]
 
 
 
 
Reportable segment information
 
 
 
 
Net external sales
348,001 
351,579 
1,066,123 
1,022,143 
Intersegment transfers
644,400 
615,307 
1,803,175 
1,609,877 
Total net sales and intersegment transfers
992,401 
966,886 
2,869,298 
2,632,020 
Segment profit
57,054 1
41,022 1
193,117 2
143,484 2
Income before income taxes
57,054 
41,022 
193,117 
143,484 
Reportable Segment Information (Textual) [Abstract]
 
 
 
 
Mark Up on Intersegment Transfers Realized as Result of External Sales Included in Segment Profit
6,908 
6,446 
21,552 
18,255 
Global Finishes Group [Member]
 
 
 
 
Reportable segment information
 
 
 
 
Net external sales
491,816 
497,023 
1,473,584 
1,415,035 
Intersegment transfers
853 
2,326 
5,118 
5,696 
Total net sales and intersegment transfers
492,669 
499,349 
1,478,702 
1,420,731 
Segment profit
36,415 
27,569 
113,084 
77,256 
Income before income taxes
36,415 
27,569 
113,084 
77,256 
Latin America Coatings Group [Member]
 
 
 
 
Reportable segment information
 
 
 
 
Net external sales
208,726 
217,328 
604,600 
608,353 
Intersegment transfers
13,686 
11,083 
36,310 
29,060 
Total net sales and intersegment transfers
222,412 
228,411 
640,910 
637,413 
Segment profit
21,931 
15,939 
51,099 
49,132 
Income before income taxes
21,931 
15,939 
51,099 
49,132 
Administrative [Member]
 
 
 
 
Reportable segment information
 
 
 
 
Net external sales
1,222 
1,225 
3,637 
3,647 
Intersegment transfers
(658,939)
(628,716)
(1,844,603)
(1,644,633)
Total net sales and intersegment transfers
(657,717)
(627,491)
(1,840,966)
(1,640,986)
Interest expense
(10,358)
(10,452)
(30,925)
(32,874)
Administrative expenses and other
(62,607)
(50,688)
(193,516)
(137,367)
Income before income taxes
(72,965)
(61,140)
(224,441)
(170,241)
Consolidated Totals [Member]
 
 
 
 
Reportable segment information
 
 
 
 
Net external sales
2,603,226 
2,484,920 
7,312,592 
6,695,257 
Total net sales and intersegment transfers
2,603,226 
2,484,920 
7,312,592 
6,695,257 
Segment profit
415,963 
321,416 
1,037,557 
782,246 
Interest expense
(10,358)
(10,452)
(30,925)
(32,874)
Administrative expenses and other
(62,607)
(50,688)
(193,516)
(137,367)
Income before income taxes
$ 342,998 
$ 260,276 
$ 813,116 
$ 612,005 
[1] Segment profit includes $6,908 and $6,446 of mark-up on intersegment transfers realized as a result of external sales by the Paint Stores Group during the third quarter of 2012 and 2011, respectively. Nine Months Ended September 30, 2012 Paint StoresGroup ConsumerGroup GlobalFinishesGroup Latin AmericaCoatings Group Administrative ConsolidatedTotalsNet external sales$4,164,648 $1,066,123 $1,473,584 $604,600 $3,637 $7,312,592Intersegment transfers 1,803,175 5,118 36,310 (1,844,603) Total net sales and intersegment transfers$4,164,648 $2,869,298 $1,478,702 $640,910 $(1,840,966) $7,312,592 Segment profit$680,257 $193,117(2) $113,084 $51,099 $1,037,557Interest expense $(30,925) (30,925)Administrative expenses and other (193,516) (193,516)Income before income taxes$680,257 $193,117 $113,084 $51,099 $(224,441) $813,116
Reportable Segment Information (Details Textual) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Reportable Segment Information (Additional Textual) [Abstract]
 
 
 
 
Export sales and sales to individual customer
 
 
less than 10 percent of consolidated sales to unaffiliated customers 
 
Consolidated Totals [Member]
 
 
 
 
Reportable Segment Information (Textual) [Abstract]
 
 
 
 
Net external sales
$ 497.6 
$ 513.8 
$ 1,490.0 
$ 1,490.0 
Segment profit
37.7 
22.0 
105.0 
83.8 
Long-lived assets
$ 648.8 
$ 648.2 
$ 648.8 
$ 648.2 
Acquisitions (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Summary of pro-forma consolidated financial information
 
 
 
 
Net sales
$ 2,620,207 
$ 2,520,423 
$ 7,347,190 
$ 6,775,294 
Net income
$ 235,763 
$ 182,012 
$ 565,529 
$ 429,575 
Net income per common share:
 
 
 
 
Basic
$ 2.30 
$ 1.76 
$ 5.52 
$ 4.09 
Diluted
$ 2.25 
$ 1.73 
$ 5.40 
$ 4.00 
Fair Value Measurements (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Assets:
 
Deferred compensation plan asset
$ 19,728 1
Liabilities:
 
Deferred compensation plan liability
28,024 2
Fair Value Measurements (Textual) [Abstract]
 
Cost basis of the investment funds
19,469 
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
 
Assets:
 
Deferred compensation plan asset
14,870 1
Liabilities:
 
Deferred compensation plan liability
28,024 2
Significant Other Observable Inputs (Level 2) [Member]
 
Assets:
 
Deferred compensation plan asset
4,858 1
Liabilities:
 
Deferred compensation plan liability
   2
Significant Unobservable Inputs (Level 3) [Member]
 
Assets:
 
Deferred compensation plan asset
   1
Liabilities:
 
Deferred compensation plan liability
   2
Debt (Details)
Apr. 23, 2012
Five year senior unsecured revolving credit agreement [Member]
USD ($)
Jan. 30, 2012
Five year senior unsecured revolving credit agreement [Member]
USD ($)
Sep. 30, 2012
Publicly Traded Debt [Member]
USD ($)
Sep. 30, 2011
Publicly Traded Debt [Member]
USD ($)
Sep. 30, 2012
Non-Traded Debt [Member]
USD ($)
Sep. 30, 2011
Non-Traded Debt [Member]
USD ($)
Jun. 29, 2012
Sherwin-Williams Canada, Inc. [Member]
Five year senior unsecured revolving credit agreement [Member]
CAD ($)
Sep. 19, 2012
Sherwin-Williams Luxembourg S.ŕ.r.l. [Member]
Five year senior unsecured revolving credit agreement [Member]
EUR (€)
Financial Instruments
 
 
 
 
 
 
 
 
Carrying Amount
 
 
$ 632,460,000 
$ 632,412,000 
$ 6,824,000 
$ 18,929,000 
 
 
Fair Value
 
 
693,681,000 
689,775,000 
6,607,000 
18,222,000 
 
 
Financial Instruments (Textual) [Abstract]
 
 
 
 
 
 
 
 
New credit agreements
$ 250,000,000 
$ 500,000,000 
 
 
 
 
$ 75,000,000 
€ 95,000,000 
Non-Traded Investments (Details Textual) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Sep. 30, 2011
Non Traded Investments (Textual) [Abstract]
 
 
Carrying amount of the investments, included in other assets
$ 257.6 
$ 219.3 
Liability for estimated future capital contributions to the investments
$ 224.0 
$ 173.3 
Capital Stock (Details) (USD $)
In Billions, except Share data in Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2011
Capital Stock (Textual) [Abstract]
 
Shares of common stock in treasury retired by the Company
125.4 
Decreases in Treasury stock
$ 4.5 
Decrease in Common stock due to retirement of treasury stock
0.1 
Decrease in Retained earnings due to retirement of treasury stock
$ 4.4