Solutions
in Full Color
2 0 2 0 A N N U A L R E P O R T
The Sherwin-Williams Company
was founded by Henry Sherwin and Edward
Williams in 1866. Today, we are a global
leader in the manufacture, development,
distribution and sale of paint, coatings and
related products to professional, industrial,
commercial and retail customers.
Financial Highlights
(millions of dollars, except per share data)
Net sales
Net income (1)
Diluted net income per share (2)
Cash dividends per share
Average shares outstanding – diluted (thousands)
Return on sales
Return on assets
Return on equity (3)
Total debt to capitalization
Interest coverage (4)
2020
2019
2018
$ 18,361.7
$ 17,900.8
$ 17,534.5
$ 2,030.4
$ 1,541.3
$ 1,108.7
$
$
22.08
5.36
91,943
11.1%
10.0%
49.2%
69.7%
8.4x
$
$
16.49
4.52
93,447
8.6%
7.5%
41.3%
67.8%
6.7x
$
$
11.67
3.44
94,988
6.3%
5.8%
30.4%
71.5%
4.7x
Net Sales
millions of dollars
Net Income(1)
millions of dollars
Diluted Net Income
Per Share(2)
Net Operating Cash
millions of dollars
5
.
4
3
5
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7
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$
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4
5
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$
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8
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$
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2
$
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6
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$
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19
20
18
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18
19
20
18
19
20
(1) 2020 includes after-tax acquisition-related amortization expense of $230.0 million. 2019 includes after-tax acquisition-related costs of $299.6 million, after-tax trademark impairment charges of $93.1 million, tax credit
investment loss of $74.3 million and after-tax pension settlement expense of $25.0 million, partially offset by an after-tax Brazil indirect tax credit of $33.3 million and an after-tax benefit from the resolution of the California
litigation of $26.1 million. 2018 includes after-tax acquisition-related costs of $394.4 million, after-tax environmental expense provisions of $126.1 million, after-tax California litigation expense of $103.4 million and after-tax
pension settlement expense of $28.3 million.
(2) 2020 includes charges of $2.50 per share for acquisition-related amortization expense. 2019 includes charges of $3.21 per share for acquisition-related costs, $1.00 per share for non-cash trademark impairment charges, a
tax credit investment loss of $0.79 per share and pension plan settlement expense of $0.27 per share, partially offset by a Brazil indirect tax credit of $0.36 per share and a benefit from the resolution of the California litigation of
$0.28 per share. 2018 includes charges of $4.15 per share for acquisition-related costs, $1.32 per share for environmental expense provisions, $1.09 per share for California litigation expense and $0.30 per share for pension
settlement expense.
(3) Based on net income and shareholders’ equity at beginning of year.
(4) Ratio of income before income taxes and interest expense to interest expense.
top to bottom: David B. Sewell, President and Chief Operating Officer;
John G. Morikis, Chairman and Chief Executive Officer;
Allen J. Mistysyn, Senior Vice President - Finance and Chief Financial Officer
Letter to
Shareholders
The Sherwin-Williams Company delivered record performance in 2020.
While none of us anticipated the severity of the year’s challenges,
our people responded as they always do when facing adversity –
with extraordinary effort, determination and resiliency.
My deepest appreciation and respect go to all 61,000
Specific financial highlights from the year include:
members of our incredible global team. As the pandemic
• Sales increased $460.9 million, or 2.6%, to a record
unfolded, we never wavered. As pressures mounted, we
$18.36 billion.
stood together. As others retreated, we leaned forward.
• Gross margin improved 240 basis points to 47.3%.
We prioritized each other’s safety and well-being, served
• EBITDA increased 18.4% to $3.44 billion, or 18.7%
our customers when they needed us most, delivered
of sales.
record results for our shareholders and gave back to the
• GAAP diluted net income per share increased 33.9%
communities where we live and work. We also continued to
position ourselves for ongoing success in all areas of our
to a record $22.08 per share. Adjusted diluted
net income per share(2) increased 16.4% to $24.58
strategy: customer focus, innovation, value-added service
per share.
and differentiated distribution.
• Net operating cash increased $1.09 billion to a record
Our 2020 financial results demonstrate the strength
$3.41 billion, or 18.6% of sales.
of our team, our business model and our solutions-based
• Return on Sales, or net income divided by sales,
approach to meeting customer needs. We generated
increased to 11.1% from 8.6%.
record sales despite the impacts of COVID-19. Cash
• Return on Assets increased to 10% from 7.5%.
from operations, net income and net income per diluted
• We returned approximately $2.93 billion to
share also were records and increased by double-digit
our shareholders in the form of dividends and
percentages over 2019.
share buybacks, an increase of 145% over the prior
year. We also reduced debt by $400 million and
invested $303.8 million in our business through
capital expenditures.
1
Segment Performance
Backed by our Global Supply Chain, all reportable segments
contributed to the Company’s outstanding 2020 performance.
The Americas Group delivered another record year as
net sales increased 2.1% to $10.38 billion, segment profit
grew 11.6% to $2.29 billion, and segment margin expanded
190 basis points to 22.1% of sales. Favorable customer and
product mix and raw material procurement benefits primarily
drove the profit improvement. These results are especially
remarkable given the impact of COVID-19, most notably
in our second quarter, where sales were down by a high-
single-digit percentage in what is traditionally the start of the
painting season. Our ability to adapt and respond to rapidly
changing customer needs drove our success. Same-store
sales in our U.S. and Canada paint stores grew 2.7%. The
largest percentage increase in sales was in the do-it-yourself
(DIY) segment, where stay-at-home mandates drove a surge
in home improvement projects. Sales in the professional
residential repaint and new residential segments also were
strong. Demand was softer in the commercial, property
management and protective and marine segments. Across
the Group, we continued to make strategic investments in
new stores, innovation, services, e-business and people.
Like The Americas Group, Consumer Brands Group
delivered record results in 2020 as net sales increased
14.1% to $3.05 billion, segment profit grew 55.3% to
$579.6 million, and segment margin grew to 19% of sales.
Excluding acquisition-related amortization expense of
$90.5 million, segment profit grew to $670.1 million, or 21.9%
of sales. Our ability to meet unprecedented demand with our
retail partners in the DIY segment drove our performance.
The strength and flexibility of our Global Supply Chain
remained a differentiator during the year, as we repeatedly
Our 2020 financial results
demonstrate the strength of our team,
our business model and our solutions-based
approach to meeting customer needs.
pivoted to serve our customers, including rapidly
expanding our single-gallon DIY can filling capacity. While
the higher-volume sales were the largest driver of the Group’s
improved profitability, favorable product mix, raw material
procurement benefits and actions taken over the past year to
improve our international operating margins also contributed
to our performance.
Performance Coatings Group overcame pandemic-
related challenges to return to growth in the second half of
the year and deliver improved full-year profitability. While net
sales decreased 2.5% to $4.92 billion, segment profit grew to
$500.1 million, and segment margin expanded 270 basis
points to 10.2% of sales. The improvement was primarily due
to the recognition of $117.0 million of impairment charges
in the prior year related to recently acquired trademarks,
raw material procurement benefits, good cost control and
favorable currency translation rate changes. Excluding
acquisition-related amortization expense of $213.1 million,
segment profit grew to $713.2 million, or 14.5% of sales.
The pandemic’s impact on end market demand varied
widely across this Group’s diverse businesses. The
Packaging and Coil divisions were the Group’s best
performers and delivered strong top-line growth for the
year. Full-year sales decreased in the Automotive, General
Industrial and Industrial Wood divisions, as COVID-related
impacts on first-half demand offset second-half momentum.
We made significant progress across the business in
gaining new accounts, commercializing products, employing
digital tools, rationalizing SKUs and optimizing our
manufacturing footprint.
2
Sustainability
We continued to move forward on our sustainability
journey in 2020. Working with a leading global provider
of sustainability services, we completed a robust
materiality assessment to identify, prioritize and validate
the Company’s most significant Environmental, Social and
Governance (ESG) topics. These topics include Product
Stewardship, Life Cycle Assessment, Talent Acquisition
& Employee Engagement, Climate & Environmental
Footprint, and Occupational Health & Safety. Embedded
within these topics is our ongoing commitment to Business
Ethics, Financial Performance, Innovation and Corporate
Culture. Based on the assessment, we are developing our
next set of goals and we plan to publish these in our 2020
Sustainability Report later this year.
We continued to move forward on our
sustainability journey in 2020.
In many ways, the assessment also validated that we
have been on the right track all along. We’ve long followed
rigorous principles regarding the safe use of chemicals in
our product formulations and manufacturing processes. We
address the potential impacts of our products throughout
their life cycle. We are leaders in meeting stringent
environmental and life cycle standards such as USGBC®
LEED® and UL GREENGUARD. And we continue to grow
with a wide array of sustainable products.
Regarding our environmental footprint, we’ve focused
on reducing electricity consumption and CO2 emissions,
treating and disposing waste, and reducing and recycling
materials. We have numerous ISO Standard 14001-
certified sites.
Safety remains our top priority, with an emphasis on
reducing recordable case rates. We have a growing number
of facilities recognized under the Occupational Safety
and Health Administration’s Voluntary Protection Program
domestically and the Occupational Health and Safety
Assessment Series’ 18001 designation internationally.
In support of our people and achieving Company goals,
we continue to implement programs to drive awareness,
inclusion, engagement and accountability. These include
CEO Forums on Inclusion, conscious inclusion training,
strategic partnerships to build a diverse pipeline of talent
and employee resource groups.
Our Comprehensive
Response to
COVID-19
Employees:
• Provided enhanced paid sick/
family leave and other benefits.
•
Implemented premium pay for
select front-line employees.
•
Implemented remote and flexible
working arrangements.
• Enhanced employee and visitor screening protocols.
• Moved to a curbside pickup model to safely serve
our customers.
Customers:
• Provided essential products to create and maintain
clean living environments.
• Supplied critical coatings to producers of ventilators,
oxygen tanks, hospital bed frames and other health
care equipment.
• Delivered performance coatings for food &
beverage packaging, water treatment and energy
infrastructure applications.
• Launched enhanced digital tools and provided virtual
technical and production support.
• Directed small business owners to relief programs
and resources.
Communities:
• Donated hundreds of thousands of masks, gloves and
other personal protective equipment.
• Manufactured and donated hand sanitizer to hospitals
across the United States.
• Provided hundreds of donations from our local paint
stores to local first responders.
• Provided financial support to the Cleveland COVID-19
Rapid Response Fund.
Visit https://covid-19-update.sherwin-williams.com
for the full story.
3
Our team enters 2021 moving forward
aggressively with optimism, momentum
and commitment.
We’re also focused on supporting the communities
where we live and work through The Sherwin-Williams
Foundation and extensive employee involvement. Our
community response to COVID-19 is highlighted elsewhere
in this report. Other examples of giving back include our
nationally recognized HomeWork Program, which provides
professional painter training for low-income housing
residents, job placement assistance and EPA Renovate,
Repair & Painting (RRP) Certification instruction.
We encourage you to learn more about our efforts
by visiting sustainability.sherwin-williams.com.
Outlook
The trials of the past year have made us a stronger
company. They provided us with opportunities to further
differentiate ourselves in the marketplace and to strengthen
our relationships with our customers.
Our team enters 2021 moving forward aggressively
with optimism, momentum and commitment. We expect to
generate solid full-year growth in consolidated net sales
and earnings while executing on initiatives that will drive
sustained long-term success.
By design, our Company is well-positioned to take
advantage of any number of demand scenarios. Last year,
we demonstrated our ability to meet the unprecedented
surge in DIY architectural paint demand as several other
customer segments lagged. In 2021, we see an operating
environment with very solid North American new residential
and residential repaint demand. The trajectory of recovery
in commercial and property maintenance is likely to be
choppy, and comparisons in DIY will be challenging.
We anticipate industrial demand will continue to improve
as the year progresses. The impact of variables such
as the availability and effectiveness of COVID vaccines,
the new U.S. administration and proposed stimulus and
infrastructure spending are hard to gauge at this point.
That said, our team is skilled at adapting to any number of
conditions, and we have many opportunities to grow share
in all of our businesses. We’ll continue to target growing at a
As we did in 2020, we’ll continue making investments
across the enterprise to enhance our capabilities. These
investments include new stores and sales reps, capacity
and productivity improvements, systems, product innovation
and our digital platform. We also expect to drive continuous
improvement throughout our supply chain.
We will remain disciplined in our capital allocation
approach, focused on driving value for our customers and
returns for our shareholders. Core capital expenditures will
remain modest in 2021, at approximately 1.9% of sales.
Additionally, we’ll invest in our previously announced new
global headquarters and R&D center project. After more
than 90 years in our current location, we’re excited to create
a next-generation workplace that supports serving our
customers at the highest level, retains and attracts top talent
and ignites creativity, collaboration and industry-leading
innovation. Early in 2021, our Board of Directors approved a
23.1% increase in our quarterly dividend, along with a three-
for-one stock split in the form of a stock dividend to make the
stock more accessible to employees and a broader base of
investors. We also will continue pursuing acquisitions that fit
our strategy, and we expect to use any excess cash to make
open market purchases of Company stock. We exited the
year with a debt-to-EBITDA ratio of 2.4 times, and we have no
significant long-term debt due until 2022.
I close this year’s letter as I began it – by thanking the
wonderful employees of Sherwin-Williams. While we reflect on
the remarkable accomplishments of the past year, I am even
more excited by what is ahead. Together, we have clarity of
mission. We have a winning culture built on trust, respect,
execution and inclusion. We have the products, services and
solutions to provide our customers with the Right Experience
every day. In so many ways, I truly believe we are just getting
started!
I am also grateful to be surrounded by an outstanding
Board of Directors. Their continued partnership, guidance
and support remain invaluable.
Finally, I offer my sincere thanks to you, our shareholders,
for your continued trust and confidence in us. We expect
to thrive in 2021 and in the years to come. We hope you
and your families remain safe and healthy during these
unprecedented times.
rate that outpaces the market through customer-driven
solutions based on innovation, value-added service
Sincerely,
and differentiated distribution.
4
John G. Morikis
Chairman and Chief Executive Officer
Shareholder
Returns
Comparison of Cumulative Five-Year Total Return
$300
$250
$200
$150
$100
2015
2016
2017
2018
2019
2020
Sherwin-Williams Co.
S&P 500 Index
2020 Peer Group
2019 Peer Group
Dividends Per Share
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
20
Stock Repurchase (millions of shares)
8.00
6.00
4.00
2.00
0.00
2011
2012
2013
2014
2015
2016*
2017*
2018
2019
2020
* No open market purchases in 2016 and 2017
105.7
103.9
103.0
98.7
94.5
94.5
94.9
95.0
93.4
91.9
Average Common Shares Outstanding (fully diluted, in millions)
Five-Year Return
The stock performance graph at left assumes
$100 was invested on December 31, 2015 in
Sherwin-Williams common stock, the S&P 500
and the peer groups of companies selected
on a line-of-business basis. The cumulative
five-year total return, including reinvestment
of dividends, represents the cumulative value
through December 31, 2020. For 2019,
Sherwin-Williams utilized a self-selected
peer group of 12 companies (the “2019 Peer
Group”). For 2020, Sherwin-Williams revised its
prior-year peer group to reflect the acquisition
of one of its selected peers and the addition of
a new peer, maintaining a total of 12 companies
(“2020 Peer Group”). The graph presents the
total return performance for both of the Peer
Group indices.
2020 peer group of companies comprised of the following: Akzo Nobel
N.V., Axalta Coating Systems Ltd., BASF SE, Genuine Parts Company,
H.B. Fuller Company, The Home Depot, Inc., Lowe’s Companies, Inc.,
Masco Corporation, Newell Brands Inc., PPG Industries, Inc., RPM
International Inc. and Stanley Black & Decker, Inc.
The 2019 Peer Group consisted of the following companies: Akzo Nobel
N.V., BASF SE, Genuine Parts Company, H.B. Fuller Company, The
Home Depot, Inc., Lowe’s Companies, Inc., Masco Corporation, Newell
Brands Inc., PPG Industries, Inc., RPM International Inc., Stanley Black
& Decker, Inc. and USG Corporation. For the 2020 Peer Group, we
deleted USG Corporation and added Axalta Coating Systems Ltd.
Returning Cash to Shareholders
We have consistently returned a portion
of our cash generated from operations to
shareholders through cash dividends and
share repurchases. In 2020, the Company
increased its cash dividend 18.5% to $5.36
per share, marking the 42nd consecutive year
we increased our dividend.
Share repurchases are also an efficient way
of returning cash to shareholders in that they
return sellers’ investment at market value
and maximize the value of the remaining
shares outstanding. In 2020, we purchased
3.9 million shares on the open market while
also reducing debt by $400 million. We
temporarily suspended share repurchases in
2016 and 2017, using cash to reduce total
borrowings required to finance the Valspar
transaction in 2016 and reducing debt by
$1 billion in 2017.
5
At a
Glance
21
branches &
facilities
243
paint stores
4
facilities
CANADA
46
facilities
4,148
paint stores
230
branches &
facilities
UNITED
STATES
2
facilities
85
paint stores
CARIBBEAN
LATIN AMERICA /
SOUTH AMERICA
30
branches &
facilities
298
paint stores
18
facilities
The Americas Group operates the exclusive outlets
for Sherwin-Williams® branded paints, stains, supplies,
equipment and floor covering in the United States,
Canada and the Caribbean. The Group also manufactures
and sells architectural paints, industrial coatings and
related products in Latin America through Company
stores, dedicated dealers and selected retailers.
PRODUCTS SOLD: Paints, stains, aerosols, applicators, caulks,
varnishes, protective and marine coatings, spray equipment and
related products in the United States, Canada, the Caribbean and Latin
America. Wall covering and floor covering in the United States, Canada
and the Caribbean. OEM product finishes in Latin America
CUSTOMERS SERVED: Professional painting contractors, home
builders, property maintenance, healthcare, hospitality, architects,
interior designers, do-it-yourselfers, industrial, marine, flooring and
original equipment manufacturer (OEM) product finishers
SELECTED BRANDS: Sherwin-Williams®, Cashmere®, Colorgin®,
Duration®, Emerald®, Harmony®, Kem Tone®, Loxon®, Metalatex®,
Novacor®, Paint Shield®, ProClassic®, ProIndustrial™, ProMar®,
SuperDeck®, SuperPaint®, Woodscapes®
OUTLETS: 4,476 Sherwin-Williams paint stores in the United States,
Canada and the Caribbean, and 298 in Brazil, Chile, Ecuador, Mexico
and Uruguay. Dedicated dealers, home centers, distributors and
hardware stores in Argentina, Brazil, Chile, Ecuador, Mexico and
Uruguay. Licensee in El Salvador serves Central America
6
7
facilities
39
branches &
facilities
EMEAI
ASIA-PACIFIC
7
branches &
facilities
9
facilities
The Americas Group
Consumer Brands Group
Performance Coatings Group
Corporate headquarters
5
facilities
AUSTRALIA/
NEW ZEALAND
96
paint stores
Consumer Brands Group sells one of the
industry’s most recognized portfolios of branded
and private-label products through retailers across
North America and in parts of Europe, China,
Australia and New Zealand. The Group also
operates a highly efficient global supply chain for
paint, coatings and related products.
PRODUCTS SOLD: Branded, private-label and licensed brand paints,
stains, varnishes, industrial products, wood finishing products, wood
preservatives, applicators, corrosion inhibitors, aerosols, caulks and
adhesives, and related products
CUSTOMERS SERVED: Do-it-yourselfers, professional painting
contractors, industrial maintenance and flooring contractors
SELECTED BRANDS: Cabot®, Duckback®, Dupli-Color®, Dutch
Boy®, Geocel®, HGTV HOME® by Sherwin-Williams, Huarun®, Krylon®,
Minwax®, Pratt & Lambert®, Purdy®, Ronseal®, Solver®, Thompson’s®
WaterSeal®, Valspar®, Wattyl®, White Lightning®
OUTLETS: Over 10,000 points of distribution with leading mass
merchandisers, home centers, independent paint dealers, hardware
stores, craft stores, fine art stores, automotive retailers and industrial
distributors in the United States, Canada, Poland, United Kingdom,
China, Australia and New Zealand
Performance Coatings Group sells a broad
range of coatings and finishing solutions to general
industrial, industrial wood, protective and marine,
automotive refinish, packaging and coil & extrusion
customers in more than 120 countries.
PRODUCTS SOLD: Asset protection products, wood finishes, powder
coatings, coatings for plastic and glass, aerosols, high-performance interior
and exterior coatings for the automotive, aviation, fleet, packaging, heavy
truck, material handling, agriculture and construction, and building products
segments
CUSTOMERS SERVED: Commercial construction, industrial maintenance,
protective and marine, military, heavy equipment, appliances, electronics,
building products, furniture, cabinetry and flooring, architects and specifiers,
bridge & highway, water & waste water treatment, collision repair facilities,
dealerships, auto interior, fleet owners, auto refinishers, production shops,
metal packaging and manufacturers
SELECTED BRANDS: Sherwin-Williams®, Acrolon®, AcromaPro®, ATX®,
AWX Performance Plus™, DeBeer®, Dimension®, Duraspar®, EcoDex®,
Envirolastic®, Euronavy®, Excelo®, EzDex®, Fastline®, Firetex®, Fluropon®,
Heat-Flex®, House of Kolor®, Huarun®, Kem Aqua®, Lazzuril®, Macropoxy®,
Martin Senour®, ML Campbell®, Perma-Clad®, Planet Color®, Polane®,
Powdura®, Sayerlack®, Sher-Wood®, Sumaré®, Ultra™, ValPure®, Valspar®
OUTLETS: 327 Company-operated branches and facilities serving
automotive, general industrial, industrial wood and coil customers in the
United States, Australia, Belarus, Belgium, Brazil, Canada, Chile, China,
Czech Republic, Denmark, Finland, France, Germany, India, Indonesia,
Ireland, Italy, Lithuania, Malaysia, Mexico, Norway, Peru, Poland, Portugal,
Romania, Russia, Singapore, Spain, Sweden, Thailand, Ukraine, United
Kingdom and Vietnam. Distribution in 44 other countries
7
57%
of Total Company Sales
Innovative products remained at the core of our
customer solutions. We launched 22 new products in
2020, the 10th consecutive year of double-digit product
introductions. Emerald® Designer EditionTM paint offers our
best hiding formula and provides a smooth and luxurious
finish. Emerald® Rain RefreshTM paint offers Self-Cleaning
Technology – dirt washes away upon contact with rain
or water to keep a just-painted look on buildings. And
FlexTemp® paint with ExtremeTemp Technology® offers
painters the widest extreme temperature range for
application, maximizing their productivity.
We couple product innovation with service, and we
further differentiated ourselves in this area versus our
competitors last year. We continued to open new stores,
add customer sales reps, recruit college graduates to our
Management Trainee Program and expand e-business
capabilities. We remain focused on helping our customers
succeed, and we are well-positioned for 2021.
The Americas
Group
The Americas Group delivered record
sales and profitability in 2020. We adapted
quickly to meet changing customer
needs throughout the COVID-19
pandemic while continuing to invest
for future success.
start to the year. Our team responded
T he onset of the pandemic paused our strong
within days, implementing a curbside pickup model to
quickly, first closing our store sales floors to
protect employees and customers, and then,
safely provide products to customers. By late spring,
we reopened our sales floors with appropriate safety
protocols. Our store platform, combined with our field
sales reps, delivery vehicles and e-business tools, proved
to be a true differentiator throughout the year in meeting
customer needs across the various segments we serve.
Our capabilities drew new customers, too, as new
accounts opened increased year over year.
The pace of growth in 2020 was strongest in the
do-it-yourself segment, driven by consumers “nesting” at
home and completing projects. Demand was also strong
in the residential repaint segment, led initially by exterior
projects followed by resumption of interior projects later
in the year. We also generated solid growth in the new
residential segment. Recovery was slower in our property
maintenance, commercial and protective and marine
segments, but each of these began showing positive signs
heading into 2021.
8
Achievements
• We ranked highest in all four customer satisfaction
segments in J.D. Power’s 2020 Paint Satisfaction
Study* – interior paint, exterior paint, exterior stain
and paint retailer.
• We earned a 2020 product innovation merit award from
BUILDINGS® magazine for Emerald® Rain RefreshTM
Exterior Acrylic Latex with Self-Cleaning Technology.
* Sherwin-Williams received the highest score among Paint Retailers, Exterior Paints, Exterior Stains
and Interior Paints in the J.D. Power 2020 Paint Satisfaction Study of customer satisfaction from
consumers who purchased and applied exterior stain, interior paint, exterior paint, or purchased
from a major paint retailer. Visit jdpower.com/awards.
Innovative products are at
the core of our customer
solutions, and 2020 was the 10th
consecutive year of double-digit
new product introductions.
9
16%
of Total Company Sales
While DIY remains the largest segment we serve in
this Group, we also see great growth opportunities in the
handyman/remodeler, or Pros Who Paint, category. We will
continue to invest appropriately to help our retail partners
succeed in meeting the needs of these professionals.
We’re also excited by select opportunities outside of North
America, where we are leveraging our strengths, driving
growth and improving our performance by focusing on the
right segments and solutions.
Also managed within the Consumer Brands Group
is our Global Supply Chain organization. Focused on
continuous improvement, this team drives the success of
all business units by managing research and development,
global procurement, manufacturing, distribution and
transportation. While pivoting repeatedly to meet customer
needs throughout COVID-19 pandemic challenges,
this team also completed four consolidation projects,
expanded our delivery fleet, further reduced recordable
injury rates and achieved logistics efficiencies.
Consumer
Brands Group
Consumer Brands Group delivered record
sales and profitability in 2020, as we
partnered with our strategic retail customers
to meet unprecedented demand in the
do-it-yourself (DIY) segment.
“sell every gallon twice” approach. First,
O ur results reflect continued execution of our
products, superior category management, supply chain
well-recognized and quality “hero brand”
we empower our retail customers with
expertise, associate training and field support and a
best-in-class store experience. Second, we reach the
end consumer by understanding their unique needs and
providing tools all along the purchase journey that drive
them to place our products in their shopping carts.
Innovative products and unique brand touch points
remain at the core of what we do. In 2020, we unveiled
an upgraded version of HGTV HOME® by Sherwin-
Williams brand EVERLAST TM Exterior Paint & Primer
with water-beading technology to help prevent moisture
damage to the home. The paint also “flexes” to match
changing temperatures and seasons to prevent cracking
or blistering. We also introduced an expanded palette
of interior Dutch Boy® Platinum® Plus one-coat colors,
letting consumers create living spaces that reflect their
style in less time. And under the Minwax® banner, we
launched our new line of Wood Finish Water-Based Color
Stains, which offers more than 200 color options, the
largest assortment on the market. In addition to product
innovations, digital tools like ASK VAL® enable us to
ease the color selection process and further support
consumers in their purchases of VALSPAR® paint.
10
Achievements
• We earned recognition as an innovation partner of the
year from Lowe’s in the home décor category for Minwax®
interior stain. The honor salutes vendors that “continue to
raise the bar in delivering outstanding quality, innovation,
value and service.”
• For the fifth consecutive year, Purdy® was selected
as the “Most Preferred Brush Brand” and the
“Most Preferred Roller Brand” according to inPAINT®
magazine’s Annual Brand Preference Survey.
Our hero brands are among the
most recognized and respected
in the industry.
11
27%
of Total Company Sales
In the General Industrial division, we are driving
sustainability and reducing plastic pollution with the launch
of Powdura® ECO coatings, the first and only line of powder
coatings that uses an innovative polyester resin comprised
of 25% pre-consumer recycled plastic (rPET). Each pound
of these coatings contains the equivalent of sixteen
16-ounce recycled plastic bottles.
And finally, while oil and gas segments were challenging
this year, our Protective & Marine business responded by
further penetrating food & beverage, water & waste water,
flooring, fire protection and other segments. We also
continued to promote the benefits of productivity-enhancing
products including ultra-fast drying FIRETEX® FX6002,
rapid-return-to-service Fast-Clad® ER Epoxy, FasTopTM
polyurethane hygienic flooring systems and Opti-CheckTM
Optically Active Pigments.
Across the segment, our strategically located blending
facilities remained a differentiator by providing customers
with local support, fast-turn small batches, and color, gloss
and viscosity customizations. We are well-positioned to
capture returning demand and drive profitable growth in the
year ahead.
Performance
Coatings Group
The Performance Coatings Group
overcame pandemic-related challenges to
return to growth in the second half
of the year and deliver improved
full-year profitability.
Group, our diverse businesses focused
W hile demand varied widely across the
solutions based on innovation and service.
on meeting the needs of existing
customers and gaining new ones with
Our Packaging division grew in every region as
demand for our differentiated valPure® v70 non-BPA epoxy
coating remained robust. In the Coil division, strong new
business wins across all regions and the resumption of
selected commercial construction projects drove
excellent results.
COVID-19 negatively impacted miles driven and
collision shop volume for the Automotive Finishes division.
Despite the challenging conditions, our team focused on
growing sales with terrific new productivity-enhancing
products like the Ultra 9K® and the Ultra BC8™ refinish
systems. We also unveiled our Collision CoreTM software,
which verifies and validates the repair process in real time
with a focus on error elimination and labor optimization.
Our Industrial Wood division leveraged momentum in
new residential construction to serve the needs of kitchen
cabinetry, flooring and furniture customers. Innovations like
the Color ExpressTM program enable these customers to
access custom color more efficiently and consistently.
12
Achievements
• For the second straight year, we won in multiple categories
in the annual PaintSquare Press Prestige Awards. Nova-
Plate® 360 Tank Lining won Top Innovation in coatings,
and Dura-Plate® 6000 Reinforced Epoxy Lining won Top
Product in coatings for concrete.
•
In Fast Company’s World Changing Ideas 2020 awards,
our valPURE® v70 packaging coating was named a finalist
in the Consumer Products category and earned honorable
mention in the Corporate Social Responsibility category.
Our steady stream of innovative
products enables customers
across multiple industries to be
more successful.
13
Shareholder
Information
Annual Meeting
The annual meeting of shareholders will
Investor Relations
James R. Jaye
be held in a virtual format on April 21, 2021
Senior Vice President – Investor Relations
at 9:00 a.m. EDT. For more information on
and Communications
how to attend and participate, please see
The Sherwin-Williams Company
our 2021 Proxy Statement, available at
101 W. Prospect Avenue
investors.sherwin-williams.com.
Cleveland, Ohio 44115-1075
Headquarters
101 W. Prospect Avenue
Cleveland, Ohio 44115-1075
(216) 566-2000
www.sherwin.com
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Cleveland, Ohio
Stock Trading
Sherwin-Williams Common Stock –
Symbol, SHW – is traded on the
New York Stock Exchange.
Dividend Reinvestment Program
A dividend reinvestment program is
available to shareholders of common
stock. For information, contact EQ
Shareowner Services.
Transfer Agent & Registrar
Our transfer agent, EQ Shareowner Services,
maintains the records for our registered
shareholders and can help with a wide variety
of shareholder-related services, including the
direct deposit of dividends and online access
to your account. Contact:
EQ Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
www.shareowneronline.com
1-800-468-9716 toll-free
651-450-4064 outside the United States
Common Stock
Trading Statistics
2020
2019
2018
2017
2016
High
Low
$ 758.00
325.43
Close December 31
734.91
Shareholders of record
5,468
$ 593.45
380.39
583.54
5,659
$ 477.98
365.24
393.46
6,244
$ 414.34
274.54
410.04
6,488
$ 312.10
239.35
268.74
6,787
Shares traded (thousands)
142,190
137,650
180,900
154,970
212,100
Quarterly Stock
Prices and Dividends
2020
2019
Quarter
High
Low
Dividend
Quarter
High
Low
Dividend
1st
2nd
3rd
4th
$ 599.95
$ 325.43
$
1.34
603.36
412.01
725.91
571.49
758.00
664.22
1.34
1.34
1.34
1st
2nd
3rd
4th
$ 440.32
$ 380.39
$
1.13
479.01
419.45
550.54
454.59
593.45
541.01
1.13
1.13
1.13
14
Sherwin-Williams is proud to be an Equal Employment Opportunity/Affirmative Action employer committed to an inclusive and diverse workplace. All qualified candidates will receive consideration for employment and
will not be discriminated against based on race, color, religion, sex, sexual orientation, gender identity, national origin, protected veteran status, disability, age, pregnancy, genetic information, creed, marital status or any
other consideration prohibited by law or by contract.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Commission file number 1-04851
THE SHERWIN-WILLIAMS COMPANY
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
101 West Prospect Avenue
Cleveland, Ohio
(Address of principal executive offices)
34-0526850
(I.R.S. Employer Identification No.)
44115-1075
(Zip Code)
(216) 566-2000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, Par Value $1.00
SHW
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☒
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
Yes ☒ No ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the Registrant at June 30, 2020 was $52,512,627,817 (computed by reference to the
price at which the common stock was last sold on such date).
At January 31, 2021, 89,601,869 shares of common stock were outstanding, net of treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the 2021 Annual Meeting of Shareholders (“Proxy Statement”) to be filed with the Securities and Exchange
Commission within 120 days of our fiscal year ended December 31, 2020 are incorporated by reference into Part III of this report.
THE SHERWIN-WILLIAMS COMPANY
Table of Contents
Business
Cautionary Statement Regarding Forward-Looking Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Information About Our Executive Officers
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Page
1
5
6
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14
15
15
16
18
20
26
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89
89
90
90
91
91
91
92
98
99
ITEM 1. BUSINESS
Introduction
PART I
The Sherwin-Williams Company, founded in 1866 and incorporated in Ohio in 1884, 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. Our principal executive offices are located at 101 West Prospect Avenue, Cleveland, Ohio 44115-1075, telephone
(216) 566-2000. As used in this report, the terms “Sherwin-Williams,” “Company,” “we” and “our” mean The Sherwin-
Williams Company and its consolidated subsidiaries unless the context indicates otherwise.
Available Information
We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-
Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically
file such material with, or furnish such material to, the Securities and Exchange Commission. You may access these documents
on our Investor Relations website, investors.sherwin-williams.com.
We also make available free of charge on our website our Corporate Governance Guidelines, our Director Independence
Standards, our Code of Conduct and the charters of our Audit Committee, our Compensation and Management Development
Committee and our Nominating and Corporate Governance Committee. You may access these documents on our Investor
Relations website, investors.sherwin-williams.com.
Basis of Reportable Segments
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
Accounting Standards Codification (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. For more information about the Reportable Segments, see Note 21 to the
Consolidated Financial Statements in Item 8.
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 the Notes to Consolidated
Financial Statements in Item 8.
The Americas Group
The Americas Group consisted of 4,774 company-operated specialty paint stores in the United States, Canada, Latin America
and the Caribbean region at December 31, 2020. Each store in this segment is engaged in servicing the needs of architectural
and industrial paint contractors and do-it-yourself homeowners. These 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. In addition to our stores in the Latin America region, 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, 2020, The Americas Group consisted of operations from
subsidiaries in 10 foreign countries. 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.
1
Consumer Brands Group
The Consumer Brands Group supplies a broad portfolio of branded and private-label architectural paint, 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 55% of the total sales of the Consumer Brands Group in
2020 were intersegment transfers of products primarily sold through The Americas Group. At December 31, 2020, 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-label 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 and related 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.
Performance Coatings Group
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 282 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. At December 31, 2020, the Performance Coatings Group consisted of operations in the
United States and subsidiaries in 44 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.
Administrative 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 represent 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.
Raw Materials and Products Purchased for Resale
We believe we generally have adequate sources of raw materials and fuel supplies used in our business. There are sufficient
suppliers of each product purchased for resale that none of the Reportable Segments anticipate any significant sourcing
problems during 2021. See Item 1A Risk Factors for more information regarding cost and sourcing of raw materials.
Seasonality
The majority of the sales for the Reportable Segments traditionally occur during the second and third quarters. However,
periods of economic downturn can alter these seasonal patterns. There is no significant seasonality in sales for the
Administrative segment.
2
Working Capital
In order to meet increased demand during the second and third quarters, the Company usually builds its inventories during the
first quarter. Working capital items (inventories and accounts receivable) are generally financed through short-term borrowings,
which include the use of lines of credit and the issuance of commercial paper. For a description of the Company’s liquidity and
capital resources, see the “Financial Condition, Liquidity and Cash Flow” section in Item 7.
Trademarks and Trade Names
Customer recognition of trademarks and trade names owned or licensed by the Company collectively contribute significantly to
our sales. The major trademarks and trade names used by each of the Reportable Segments are set forth below.
•
•
•
The Americas Group: Sherwin-Williams®, Cashmere®, Colorgin®, Duration®, Emerald®, Harmony®, Kem Tone®,
Loxon®, Metalatex®, Novacor®, Paint Shield®, ProClassic®, ProIndustrial™, ProMar®, SuperDeck®, SuperPaint®,
Woodscapes®
Consumer Brands Group: Cabot®, Duckback®, Dupli-Color®, Dutch Boy®, Geocel®, HGTV HOME® by Sherwin-
Williams, Huarun®, Krylon®, Minwax®, Pratt & Lambert®, Purdy®, Ronseal®, Solver®, Thompson’s® WaterSeal®,
Valspar®, Wattyl®, White Lightning®
Performance Coatings Group: Sherwin-Williams®, Acrolon®, AcromaPro®, ATX®, AWX Performance Plus™,
DeBeer®, Dimension®, Duraspar®, EcoDex®, Envirolastic®, Euronavy®, Excelo®, EzDex®, Fastline®, Firetex®,
Fluropon®, Heat-Flex®, House of Kolor®, Huarun®, Kem Aqua®, Lazzuril®, Macropoxy®, Martin Senour®, ML
Campbell®, PermaClad®, Planet Color®, Polane®, Powdura®, Sayerlack®, Sher-Wood®, Sumaré®, Ultra™,
ValPure® , Valspar®
Patents
Although patents and licenses are not of material importance to our business as a whole or any segment, The Americas Group
and the Performance Coatings Group derive a portion of their income from the licensing of technology, trademarks and trade
names to foreign companies.
Backlog and Productive Capacity
Backlog orders are not significant in the business of any Reportable Segment since there is normally a short period of time
between the placing of an order and shipment. We believe that sufficient productive capacity currently exists to fulfill our needs
for paint, coatings and related products through 2021.
Competition
We experience competition from many local, regional, national and international competitors of various sizes in the
manufacture, distribution and sale of our paint, coatings and related products. We are a leading manufacturer and retailer of
paint, coatings and related products to professional, industrial, commercial and retail customers, however, our competitive
position varies for our different products and markets.
In The Americas Group, competitors include other paint and wallpaper stores, mass merchandisers, home centers, independent
hardware stores, hardware chains and manufacturer-operated direct outlets. Product quality, product innovation, breadth of
product line, technical expertise, service and price determine the competitive advantage for this segment.
In the Consumer Brands Group, domestic and foreign competitors include manufacturers and distributors of branded and
private-label paint and coatings products. Technology, product quality, product innovation, breadth of product line, technical
expertise, distribution, service and price are the key competitive factors for this segment.
The Performance Coatings Group has numerous competitors in its domestic and foreign markets with broad product offerings
and several others with niche products. Key competitive factors for this segment include technology, product quality, product
innovation, breadth of product line, technical expertise, distribution, service and price.
The Administrative segment has many competitors consisting of other real estate owners, developers and managers in areas in
which this segment owns property. The main competitive factors are the availability of property and price.
3
Human Capital
We believe our people are central to the foundation and future of the Company’s success. Our culture and commitment to our
people are important factors in attracting, retaining, developing and progressing qualified employees. At December 31, 2020,
we employed 61,031 people worldwide, of which 78% were in the United States and 22% were in other global regions.
Culture and Engagement. The Company’s seven guiding values are the foundation of our culture of excellence—integrity,
people, service, quality, performance, innovation and growth. We value and support our people through, among other
initiatives, our talent management, health and safety, employment practices and total rewards programs. We are committed to
fostering a culture of inclusion where differences are welcomed, appreciated and celebrated to positively impact our people and
business, and where our people are engaged and encouraged to support the communities in which they live and work.
Talent Management. We are committed to providing our people with opportunities to learn, grow and be recognized for their
achievements. Through our integrated talent management strategy, we strive to attract, retain, develop and progress a workforce
that embraces our culture of inclusion and reflects our diversity efforts. The Company’s early talent programs, including our
management trainee program, play a critical role in attracting and progressing a diverse pipeline of talent. We are also
committed to investing in our people by providing learning and employee networking opportunities to drive retention,
progression and engagement and help them excel in their current and future roles.
Health and Safety. We are committed to providing safe and healthy working environments and taking reasonable preventative
measures to protect the health and safety of our employees and customers. We drive Environmental, Health and Safety (EHS)
excellence across the Company and strive for incident-free workplaces — continuously assessing and developing the programs
that are in place to help keep our employees, customers and communities safe. In response to the COVID-19 pandemic, we
have implemented significant changes to our business designed to protect the health and well-being of our employees and
customers and to support appropriate physical distancing and other health and safety protocols. These efforts continue to
include: remote, alternate and flexible work arrangements where possible, such as split shifts at facilities and remote work
options for non-essential on-site functions; enhanced cleaning and sanitation procedures; domestic and international travel
restrictions; return to work and visitor screening protocols; and the postponement or cancellation of hosting or attending large
events.
Employment Practices and Total Rewards. We are committed to the fair, consistent and equitable treatment of our employees in
relation to working conditions, wages, benefits, policies and procedures. To this end, the Company’s policies and programs are
designed to respond to the needs of our employees in a manner that provides a safe, professional, efficient and rewarding
workplace. Our total rewards programs are designed to offer competitive compensation, comprehensive benefits and other
programs to support employees’ growth, both personally and professionally, and the diverse needs and well-being of our
employees worldwide. During 2020, we enhanced certain of the Company’s benefits to support the health and well-being of our
employees during the COVID-19 pandemic, including our tele-health, paid sick leave, family leave and voluntary leave of
absence policies and programs.
For additional information regarding our response to the COVID-19 pandemic, see the information included within Part II, Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Environmental Compliance
For additional information regarding environmental-related matters, see Notes 1, 9 and 18 to the Consolidated Financial
Statements in Item 8.
4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
“Letter to Shareholders” and elsewhere in this report constitute “forward-looking statements” within the meaning of the federal
securities laws. These forward-looking statements are based upon management’s current expectations, estimates, assumptions
and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance
(including sales and earnings), expected growth, future business plans and the costs and potential liability for environmental-
related matters and the lead pigment and lead-based paint litigation. Any statement that is not historical in nature is a forward-
looking statement and may be identified by the use of words and phrases such as “believe,” “expect,” “may,” “will,” “should,”
“project,” “could,” “plan,” “goal,” “potential,” “seek,” “intend” or “anticipate” or the negative thereof or comparable
terminology.
Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are
necessarily subject to risks, uncertainties and other factors, many of which are outside our control, that could cause actual
results to differ materially from such statements and from our historical results and experience. These risks, uncertainties and
other factors include such things as:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general business conditions, strengths of retail and manufacturing economies and growth in the coatings industry;
changes in general domestic and international economic conditions such as inflation rates, interest rates, tax rates,
unemployment rates, higher labor and healthcare costs, recessions, and changing government policies, laws and
regulations;
changes in raw material and energy supplies and pricing;
changes in our relationships with customers and suppliers;
our ability to successfully integrate past and future acquisitions into our existing operations, as well as the performance
of the businesses acquired;
competitive factors, including pricing pressures and product innovation and quality;
our ability to attain cost savings from productivity initiatives;
risks and uncertainties associated with our expansion into and our operations in Asia, Europe, South America and
other foreign markets, including general economic conditions, inflation rates, recessions, foreign currency exchange
rates, foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest and other external
economic and political factors;
the achievement of growth in foreign markets, such as Asia, Europe and South America;
increasingly stringent domestic and foreign governmental regulations, including those affecting health, safety and the
environment;
inherent uncertainties involved in assessing our potential liability for environmental-related activities;
other changes in governmental policies, laws and regulations, including changes in tariff policies, as well as changes in
accounting policies and standards and taxation requirements (such as new tax laws and new or revised tax law
interpretations);
the nature, cost, quantity and outcome of pending and future litigation and other claims, including the lead pigment and
lead-based paint litigation, and the effect of any legislation and administrative regulations relating thereto;
adverse weather conditions or impacts of climate change, natural disasters and public health crises, including the
COVID-19 pandemic; and
the duration, severity and scope of the COVID-19 pandemic and the actions implemented by international, federal,
state and local public health and governmental authorities to contain and combat the outbreak and spread of
COVID-19, which may exacerbate one or more of the aforementioned and/or other risks, uncertainties and factors
more fully described in the Company’s reports filed with the Securities and Exchange Commission.
Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect
future results and that the above list should not be considered to be a complete list. Any forward-looking statement speaks only
as of the date on which such statement is made, and we undertake no obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise, except as otherwise required by law.
5
ITEM 1A. RISK FACTORS
The risks described below and in other documents we file from time to time with the Securities and Exchange Commission
could materially and adversely affect our business, results of operations, cash flow, liquidity or financial condition.
ECONOMIC AND STRATEGIC RISKS
The COVID-19 pandemic has adversely impacted our business, results of operations, cash flow and financial condition, and
the extent to which the COVID-19 pandemic will adversely impact our business, results of operations, cash flow, liquidity
and financial condition in the future remains uncertain.
Beginning in early 2020, extraordinary and wide-ranging actions have been taken by international, federal, state, and local
public health and governmental authorities to contain and combat the outbreak and spread of a novel strain of coronavirus
(COVID-19). These actions have included, and continue to include, quarantines, physical distancing, face coverings,
restrictions on public gatherings and other health and safety protocols, stay-at-home orders, travel restrictions, mandatory
business closures, and other mandates that have substantially restricted individuals’ daily activities and curtailed or ceased
many businesses’ normal operations.
In response to the pandemic and these actions, we began implementing changes in our business in March 2020 designed to
protect the health and well-being of our employees and customers and to support appropriate physical distancing and other
health and safety protocols. In late March 2020, we temporarily reduced store hours and closed our sales floors in our company-
operated paint stores to the general public, requiring our customers to order product online or via phone and to access their
products via curbside pickup or delivery. We implemented remote, alternate and flexible work arrangements where possible,
including implementing split shifts at facilities and remote work options for non-essential on-site functions, enhanced cleaning
and sanitation procedures, transitioned some of our facilities to manufacture hand sanitizer for use in our facilities and
surrounding communities, implemented domestic and international travel restrictions, implemented return to work and visitor
screening protocols, and postponed or canceled hosting or attending large events. We also enhanced certain employee benefits,
such as tele-health, paid sick leave, family leave and voluntary leave of absence policies and programs. In May 2020, we began
the process of reinstituting regular store hours and re-opening the sales floors in our stores with appropriate health and safety
protocols, which resulted in all of our stores in the U.S. and Canada being fully re-opened. We also began the process of
returning some of our employees who work in office environments to the office, although many employees continue to work
remotely. The necessary and appropriate measures we have taken have resulted in additional costs, including for COVID-
related leave and related healthcare costs in support of our employees and their families, and have adversely impacted our
business and financial performance. We also face operational risks in connection with remote work arrangements, including but
not limited to cybersecurity risks and increased vulnerability to damage or interruption resulting from, among other causes,
cyber attacks, security breaches, phishing, malware, viruses, ransomware, power outages or system failures. As our response to
the pandemic continues and evolves, we expect to incur additional costs and are likely to experience further adverse impacts to
our business, each of which may be significant.
The COVID-19 outbreak has surfaced in all regions around the world and has severely impacted the global economy, disrupted
consumer spending and global supply chains, and created significant volatility and disruption of financial markets, all of which
are expected to continue, and all of which have adversely affected, and are expected to continue to adversely affect, our
business. We continue to experience occasional, temporary disruptions and closures of some of our facilities due to COVID-19.
We also continue to see shifts in consumer behaviors and preferences, as well as impacts in the demand for some of our
products. Since the first quarter of 2020, we have experienced an unprecedented surge in do-it-yourself (DIY) demand due to
some of our customers spending more time at home and focusing on home improvement projects. As a result, our architectural
business was quick to recover from the onset of the pandemic, while many of our industrial businesses are recovering at a
slower pace as commercial and other industrial projects are delayed. While we expect demand levels to return to more
normalized levels eventually, our ability to predict and meet any future changes in the demand for our products due to the
pandemic remains uncertain. Although the raw materials used in the manufacturing, distribution, and sale of our products are
typically available from various sources in sufficient quantities, and although we have not experienced significant raw material
shortages, delays or increased costs to date, COVID-19 may result in increased costs and unexpected shortages or delays in the
delivery of some raw materials, each of which could be significant. We reduced spending in certain areas of our business,
including through voluntary and involuntary leave programs and reductions in capital expenditures, temporarily suspending
share repurchases and reducing discretionary spending, and we may need to take additional actions to reduce spending in the
future.
While we are closely monitoring the impact of the pandemic on all aspects of our business, the extent of the impact on our
results of operations, cash flow, liquidity, and financial performance, as well as our ability to execute near-term and long-term
business strategies and initiatives, will depend on numerous evolving factors and future developments, which are highly
uncertain and which we cannot predict or control, and some of which we are not currently aware, including, but not limited to:
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(a) the duration, severity and scope of the pandemic, including additional waves, increases and spikes in the number of
COVID-19 cases in certain areas; (b) rapidly-changing governmental and public health directives to contain and combat the
outbreak, including the duration, degree and effectiveness of directives, as well as the easing, removal and potential reinstitution
of directives; (c) the further development, availability, effectiveness and distribution of treatments and vaccines for COVID-19;
(d) the extent and duration of the pandemic’s adverse and volatile effects on economic and social activity, consumer
confidence, discretionary spending and preferences, labor and healthcare costs, and unemployment rates, any of which may
reduce demand for some of our products and impair the ability of those with whom we do business to satisfy their obligations to
us; (e) our ability to sell, provide and meet the demand for our services and products, including as a result of potential
reinstitution of temporarily-reduced store hours and sales floor closures in our stores and continued travel restrictions,
mandatory business closures, and stay-at-home or similar orders; (f) any temporary reduction in our workforce, closures of our
offices and facilities and our ability to adequately staff and maintain our operations, including as a result of employees or their
family members testing positive for COVID-19; (g) the ability of our customers and suppliers to continue their operations,
which could affect our ability to sell, provide and meet the demand for our services and products and result in terminations of
contracts, losses of revenue and adverse effects to our supply chain; and (h) any impairment in value of our tangible or
intangible assets which could be recorded as a result of weaker economic conditions. If the pandemic continues to create
disruptions or turmoil in the credit or financial markets, or further impacts our credit ratings, it could adversely affect our ability
to access capital on favorable terms and continue to meet our liquidity needs.
Given the inherent uncertainty surrounding COVID-19, we expect the pandemic will continue to create challenging operating
environments and have an adverse impact on our business in the near term. If these conditions persist for a prolonged period,
the COVID-19 pandemic, including any of the above factors and others that are currently unknown, may have a material
adverse effect on our business, results of operations, cash flow, liquidity, or financial condition.
Adverse changes in general business and economic conditions in the United States and worldwide may adversely affect our
results of operations, cash flow, liquidity or financial condition.
Our business is sensitive to global and regional business and economic conditions. Adverse changes in such conditions in the
United States and worldwide, including due to the COVID-19 pandemic, may reduce the demand for some of our products,
adversely impact our ability to predict and meet any future changes in the demand for our products, and impair the ability of
those with whom we do business to satisfy their obligations to us, each of which could adversely affect our results of
operations, cash flow, liquidity or financial condition. Higher inflation rates, interest rates, tax rates and unemployment rates,
higher labor and healthcare costs, recessions, changing governmental policies, laws and regulations, business disruptions due to
cybersecurity incidents, terrorist activity, armed conflict, war, public health crises (including the COVID-19 pandemic), impacts
of climate change, fires or other natural disasters, and other economic factors could also adversely affect demand for some of
our products, our ability to predict and meet any future changes in the demand for our products, the availability, delivery or cost
of raw materials, our ability to adequately staff and maintain operations at affected facilities and our results of operations, cash
flow, liquidity or financial condition and that of our customers, vendors and suppliers.
Protracted duration of economic downturns in cyclical segments of the economy may depress the demand for some of our
products and adversely affect our sales, earnings, cash flow or financial condition.
Portions of our business involve the sale of paint, coatings and related products to segments of the economy that are cyclical in
nature, particularly segments relating to construction, housing, manufacturing and oil production, refining, storage and
transportation. Our sales to these segments are affected by the levels of discretionary consumer and business spending in these
segments. During economic downturns in these segments, the levels of consumer and business discretionary spending may
decrease, and the recovery of these segments may lag behind the recovery of the overall economy. This decrease in spending
will likely reduce the demand for some of our products and may adversely affect our sales, earnings, cash flow or financial
condition.
Although interest rates remain low by historical standards, any increase may adversely affect the demand for new residential
homes, existing home turnover and new non-residential construction. A worsening in these segments will reduce the demand
for some of our products and may adversely impact sales, earnings and cash flow.
In the U.S. construction and housing segments, the recent demand for new construction has caused contractors to experience a
shortage of skilled workers, resulting in project backlogs and an adverse effect on the growth rate of demand for our products.
While we expect to see higher demand for our products as project backlogs are reduced in the future, this labor shortage may
adversely impact our sales, earnings, cash flow or financial condition.
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Adverse weather conditions or impacts of climate change and natural disasters may temporarily reduce the demand for some
of our products and could have a negative effect on our sales, earnings or cash flow.
Our business is seasonal in nature, with the second and third quarters typically generating a higher proportion of sales and
earnings than other quarters. From time to time, adverse weather conditions or impacts of climate change and natural disasters
have had or may have an adverse effect on our sales of paint, coatings and related products. Unusually cold and rainy weather
could also have an adverse effect on sales of our exterior paint products. An adverse effect on sales may cause a reduction in
our earnings or cash flow.
FINANCIAL RISKS
A weakening of global credit markets may adversely affect our results of operations, cash flow, liquidity or financial
condition.
A weakening of global credit markets may adversely impact our net sales, the collection of accounts receivable, funding for
working capital needs, expected cash flow generation from current and acquired businesses, access to capital and our
investments, which may adversely impact our results of operations, cash flow, liquidity or financial condition.
We finance a portion of our sales through trade credit. Credit markets remain tight, and some customers who require financing
for their businesses have not been able to obtain necessary financing. A continuation or worsening of these conditions could
limit our ability to collect our accounts receivable, which could adversely affect our results of operations, cash flow, liquidity or
financial condition.
We generally fund a portion of our seasonal working capital needs and obtain funding for other general corporate purposes
through short-term borrowings backed by our revolving credit facility and other financing facilities. If any of the banks in these
credit and financing facilities are unable to perform on their commitments, such inability could adversely impact our cash flow,
liquidity or financial condition, including our ability to obtain funding for working capital needs and other general corporate
purposes.
Although we currently have available credit facilities to fund our current operating needs, we cannot be certain we will be able
to replace our existing credit facilities or refinance our existing or future debt when necessary. Our cost of borrowing and
ability to access the capital markets are affected not only by market conditions, but also by our debt and credit ratings assigned
by the major credit rating agencies. Downgrades in these ratings, including due to uncertainties regarding COVID-19, will
increase our cost of borrowing and could have an adverse effect on our access to the capital markets, including our access to the
commercial paper market. An inability to access the capital markets could have a material adverse effect on our results of
operations, cash flow, liquidity or financial condition.
We have goodwill and intangible assets recorded on our balance sheet. We periodically evaluate the recoverability of the
carrying value of our goodwill and intangible assets whenever events or changes in circumstances indicate such value may not
be recoverable. An impairment assessment involves judgment as to assumptions regarding future sales and cash flow and the
impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions
and change our estimates of future sales and cash flow, resulting in us incurring substantial impairment charges, which would
adversely affect our results of operations or financial condition.
We hold investments in equity and debt securities in some of our defined benefit pension plans. A decrease in the value of plan
assets resulting from a general financial downturn may cause a negative pension plan investment performance, which may
adversely affect our results of operations, cash flow, liquidity or financial condition.
We require a significant amount of cash to service the substantial amount of debt we have outstanding. Our ability to
generate cash depends on many factors beyond our control. We also depend on the business of our subsidiaries to satisfy our
cash needs. If we cannot generate the required cash, we may not be able to make the necessary payments required under our
indebtedness.
At December 31, 2020, we had total debt of approximately $8.292 billion, which is a decrease of $393.1 million since
December 31, 2019. We have the ability under our existing credit facilities to incur substantial additional indebtedness in the
future. Our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will
depend on our ability to generate cash in the future. Our historical financial results have been, and we anticipate our future
financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond our control, including public health crises, such as the
COVID-19 pandemic, and related impacts. We cannot guarantee our business will generate sufficient cash flow from our
operations or future borrowings will be available to us in an amount sufficient to enable us to make payments of our debt, fund
other liquidity needs and make planned capital expenditures.
The degree to which we are currently leveraged could have important consequences for shareholders. For example, it could:
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require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service,
reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other
general corporate purposes;
increase our vulnerability to adverse economic or industry conditions;
limit our ability to obtain additional financing in the future to enable us to react to changes in our business; or
place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, any failure to comply with covenants in the instruments governing our debt could result in an event of default
which, if not cured or waived, would have a material adverse effect on us.
A significant portion of our operations are conducted through our subsidiaries. As a result, our ability to generate sufficient cash
flow for our needs is dependent to some extent on the earnings of our subsidiaries and the payment of those earnings to us in the
form of dividends, loans or advances and through repayment of loans or advances from us. Our subsidiaries are separate and
distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on our debt or to provide us with funds to
meet our cash flow needs, whether in the form of dividends, distributions, loans or other payments. Further, any payment of
dividends, loans or advances by our subsidiaries could be subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries’ earnings and business considerations. Our right to receive any assets
of any of our subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of that
subsidiary’s creditors, including trade creditors. Even if we are a creditor of any of our subsidiaries, our rights as a creditor
would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to
that held by us. Finally, changes in the laws of foreign jurisdictions in which we operate may adversely affect the ability of
some of our foreign subsidiaries to repatriate funds to us.
Fluctuations in foreign currency exchange rates could adversely affect our results of operations, cash flow, liquidity or
financial condition.
Because of our international operations, we are exposed to risk associated with interest rates and value changes in foreign
currencies, which may adversely affect our business. Historically, our reported net sales, earnings, cash flow and financial
condition have been subjected to fluctuations in foreign exchange rates. Our primary exchange rate exposure is with the Euro,
the Chinese yuan, the Brazilian real, the Canadian dollar, the British pound, the Mexican peso, the Australian dollar and the
Argentine peso, each against the U.S. dollar. While we actively manage the exposure of our foreign currency risk as part of our
overall financial risk management policy, we believe we may experience losses from foreign currency exchange rate
fluctuations, and such losses could adversely affect our sales, earnings, cash flow, liquidity or financial condition.
OPERATIONAL RISKS
Unexpected shortages and increases in the cost of raw materials and energy may adversely affect our earnings or cash flow.
We purchase raw materials (including titanium dioxide and petrochemical feedstock sources, such as propylene and ethylene)
and energy for use in the manufacturing, distribution and sale of our products. Factors such as political instability, higher tariffs,
impacts of climate change and adverse weather conditions, including hurricanes and other natural disasters, or public health
crises, including the COVID-19 pandemic, could disrupt the availability of raw material and fuel supplies, adversely impact our
ability to adequately staff and maintain operations at affected facilities and increase our costs. In addition, environmental and
social regulations, including regulations related to climate change, may negatively impact us or our suppliers in terms of
availability and cost of raw materials, as well as sources and supply of energy. Although raw materials and energy supplies
(including oil and natural gas) are generally available from various sources in sufficient quantities, unexpected shortages and
increases in the cost of raw materials and energy, or any deterioration in our relationships with or the financial viability of our
suppliers, may have an adverse effect on our earnings or cash flow in the event we are unable to obtain these raw materials and
energy from other sources or offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the
prices of our products. In recent years, some raw material and energy prices have increased, particularly titanium dioxide and
petrochemical feedstock sources, such as propylene and ethylene, as well as metal and plastic packaging. The cost of raw
materials and energy has in the past experienced, and likely will in the future continue to experience, periods of volatility.
Although we have an extensive customer base, the loss of any of our largest customers could adversely affect our sales,
earnings or cash flow.
We have a large and varied customer base due to our extensive distribution platform. During 2020, no individual customer
accounted for sales totaling more than ten percent of our sales. However, we have some customers that, individually, purchase a
large amount of products from us. Although our broad distribution channels help to minimize the impact of the loss of any one
customer, the loss of any of these large customers could have an adverse effect on our sales, earnings or cash flow.
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Increased competition or failure to keep pace with developments in key competitive areas of our business may reduce our
sales, earnings or cash flow performance.
We face substantial competition from many international, national, regional and local competitors of various sizes in the
manufacture, distribution and sale of our paint, coatings and related products. Some of our competitors are larger than us or
operate more extensively in certain regions around the world and have greater financial or operational resources to compete.
Other competitors are smaller and may be able to offer more specialized products. Technology, product quality, product
innovation, breadth of product line, technical expertise, distribution, service and price are key competitive factors for our
business. Competition in any of these areas, or failure to keep pace with developments in any of these areas, may reduce our
sales and adversely affect our earnings or cash flow by resulting in decreased sales volumes, reduced prices and increased costs
of manufacturing, distributing and selling our products.
Our results of operations, cash flow or financial condition may be negatively impacted if we do not successfully integrate
future acquisitions into our existing operations and if the performance of the businesses we acquire do not meet our
expectations.
We have historically made strategic acquisitions of businesses in the paint and coatings industry and will likely acquire
additional businesses in the future as part of our long-term growth strategy. The success of future acquisitions depends in large
part on our ability to integrate the operations and personnel of the acquired companies and manage challenges that may arise as
a result of the acquisitions, particularly when the acquired businesses operate in new or foreign markets. In the event we do not
successfully integrate such future acquisitions into our existing operations so as to realize the expected return on our
investment, our results of operations, cash flow or financial condition could be adversely affected.
Risks and uncertainties associated with our expansion into and our operations in Asia, Europe, South America and other
foreign markets could adversely affect our results of operations, cash flow, liquidity or financial condition.
Net external sales of our consolidated foreign subsidiaries totaled approximately 19.5%, 20.6% and 23.0% of our total
consolidated net sales in 2020, 2019 and 2018, respectively. Sales outside of the United States make up a significant part of our
current business and future strategic plans. Our results of operations, cash flow, liquidity or financial condition could be
adversely affected by a variety of domestic and international factors, including general economic conditions, political
instability, inflation rates, recessions, tariffs, foreign currency exchange rates, foreign currency exchange controls, interest rates,
foreign investment and repatriation restrictions, legal and regulatory constraints, civil unrest, difficulties in staffing and
managing foreign operations and other external economic and political factors. In addition, public health crises (including the
COVID-19 pandemic) in foreign jurisdictions may temporarily reduce the demand for some of our products and adversely
affect the availability and cost of raw materials. Our inability to successfully manage the risks and uncertainties relating to any
of these factors could adversely affect our results of operations, cash flow, liquidity or financial condition.
In many foreign countries, it is acceptable to engage in certain business practices we are prohibited from engaging in because of
regulations applicable to us, such as the Foreign Corrupt Practices Act and the UK Bribery Act. Recent years have seen a
substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement
proceedings by both U.S. and non-U.S. regulators, and an increase in criminal and civil proceedings brought against companies
and individuals. Although we have internal control policies and procedures designed to ensure compliance with these
regulations, there can be no assurance our policies and procedures will prevent a violation of these regulations. Any violation
could cause an adverse effect on our results of operations, cash flow or financial condition.
Policy changes affecting international trade could adversely impact the demand for our products and our competitive
position.
Due to the international scope of our operations, changes in government policies on foreign trade and investment may affect the
demand for our products and services, impact the competitive position of our products or prevent us from being able to sell
products in certain countries. Our business benefits from free trade agreements, which may include the United States-Mexico-
Canada Agreement, and efforts to withdraw from, or substantially modify such agreements, in addition to the implementation of
more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements,
exchange controls or new barriers to entry, could have a material adverse effect on our results of operations, financial condition
or cash flow and that of our customers, vendors and suppliers.
Additionally, the results of the United Kingdom’s referendum on European Union membership, which resulted in the United
Kingdom’s exit from the European Union on January 31, 2020 (“Brexit”), caused significant volatility in global stock markets,
currency exchange rate fluctuations and global economic uncertainty. The transition period post-Brexit expired on December
31, 2020, and the United Kingdom and European Union entered into a free trade agreement that now governs the United
Kingdom’s relationship with the European Union. While the United Kingdom and European Union can generally continue to
trade with each other without the imposition of tariffs for imports and exports, there are new customs requirements that require
additional documentation and data, and there are also new controls on the movement and reporting of goods (including
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chemicals). We do not know the extent to which Brexit and the free trade agreement will ultimately impact the business and
regulatory environment in the United Kingdom, the rest of the European Union or other countries, although it is possible there
will be tighter controls and administrative requirements for imports and exports between the United Kingdom and the European
Union or other countries, as well as increased regulatory complexities. Any of these factors could adversely impact customer
demand, our relationships with customers and suppliers and our results of operations.
Cybersecurity incidents and other disruptions to our information technology systems could interfere with our operations,
result in the compromise or loss of critical and confidential information and severely harm our business.
We rely on information technology systems to conduct our business, including recording and processing transactions,
manufacturing and selling our products, maintaining and growing our competitive position, and supporting and communicating
with our employees, customers, suppliers and other vendors. These information technology systems are important to many
business-critical processes including, but not limited to, production planning, manufacturing, finance, company operations,
sales and customer service. Some of these systems are maintained or operated by third party providers. Despite our efforts to
prevent disruptions to these information technology systems, these systems may be affected by damage or interruption resulting
from, among other causes, cyber attacks, security breaches, phishing, malware, viruses, ransomware, power outages or system
failures. These risks could be magnified due to the increased reliance on information technology systems because of the
COVID-19 pandemic. Disruptions to these systems may have a material adverse effect on our business, results of operations
and financial condition.
As part of our business, we collect and handle sensitive and confidential information about our business, customers, employees
and suppliers. Despite the security measures we have in place, our facilities and systems, and those third-parties with which we
do business, may be vulnerable to cyber attacks, security breaches, malware, viruses, ransomware, power outages, system
failures, acts of vandalism or misconduct, human or technical errors or other similar events or disruptions. Any such event
involving the misappropriation, loss or other unauthorized disclosure of information, whether impacting us or third-parties with
which we do business, could result in losses, damage our reputation, expose us to the risks of litigation, regulatory action and
liability, disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.
We continue to mitigate these risks in a number of ways, including through additional investment, engagement of third-party
experts and consultants, improving the security of our facilities and systems, providing training for employees, assessing the
continued appropriateness of relevant insurance coverage and strengthening our controls to monitor and mitigate these threats.
The domestic and international regulatory environment related to information security, collection and privacy is increasingly
rigorous and complex, with new and rapidly changing requirements applicable to our business. Compliance with these
requirements, including the European Union’s General Data Protection Regulation, the California Consumer Privacy Act and
other international and domestic regulations, could result in additional costs and changes to our business practices.
Inability to protect or enforce our material trademarks and other intellectual property rights could have an adverse effect on
our business.
We have numerous patents, trade secrets, trademarks, trade names and know-how that are valuable to our business. Despite our
efforts to protect such intellectual property and other proprietary information from unauthorized use or disclosure, third parties
may attempt to disclose, obtain or use our trademarks or such other intellectual property and information without our
authorization. Although we rely on the patent, trademark, trade secret and copyright laws of the United States and other
countries to protect our intellectual property rights, the laws of some countries may not protect such rights to the same extent as
the laws of the United States. Unauthorized use of our intellectual property by third parties, the failure of foreign countries to
have laws to protect our intellectual property rights, or an inability to effectively enforce such rights in foreign countries could
have an adverse effect on our business.
LEGAL AND REGULATORY RISKS
We are subject to a wide variety of complex domestic and foreign laws, rules and regulations, for which compliance could
adversely affect our results of operations, cash flow or financial condition.
We are subject to a wide variety of complex domestic and foreign laws, rules and regulations, and legal compliance risks,
including securities laws, tax laws, employment and pension-related laws, competition laws, U.S. and foreign export and
trading laws, data privacy and security laws, and laws governing improper business practices. We are affected by new laws and
regulations, and changes to existing laws and regulations, including interpretations by courts and regulators. From time to time,
our Company, our operations and the industries in which we operate are being reviewed or investigated by regulators, which
could lead to enforcement actions or the assertion of private litigation claims and damages.
Although we believe we have adopted appropriate risk management and compliance programs to mitigate these risks, the global
and diverse nature of our operations means compliance risks will continue to exist. Investigations, examinations and other
proceedings, the nature and outcome of which cannot be predicted, will likely arise from time to time. These investigations,
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examinations and other proceedings could subject us to significant liability and require us to take significant accruals or pay
significant settlements, fines and penalties, which could have a material adverse effect on our results of operations, cash flow or
financial condition.
We are subject to tax laws and regulations in the United States and multiple foreign jurisdictions. We are affected by changes in
tax laws and regulations, as well as changes in related interpretations and other tax guidance. In the ordinary course of our
business, we are subject to examinations and investigations by various tax authorities and other regulators. In addition to
existing examinations and investigations, there could be additional examinations and investigations in the future, and existing
examinations and investigations could be expanded.
For non-income tax risks, we estimate material loss contingencies and accrue for such loss contingencies as required by
U.S. generally accepted accounting principles based on our assessment of contingencies where liability is deemed probable and
reasonably estimable in light of the facts and circumstances known to us at a particular point in time. Subsequent developments
may affect our assessment and estimates of the loss contingency. In the event the loss contingency is ultimately determined to
be significantly higher than currently accrued, the recording of the additional liability may result in a material adverse effect on
our results of operations 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 a liability has been incurred and cannot be reasonably
estimated, any potential liability ultimately determined to be attributable to us may result in a material adverse effect on our
results of operations, cash flow or financial condition for the annual or interim period during which such liability is accrued or
paid. For income tax risks, we recognize tax benefits based on our assessment that a tax benefit has a greater than 50%
likelihood of being sustained upon ultimate settlement with the applicable taxing authority that has full knowledge of all
relevant facts. For those income tax positions where we determine there is not a greater than 50% likelihood such tax benefits
will be sustained, we do not recognize a tax benefit in our financial statements. Subsequent events may cause us to change our
assessment of the likelihood of sustaining a previously-recognized benefit which could result in a material adverse effect on our
results of operations, cash flow or financial position for the annual or interim period during which such liability is accrued or
paid.
We discuss risks and uncertainties with regard to taxes in more detail in Note 19 to the Consolidated Financial Statements in
Item 8.
We are required to comply with numerous complex and increasingly stringent domestic and foreign health, safety and
environmental laws, regulations and requirements, the cost of which is likely to increase and may adversely affect our
results of operations, cash flow or financial condition.
Our operations are subject to various domestic and foreign health, safety and environmental laws, regulations and requirements,
including related to climate change and the COVID-19 pandemic. These laws, regulations and requirements not only govern
our current operations and products, but also impose potential liability on us for our past operations. We expect health, safety
and environmental laws, regulations and requirements to be increasingly stringent upon our industry and us in the future. Our
costs to comply with these laws, regulations and requirements may increase as they become more stringent in the future, and
these increased costs may adversely affect our results of operations, cash flow or financial condition.
We are involved with environmental investigation and remediation activities at some of our currently and formerly owned
sites, as well as a number of third-party sites, for which our ultimate liability may exceed the current amount we have
accrued.
We are involved with environmental investigation and remediation activities at some of our currently and formerly owned sites
and a number of third-party sites. We accrue for estimated costs of investigation and remediation activities at these sites for
which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry
standards and professional judgment. These estimated costs are based on currently available facts regarding each site. We
continuously assess our potential liability for investigation and remediation activities and adjust our environmental-related
accruals as information becomes available upon which more accurate costs can be reasonably estimated. Due to the
uncertainties surrounding environmental investigation and remediation activities, our liability may result in costs that are
significantly higher than currently accrued and may have an adverse effect on our earnings. We discuss these risks and
uncertainties in more detail in the “Environmental Matters” and “Environmental-Related Liabilities” sections in Item 7 and in
Note 9 to the Consolidated Financial Statements in Item 8.
The nature, cost, quantity and outcome of pending and future litigation, such as litigation arising from the historical
manufacture and sale of lead pigments and lead-based paint, could have a material adverse effect on our results of
operations, cash flow, liquidity and financial condition.
In the course of our business, we are subject to a variety of claims and lawsuits, including, but not limited to, litigation relating
to product liability and warranty, personal injury, environmental (including natural resource damages), intellectual property,
12
commercial, contractual and antitrust claims that are inherently subject to many uncertainties regarding the possibility of a loss
to us. 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, we accrue 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 a 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 our 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 us may result in a
material impact on our results of operations, liquidity or financial condition for the annual or interim period during which such
liability is accrued.
Our past operations included the manufacture and sale of lead pigments and lead-based paints. Along with other companies, we
are and have 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. We
have 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. We believe the litigation
brought to date is without merit or subject to meritorious defenses and are vigorously defending such litigation. We expect
additional lead pigment and lead-based paint litigation may be filed against us 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 our views on the merits, litigation is inherently subject to many uncertainties, and we 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 us and encourage an increase in the number and nature of future claims and proceedings. 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 we 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 any legislation and/or administrative
regulations may have on the litigation or against us. Further, 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 California public nuisance litigation, we have not accrued any amounts for such litigation because we do not
believe it is probable that a loss has occurred, and we believe it is not possible to estimate the range of potential losses as there
is no substantive information upon which an estimate could be based. Any potential liability that may result from any changes
to legislation and regulations cannot reasonably be estimated. 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 us arising out of such litigation may have a material adverse effect on our results of operations, cash flow,
liquidity or financial condition. We discuss the risks and uncertainties related to litigation, including the lead pigment and lead-
based paint litigation, in more detail in Note 10 to the Consolidated Financial Statements in Item 8.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
13
ITEM 2. PROPERTIES
We own our world headquarters located in Cleveland, Ohio, which includes the world headquarters for The Americas Group,
Consumer Brands Group and Performance Coatings Group. Our principal manufacturing and distribution facilities are located
as set forth below. We believe our manufacturing and distribution facilities are well-maintained and are suitable and adequate,
with sufficient productive capacity, to meet our current needs.
Consumer Brands Group
Asia
Australia and New Zealand
Canada
Europe
Jamaica
Latin America
United States
Total
Performance Coatings Group
Africa
Asia
Europe
Latin America
United States
Total
Manufacturing (1)
Owned
Leased
Total
Leased
Distribution (1)
Owned
Total
1
3
6
10
2
2
1
5
6
3
3
3
1
6
29
51
1
3
17
4
9
34
7
3
3
3
1
9
35
61
1
5
19
5
9
39
1
2
1
1
4
11
20
2
4
1
7
4
3
3
1
5
1
17
1
2
12
6
9
30
5
5
1
4
1
9
12
37
1
4
16
7
9
37
(1) Certain geographic locations may contain both manufacturing and distribution facilities.
The operations of The Americas Group included 4,774 company-operated specialty paint stores, of which 217 were owned, in
the United States, Canada, Puerto Rico, Virgin Islands, Grenada, Trinidad and Tobago, St. Maarten, Jamaica, Curacao, Aruba,
St. Lucia, Uruguay, Brazil, Chile, Peru, Mexico, Ecuador and Barbados at December 31, 2020. These paint stores are divided
into six separate operating divisions that are responsible for the sale of predominantly architectural, protective and marine and
related products through the paint stores located within their geographical region. At the end of 2020:
•
•
•
•
•
•
the Mid Western Division operated 1,136 paint stores primarily located in the midwestern and upper west coast states;
the Eastern Division operated 880 paint stores along the upper east coast and New England states;
the Canada Division operated 243 paint stores throughout Canada;
the Southeastern Division operated 1,163 paint stores principally covering the lower east and gulf coast states,
Puerto Rico, Virgin Islands, Grenada, Trinidad and Tobago, St. Maarten, Jamaica, Curacao, Aruba, St. Lucia and
Barbados;
the South Western Division operated 1,054 paint stores in the central plains and the lower west coast states; and
the Latin America Division operated 298 paint stores in Uruguay, Brazil, Chile, Peru, Mexico and Ecuador.
During 2020, The Americas Group opened 16 net new stores, consisting of 56 new stores opened (53 in the United States, 1 in
Canada, 1 in South America and 1 in Mexico) and 40 stores closed (10 in the United States, 6 in Canada, 17 in South America
and 7 in Mexico).
14
The Performance Coatings Group operated 221 branches in the United States, of which 8 were owned, at December 31, 2020.
The Performance Coatings Group also operated 61 branches internationally, of which 7 were owned, at December 31, 2020,
consisting of branches in Canada (21), Europe (16), Chile (11), Mexico (5), Peru (4), Vietnam (3) and Brazil (1). During 2020,
this segment opened 1 new branch and did not close any branches for a net increase of 1 branch.
All real property within the Administrative segment is owned by us. For additional information regarding real property within
the Administrative segment, see the information set forth in Item 1 of this report, which is incorporated herein by reference.
For additional information regarding real property leases, see Note 8 to the Consolidated Financial Statements in Item 8.
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020,
on July 1, 2020, the Company was notified by the California Department of Pesticide Regulation (“DPR”), alleging that the
Company engaged in the delivery and/or sale of misbranded and/or unregistered pesticides in violation of the California Food
and Agricultural Code. DPR offered to settle the allegations for approximately $134,000. Subsequently, the Company provided
DPR with information in support of a reduction of the settlement amount. On December 31, 2020, the Company and DPR
reached a final settlement to resolve the matter, pursuant to which the Company agreed to pay a penalty of $90,401.
The Securities and Exchange Commission regulations require disclosure of certain environmental matters when a governmental
authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably
believes will exceed a specified threshold. Pursuant to recent Securities and Exchange Commission amendments to this
requirement that were not in effect prior to the filing of the Company’s most recent Quarterly Report on Form 10-Q, the
Company will be using a threshold of $1 million for such proceedings. Applying this threshold, there are no new environmental
matters to disclose for this period.
For information regarding certain other environmental-related matters and other legal proceedings, see the information included
under the captions titled “Other Long-Term Liabilities” and “Litigation” of “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and Notes 1, 9, 10 and 18 to the “Notes to Consolidated Financial Statements”
in Item 8. The information contained in Note 10 to the Consolidated Financial Statements is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
15
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following is the name, age and present position of each of our executive officers and all persons chosen to become
executive officers, as well as all prior positions held by each person during the last five years. Executive officers are generally
elected annually by the Board of Directors and hold office until their successors are elected and qualified or until their earlier
death, resignation or removal.
Name
Age
Present Position
John G. Morikis
David B. Sewell
Allen J. Mistysyn
Jane M. Cronin
Mary L. Garceau
Thomas P. Gilligan
James R. Jaye
Bryan J. Young
Justin T. Binns
Peter J. Ippolito
Brian E. Padden
Joseph F. Sladek
57
52
52
53
48
60
54
45
45
56
49
50
Chairman and Chief Executive Officer, Director
President and Chief Operating Officer
Senior Vice President - Finance and Chief Financial Officer
Senior Vice President - Corporate Controller
Senior Vice President, General Counsel and Secretary
Senior Vice President - Human Resources
Senior Vice President - Investor Relations and Corporate Communications
Vice President - Corporate Strategy and Development
President, Performance Coatings Group
President, The Americas Group
President, Consumer Brands Group
President & General Manager, Global Supply Chain Division, Consumer Brands Group
Mr. Morikis has served as Chairman since January 2017 and Chief Executive Officer since January 2016. Mr. Morikis served as
President from October 2006 to March 2019 and Chief Operating Officer from October 2006 to January 2016. Mr. Morikis has
served as a Director since October 2015 and has been employed with the Company since December 1984.
Mr. Sewell has served as President and Chief Operating Officer since March 2019. Mr. Sewell served as President,
Performance Coatings Group from August 2014 to March 2019. Mr. Sewell has been employed with the Company since
February 2007.
Mr. Mistysyn has served as Senior Vice President - Finance and Chief Financial Officer since January 2017. Mr. Mistysyn
served as Senior Vice President - Finance from October 2016 to January 2017 and Senior Vice President - Corporate Controller
from October 2014 to October 2016. Mr. Mistysyn has been employed with the Company since June 1990.
Ms. Cronin has served as Senior Vice President - Corporate Controller since October 2016. Ms. Cronin served as Vice
President - Corporate Audit and Loss Prevention from September 2013 to October 2016. Ms. Cronin has been employed with
the Company since September 1989.
Ms. Garceau has served as Senior Vice President, General Counsel and Secretary since August 2017. Ms. Garceau served as
Vice President, Deputy General Counsel and Assistant Secretary from June 2017 to August 2017, Associate General Counsel
and Assistant Secretary from April 2017 to June 2017 and Associate General Counsel from February 2014 to April 2017. Ms.
Garceau has been employed with the Company since February 2014.
Mr. Gilligan has served as Senior Vice President - Human Resources since January 2016. Mr. Gilligan served as Senior Vice
President, Human Resources, The Americas Group from August 2014 to January 2016. Mr. Gilligan has been employed with
the Company since October 1983.
Mr. Jaye has served as Senior Vice President - Investor Relations and Corporate Communications since June 2019. Mr. Jaye
served as Vice President - Investor Relations from October 2017 to June 2019. Prior to joining the Company, Mr. Jaye served
as Senior Director, Communications and Investor Relations at Nordson Corporation, manufacturer of dispensing products and
systems, from October 2007 to October 2017. Mr. Jaye has been employed with the Company since October 2017.
Mr. Young has served as Vice President – Corporate Strategy and Development since June 2017. Prior to joining the Company
in connection with the acquisition of The Valspar Corporation, Mr. Young served as Vice President, Corporate Development of
Valspar from October 2015 to June 2017. Mr. Young has been employed with the Company since June 2017. Mr. Young was
named Senior Vice President – Corporate Strategy and Development effective March 1, 2021 and will become an executive
officer at that time.
16
Mr. Binns has served as President, Performance Coatings Group since November 2020. Mr. Binns served as President &
General Manager, Automotive Finishes Division, Performance Coatings Group from July 2018 to November 2020, President &
General Manager, Eastern Division, The Americas Group from October 2016 to July 2018 and Vice President of Sales, The
Americas Group from July 2014 to October 2016. Mr. Binns has been employed with the Company since January 2001.
Mr. Ippolito has served as President, The Americas Group since January 2018. Mr. Ippolito served as President & General
Manager, Mid Western Division, The Americas Group from November 2010 to January 2018. Mr. Ippolito has been employed
with the Company since May 1986.
Mr. Padden has served as President, Consumer Brands Group since November 2020. Mr. Padden served as Senior Vice
President of Sales, International, Consumer Brands Group from November 2019 to November 2020, Senior Vice President &
General Manager, EMEAI, Consumer Brands Group from January 2018 to November 2019 and Vice President of Sales, Retail
National Accounts, Consumer Brands Group from January 2014 to December 2017. Mr. Padden has been employed with the
Company since January 1996.
Mr. Sladek has served as President & General Manager, Global Supply Chain Division, Consumer Brands Group since January
2021. Mr. Sladek served within the Global Supply Chain Division, Consumer Brands Group as Senior Vice President, Global
Operations & Engineering from August 2020 to January 2021, Senior Vice President, International & Industrial Operations
from April 2019 to August 2020, Vice President, Excellence Initiatives from March 2017 to March 2019 and Vice President,
Engineering & Manufacturing Quality from June 2014 to March 2017. Mr. Sladek has been employed with the Company since
May 2007.
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange and traded under the symbol SHW. The number of shareholders
of record at January 31, 2021 was 5,431. The information regarding securities authorized for issuance under the Company’s
equity compensation plans is set forth in our Proxy Statement under the caption “Equity Compensation Plan Information” and is
incorporated by reference into Part III of this report.
Issuer Purchases of Equity Securities
The following table sets forth a summary of the Company’s purchases of common stock during the fourth quarter of 2020.
Period
October 1 – October 31
Share repurchase program (1)
Employee transactions (2)
November 1 – November 30
Share repurchase program (1)
Employee transactions (2)
Shares sold (3)
December 1 – December 31
Share repurchase program (1)
Employee transactions (2)
Shares sold (3)
Total
Share repurchase program (1)
Employee transactions (2)
Shares sold (3)
Total
Number of
Shares
Purchased
Average Price
Paid per
Share
Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plan
Maximum
Number
of Shares
that May
Yet Be
Purchased Under
the Plan
99,908
$
675.47
99,908
6,050,092
N/A
975,092
527
(100,000)
525,000
107
(75,000)
1,600,000
634
$
$
$
$
$
$
$
$
721.52
731.73
705.65
724.82
724.40
725.07
719.73
730.49
975,092
5,075,000
N/A
N/A
525,000
4,550,000
N/A
N/A
1,600,000
4,550,000
N/A
(175,000)
(1) Shares were purchased through the Company’s publicly announced share repurchase program. The Company had remaining authorization at
December 31, 2020 to purchase 4,550,000 shares. On February 17, 2021, the Board of Directors authorized the Company to purchase an additional
15,000,000 shares of the Company’s stock for treasury purposes. There is no expiration date specified for the program.
713.97
N/A
$
(2) All shares were delivered to satisfy the exercise price and/or tax withholding obligations by employees who exercised stock options or had shares of
restricted stock vest.
(3)
In 2019, 300,000 shares were transferred from the Company’s terminated domestic defined benefit plan surplus assets to a suspense account held
within a trust for the qualified replacement plan. In accordance with ASC 715, the transferred shares are treated as treasury stock. In the three months
ended December 31, 2020, 175,000 of the shares were sold.
18
Comparison of Cumulative Total Return
The following graph compares the cumulative total shareholder return on Sherwin-Williams common stock with the cumulative
five-year total return of the companies listed on the Standard & Poor’s 500 Stock Index and the peer groups of companies
selected on a line-of-business basis. For 2020, the Company revised its 2019 self-selected peer group to remove USG
Corporation (as a result of its acquisition in 2019) and add Axalta Coating Systems Ltd. The cumulative five-year total return
assumes $100 was invested on December 31, 2015 in Sherwin-Williams common stock, the S&P 500 and the 2019 and 2020
peer groups. The cumulative five-year total return, including reinvestment of dividends, represents the cumulative value
through December 31, 2020.
Comparison of Cumulative Five-Year Return
$300
$250
$200
$150
$100
2015
2016
2017
2018
2019
2020
Sherwin-Williams Co.
S&P 500 Index
2020 Peer Group
2019 Peer Group
2020 peer group of companies comprised of the following: Akzo Nobel N.V., Axalta Coating Systems Ltd., BASF SE, Genuine Parts Company, H.B. Fuller
Company, The Home Depot, Inc., Lowe’s Companies, Inc., Masco Corporation, Newell Brands Inc., PPG Industries, Inc., RPM International Inc., and Stanley
Black & Decker, Inc.
2019 peer group of companies comprised of the following: Akzo Nobel N.V., BASF SE, Genuine Parts Company, H.B. Fuller Company, The Home Depot,
Inc., Lowe’s Companies, Inc., Masco Corporation, Newell Brands Inc., PPG Industries, Inc., RPM International Inc., Stanley Black & Decker, Inc. and USG
Corporation (included through April 2019 when it was acquired by Gebr. Knauf KG).
19
ITEM 6. SELECTED FINANCIAL DATA
(millions of dollars, except per common share data)
Operations
Net sales
Cost of goods sold
Selling, general and administrative expenses
Amortization
Interest expense
Income before income taxes (2)
Net income (3)
Financial Position
Accounts receivable - net
Inventories
Working capital - net
Property, plant and equipment - net
Total assets (4)
Long-term debt
Total debt
Shareholders’ equity
Per Share Information
2020
2019
2018
2017 (1)
2016
$ 18,361.7 $ 17,900.8 $ 17,534.5 $ 14,983.8 $ 11,855.6
9,679.1
5,477.9
313.4
340.4
2,519.2
2,030.4
9,864.7
5,274.9
312.8
349.3
1,981.8
1,541.3
10,115.9
5,033.8
318.1
366.7
1,359.7
1,108.7
8,265.0
4,797.6
206.8
263.5
1,469.3
1,769.5
5,934.3
4,140.3
25.4
154.1
1,595.2
1,132.7
$
2,078.1 $
2,088.9 $
2,018.8 $
2,104.6 $
1,231.0
1,804.1
1,889.6
1,815.3
(3.0)
109.8
46.8
1,834.5
1,835.2
1,776.8
1,742.5
419.8
1,877.1
20,401.6
20,496.2
19,134.3
19,899.5
8,266.9
8,292.1
3,610.8
8,050.7
8,685.2
4,123.3
8,708.1
9,343.7
3,730.7
9,885.7
10,520.6
3,647.9
1,068.3
798.1
1,095.9
6,752.5
1,211.3
1,952.5
1,878.4
Average shares outstanding - diluted (thousands)
91,943
93,447
94,988
94,927
94,488
Book value
Net income - diluted (5)
Cash dividends
Financial Ratios
Return on sales
Asset turnover
Return on assets
Return on equity (6)
Dividend payout ratio (7)
Total debt to capitalization
Current ratio
Interest coverage (8)
Net working capital to sales
Effective income tax rate (9)
$
40.32 $
44.75 $
40.07 $
38.86 $
22.08
5.36
16.49
4.52
11.67
3.44
18.64
3.40
11.1 %
8.6 %
6.3 %
11.8 %
0.9 x
0.9 x
0.9 x
0.8 x
10.0 %
49.2 %
32.5 %
69.7 %
1.0
8.4 x
— %
19.4 %
7.5 %
41.3 %
38.7 %
67.8 %
1.0
6.7 x
0.6 %
22.2 %
5.8 %
30.4 %
18.5 %
71.5 %
1.0
4.7 x
0.3 %
18.5 %
8.9 %
94.2 %
28.4 %
74.3 %
1.1
6.6 x
2.8 %
25.1 %
20.20
11.99
3.36
9.6 %
1.8 x
16.8 %
130.5 %
30.1 %
51.0 %
1.3
11.4 x
6.7 %
29.0 %
20
General
Earnings before interest, taxes, depreciation and
amortization (EBITDA) (10)
Capital expenditures
Total technical expenditures (11)
Advertising expenditures
Repairs and maintenance
Depreciation
Shareholders of record (total count)
Number of employees (total count)
$
3,441.0 $
2,906.0 $
2,322.7 $
2,224.6 $
1,946.8
303.8
200.0
363.4
137.0
268.0
5,468
328.9
224.6
355.2
135.8
262.1
5,659
251.0
253.9
357.8
131.7
278.2
6,244
222.8
215.7
374.1
115.8
285.0
6,470
239.0
153.3
351.0
99.5
172.1
6,787
61,031
61,111
59,740
59,257
49,054
Sales per employee (thousands of dollars)
$
301 $
293 $
294 $
253 $
242
(1) 2017 includes Valspar financial results since June 1, 2017.
(2) 2020 includes acquisition-related amortization expense of $304.5 million. 2019 includes acquisition-related costs of $389.3 million, non-cash
trademark impairment charges of $122.1 million, domestic pension plan settlement expense of $32.4 million, as well as a Brazil indirect tax credit of
$50.8 million and a benefit from the resolution of the California litigation of $34.7 million. 2018 includes acquisition-related costs of $484.4 million,
environmental expense provisions of $167.6 million, California litigation expense of $136.3 million and domestic pension plan settlement expense of
$37.6 million. 2017 includes acquisition-related costs of $488.6 million.
(3) 2020 includes after-tax acquisition-related amortization expense of $230.0 million. 2019 includes after-tax acquisition-related costs of $299.6 million,
after-tax trademark impairment charges of $93.1 million, tax credit investment loss of $74.3 million and after-tax domestic pension plan settlement
expense of $25.0 million, partially offset by an after-tax Brazil indirect tax credit of $33.3 million and after-tax benefit from the resolution of the
California litigation of $26.1 million. 2018 includes after-tax acquisition-related costs of $394.4 million, after-tax environmental expense provisions
of $126.1 million, after-tax California litigation expense of $103.4 million and after-tax domestic pension plan settlement expense of $28.3 million.
2017 includes a one-time income tax benefit of $668.8 million from deferred income tax reductions resulting from the Tax Act (see Note 19 of Item
8) and includes after-tax acquisition-related costs of $329.4 million.
(4) Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (ASC 842) using the modified retrospective transition method. As a result,
total assets in 2020 and 2019 include operating lease right-of-use assets. See the Consolidated Balance Sheets and Note 8 in Item 8 for additional
information.
(5) 2020 includes a charge of $2.50 per share for acquisition-related amortization expense. 2019 includes charges of $3.21 per share for acquisition-
related costs, $1.00 per share for non-cash trademark impairment charges, a tax credit investment loss of $0.79 per share and domestic pension plan
settlement expense of $0.27 per share, partially offset by a Brazil indirect tax credit of $0.36 per share and a benefit from the resolution of the
California litigation of $0.28 per share. 2018 includes charges of $4.15 per share for acquisition-related costs, $1.32 per share for environmental
expense provisions, $1.09 per share for California litigation expense and $0.30 per share for domestic pension plan settlement expense. 2017 includes
a one-time benefit of $7.04 per share from deferred income tax reductions resulting from the Tax Act (see Note 19 of Item 8) and a charge of $3.47
per share for acquisition-related costs.
(6) Based on net income and shareholders’ equity at beginning of year.
(7) Based on cash dividends per common share and prior year’s diluted net income per common share.
(8) Ratio of income before income taxes and interest expense to interest expense.
(9) Based on income before income taxes. 2017 excludes impact of one-time income tax benefit primarily related to the Tax Act (see Note 19 of Item 8).
(10) EBITDA is a non-GAAP measure which management believes enhances the understanding of the Company’s operating performance. See the Non-
GAAP Financial Measures section within this Item 6 for additional information.
(11) See Note 1 to the Consolidated Financial Statements in Item 8 for additional information.
21
Non-GAAP Financial Measures
Management utilizes certain financial measures that are not in accordance with U.S. generally accepted accounting principles
(US GAAP) to analyze and manage the performance of the business. The required disclosures for these non-GAAP measures
are shown below. The Company provides such non-GAAP information in reporting its financial results to give investors
additional data to evaluate the Company’s operations. Management does not, nor does it suggest investors should, consider such
non-GAAP measures in isolation from, or in substitution for, financial information prepared in accordance with US GAAP.
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP financial measure defined as net income before income taxes and interest, depreciation and
amortization. Adjusted EBITDA is a non-GAAP financial measure that excludes the Valspar acquisition and other adjustments.
Management considers EBITDA and Adjusted EBITDA useful in understanding the operating performance of the Company.
The reader is cautioned that the Company’s EBITDA and Adjusted EBITDA should not be compared to other entities
unknowingly. Further, EBITDA and Adjusted EBITDA should not be considered alternatives to net income or net operating
cash as an indicator of operating performance or as a measure of liquidity. The reader should refer to the determination of net
income and net operating cash in accordance with US GAAP disclosed in the Statements of Consolidated Income and
Statements of Consolidated Cash Flows in Item 8.
The following table summarizes EBITDA and Adjusted EBITDA as calculated by management for the years indicated below:
(millions of dollars)
Net income
Interest expense
Income taxes
Depreciation
Amortization
EBITDA
Year Ended December 31,
2020
2019
$
2,030.4
$
1,541.3
340.4
488.8
268.0
313.4
349.3
440.5
262.1
312.8
3,441.0
2,906.0
Trademark impairment
Brazil indirect tax credit
California litigation expense
Domestic pension plan settlement expense
Integration costs
Adjusted EBITDA
122.1
(50.8)
(34.7)
32.4
81.8
$
3,441.0
$
3,056.8
Free Cash Flow
Free Cash Flow is a non-GAAP financial measure defined as Net operating cash, as shown in the Statements of Consolidated
Cash Flows, less the amount reinvested in the business for Capital expenditures and the return of investment to its shareholders
by the payment of cash dividends. Management considers Free Cash Flow to be a useful tool in its determination of appropriate
uses of the Company’s Net operating cash. The reader is cautioned that the Free Cash Flow measure should not be compared to
other entities unknowingly as it may not be comparable, and it does not consider certain non-discretionary cash flows, such as
mandatory debt and interest payments. The amount shown below should not be considered an alternative to Net operating cash
or other cash flow amounts provided in accordance with US GAAP as disclosed in the Statements of Consolidated Cash Flows
in Item 8.
The following table summarizes Free Cash Flow as calculated by management for the years indicated below:
(millions of dollars)
Year Ended December 31,
Net operating cash
Capital expenditures
Cash dividends
Free cash flow
2020
2019
$
3,408.6 $
2,321.3
(303.8)
(488.0)
(328.9)
(420.8)
$
2,616.8 $
1,571.6
22
Adjusted Diluted Net Income Per Share
Management of the Company believes that investors’ understanding of the Company’s operating performance is enhanced by
the disclosure of diluted net income per share excluding Valspar acquisition-related costs and other adjustments. This adjusted
earnings per share measurement is not in accordance with US GAAP. It should not be considered a substitute for earnings per
share in accordance with US GAAP and may not be comparable to similarly titled measures reported by other companies.
The following tables reconcile diluted net income per share computed in accordance with US GAAP to adjusted diluted net
income per share.
Diluted net income per share
Pre-Tax
Effect (1) After-Tax
22.08
$
Year Ended
December 31, 2020
Tax
Acquisition-related amortization expense (2)
$
3.31 $
.81
2.50
Adjusted diluted net income per share
$
24.58
Year Ended
December 31, 2019
Tax
Pre-Tax
Effect (1) After-Tax
16.49
$
Diluted net income per share
Trademark impairment
Brazil indirect tax credit
California litigation expense provision reduction
Tax credit investment loss
Domestic pension plan settlement expense
Total other adjustments
Integration costs (3)
Acquisition-related amortization expense (2)
$
1.31 $
(.54)
(.37)
.35
.75
.88
3.29
Total acquisition-related costs
$
4.17 $
.31
(.18)
(.09)
(.79)
.08
(.67)
.19
.77
.96
1.00
(.36)
(.28)
.79
.27
1.42
.69
2.52
3.21
Adjusted diluted net income per share
$
21.12
(1) The tax effect is calculated based on the statutory rate and the nature of the item, unless otherwise noted.
(2) Acquisition-related amortization expense consists primarily of the amortization of intangible assets related to the Valspar acquisition
and is included in Amortization.
(3) Integration costs consist primarily of professional service expenses, salaries and other employee-related expenses dedicated directly
to the integration effort, and severance expense. These costs are included in Selling, general and administrative and other expenses
and Cost of goods sold.
23
Adjusted Segment Profit
Management of the Company believes that investors’ understanding of the Company’s operating performance is enhanced by
the disclosure of segment profit excluding Valspar acquisition-related costs and other adjustments. This adjusted segment profit
measurement is not in accordance with US GAAP. It should not be considered a substitute for segment profit in accordance
with US GAAP and may not be comparable to similarly titled measures reported by other companies. The following tables
reconcile segment profit computed in accordance with US GAAP to adjusted segment profit.
Net external sales
Income before income taxes
as a % of Net external sales
Year Ended December 31, 2020
The Americas
Group
$
$
10,383.2
2,294.1
22.1 %
$
$
Consumer
Brands
Group
3,053.4
579.6
19.0 %
$
$
Performance
Coatings
Group
4,922.4
500.1
10.2 %
Administrative
Total
$
$
2.7 $
18,361.7
(854.6) $
2,519.2
13.7 %
Acquisition-related amortization expense (1)
90.5
213.1
0.9
304.5
Adjusted segment profit
$
2,294.1
$
670.1
$
713.2
$
(853.7) $
2,823.7
as a % of Net external sales
22.1 %
21.9 %
14.5 %
15.4 %
Year Ended December 31, 2019
The Americas
Group
$
$
10,171.9
2,056.5
20.2 %
$
$
Consumer
Brands
Group
2,676.8
373.2
13.9 %
$
$
Performance
Coatings
Group
5,049.2
379.1
7.5 %
5.1
117.0
Net external sales
Income before income taxes
as a % of Net external sales
Trademark impairment
Brazil indirect tax credit
California litigation expense provision reduction
Domestic pension plan settlement expense
Total other adjustments
—
5.1
117.0
Integration costs (2)
Acquisition-related amortization expense (1)
Total acquisition-related costs
—
91.2
91.2
215.5
215.5
Administrative
Total
$
$
2.9 $
17,900.8
(827.0) $
1,981.8
11.1 %
122.1
(50.8)
(34.7)
32.4
69.0
81.8
307.5
389.3
(50.8)
(34.7)
32.4
(53.1)
81.8
0.8
82.6
Adjusted segment profit
$
2,056.5
$
469.5
$
711.6
$
(797.5) $
2,440.1
13.6 %
as a % of Net external sales
(1) Acquisition-related amortization expense consists primarily of the amortization of intangible assets related to the Valspar acquisition
14.1 %
17.5 %
20.2 %
and is included in Amortization.
(2) Integration costs consist primarily of professional service expenses, salaries and other employee-related expenses dedicated directly
to the integration effort, and severance expense. These costs are included in Selling, general and administrative and other expenses
and Cost of goods sold
24
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25
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(dollars in millions, except as noted and per share data)
Company Background
The Sherwin-Williams Company, founded in 1866, and its consolidated wholly owned subsidiaries (collectively, the Company)
are engaged in the development, manufacture, distribution and sale of paint, coatings and related products to professional,
industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean
region and throughout Europe, Asia and Australia.
The Company is structured into three reportable segments – The Americas Group, Consumer Brands Group and Performance
Coatings Group (collectively, the Reportable Segments) – and an Administrative segment in the same way it is internally
organized for assessing performance and making decisions regarding allocation of resources. See Note 21 to the Consolidated
Financial Statements in Item 8 for additional information on the Company’s Reportable Segments.
Outlook
Beginning in early 2020, extraordinary and wide-ranging actions have been taken by international, federal, state, and local
public health and governmental authorities to contain and combat the outbreak and spread of a novel strain of coronavirus
(COVID-19). These actions have included, and continue to include, quarantines, physical distancing, face coverings,
restrictions on public gatherings and other health and safety protocols, stay-at-home orders, travel restrictions, mandatory
business closures, and other mandates that have substantially restricted individuals’ daily activities and curtailed or ceased
many businesses’ normal operations.
We have worked with government and health authorities to continue to operate our business during this crisis, including our
company-operated stores, manufacturing plants and other facilities, due to the essential nature of our products. We have
endeavored to follow recommended actions of government authorities and health officials in order to protect the health and
well-being of our employees, customers and their families worldwide by implementing online and phone ordering of products,
using curb side pickup or delivery, and implementing remote, alternate and flexible work arrangements where possible. We will
continue to work with government authorities and health officials in implementing appropriate safety measures, adapting as
recommendations and safety protocols evolve so that we may maintain our operations, keep our stores open and continue to
return employees who work in office environments.
The COVID-19 pandemic did not have a material adverse effect on our consolidated financial results for 2020. We have a
strong liquidity position, with $226.6 million in cash and $3.500 billion of unused capacity under our credit facilities at
December 31, 2020. The Company is in compliance with bank covenants and expects to remain in compliance. During the first
half of the year, we took actions to preserve liquidity and generate cash flow during the crisis. As the circumstances around the
COVID-19 pandemic remain fluid, we continue to actively monitor the pandemic’s impact to the Company worldwide,
including our financial position, liquidity, results of operations and cash flow, while managing our response to the crisis
through collaboration with employees, customers, suppliers, government authorities, health officials and other business
partners.
Please see Item 1A “Risk Factors” in Part I of this Annual Report on Form 10-K for further information regarding the current
and potential impact of the COVID-19 pandemic on the Company.
26
RESULTS OF OPERATIONS
The following discussion and analysis addresses comparisons of material changes in the consolidated financial statements for
the years ended December 31, 2020 and 2019. For comparisons of the years ended December 31, 2019 and 2018, see
Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 21, 2020.
Net Sales
Year Ended December 31,
2020
2019
$ Change
% Change
Net Sales:
The Americas Group
$
10,383.2 $
10,171.9 $
Consumer Brands Group
Performance Coatings Group
Administrative
Total
3,053.4
4,922.4
2.7
2,676.8
5,049.2
2.9
$
18,361.7 $
17,900.8 $
460.9
211.3
376.6
(126.8)
(0.2)
2.1 %
14.1 %
(2.5) %
(6.9) %
2.6 %
Consolidated net sales for 2020 increased due primarily to higher sales to most of the Consumer Brands Group’s retail
customers in the U.S. and Europe, and higher sales in residential repaint, DIY and new residential in the U.S. and Canada paint
stores in The Americas Group, partially offset by the impacts of COVID-19 on some end markets primarily served by the
Performance Coatings Group. Currency translation rate changes decreased 2020 consolidated net sales by 1.1%. Net sales of all
consolidated foreign subsidiaries decreased 2.7% to $3.581 billion for 2020 versus $3.679 billion for 2019 due primarily to
demand softness in certain industrial end markets globally and changes in The Americas Group’s store footprint outside of the
U.S. and Canada. Net sales of all operations other than consolidated foreign subsidiaries increased 3.9% to $14.781 billion for
2020 versus $14.222 billion for 2019.
Net sales in The Americas Group increased due primarily to higher residential repaint, DIY and new residential paint sales in
the U.S. and Canada, partially offset by the impacts of COVID-19 on demand in some end markets served. Net sales from
stores in U.S. and Canada open for more than twelve calendar months increased 2.7% in the year over last year’s comparable
period. Currency translation rate changes reduced net sales by 1.1% compared to 2019. During 2020, The Americas Group
opened 56 new stores and closed 40 redundant locations for a net increase of 16 stores, with a net increase of 38 new stores in
the U.S. and Canada. The total number of stores in operation at December 31, 2020 was 4,774 in the United States, Canada,
Latin America and the Caribbean. The Americas Group’s objective is to expand its store base an average of 2% each year,
primarily through internal growth. Sales of products other than paint decreased approximately 2.0% over last year. A discussion
of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of general
merchandise sold.
Net sales of the Consumer Brands Group increased in 2020 primarily due to higher volume sales to most of the group’s North
American and European retail customers from strong DIY demand. In 2021, the Consumer Brands Group plans to expand its
customer base and product assortment at existing customers.
The Performance Coatings Group’s net sales in 2020 decreased due primarily to softer end market demand in most businesses,
mostly due to the impacts of COVID-19, and unfavorable currency translation rate changes, partially offset by increased sales
in the packaging and coil divisions in all regions. Currency translation rate changes decreased net sales 1.6% compared to 2019.
In 2020, the Performance Coatings Group opened 1 new location, increasing the total to 282 branches open in the United States,
Canada, Mexico, South America, Europe and Asia at December 31, 2020. In 2021, the Performance Coatings Group plans to
continue expanding its worldwide presence, including improving its customer base and product offering.
Net sales in the Administrative segment, which primarily consists of external leasing revenue of excess headquarters space and
leasing of facilities no longer used by the Company in its primary business, decreased by an insignificant amount in 2020.
27
Income Before Income Taxes
The following tables presents the components of income before income taxes as a percentage of net sales:
(millions of dollars, except % of sales data)
Year Ended December 31,
2020
2019
% of Net Sales
% of Net Sales
Gross profit
$
8,682.6
47.3 % $
8,036.1
Selling, general, and administrative expenses
5,477.9
29.8 %
5,274.9
Other general expense - net
Amortization
Impairment of trademarks
Interest expense
Interest and net investment income
California litigation expense
Other expense - net
Income before income taxes
27.7
313.4
2.3
340.4
(3.6)
—
5.3
0.2 %
1.7 %
— %
1.9 %
— %
— %
— %
39.1
312.8
122.1
349.3
(25.9)
(34.7)
16.7
$
2,519.2
13.7 % $
1,981.8
44.9 %
29.5 %
0.2 %
1.7 %
0.7 %
2.0 %
(0.1) %
(0.2) %
— %
11.1 %
Consolidated gross profit increased $646.5 million in 2020 compared to the same period in 2019. Consolidated gross profit as a
percent to consolidated net sales increased to 47.3% in 2020 from 44.9% in 2019. Consolidated gross profit dollars and percent
improved as a result of favorable customer and product mix and moderating raw material costs, partially offset by unfavorable
currency translation rate changes.
The Americas Group’s gross profit for 2020 increased $388.2 million compared to the same period in 2019. The Americas
Group’s gross profit dollars and margin improved as a result of favorable customer and product mix and moderating raw
material costs. The Consumer Brands Group’s gross profit increased $221.0 million in 2020 compared to the same period in
2019. The Consumer Brands Group’s gross profit dollars and margin improved due primarily to higher volume sales, product
portfolio improvements and international cost reductions. The Performance Coatings Group’s gross profit for 2020 increased
$21.1 million compared to the same period in 2019. The Performance Coatings Group’s gross profit dollars and margin
improved due primarily to moderating raw material costs, partially offset by unfavorable currency translation rate changes.
Consolidated SG&A increased by $203.0 million due primarily to increased expenses to support higher sales levels and net new
store openings, partially offset by good cost control. SG&A increased as a percent of sales to 29.8% in 2020 from 29.5% in
2019 as a result of higher costs to support our higher sales levels and investments in future growth initiatives.
The Americas Group’s SG&A increased $159.3 million for the year due primarily to increased spending from new store
openings, additional sales reps and COVID-19 costs, partially offset by currency translation rate changes. The Consumer
Brands Group’s SG&A increased by $28.3 million for the year primarily to support higher sales levels. The Performance
Coatings Group’s SG&A increased by $8.7 million for the year primarily due to investments in information technology systems
and expenses related to COVID-19, partially offset by currency translation rate changes. The Administrative segment’s SG&A
increased $6.7 million primarily due to higher compensation, including incentive and stock-based compensation.
Other general expense - net decreased $11.4 million in 2020 compared to 2019. The decrease was primarily attributable to a
$25.5 million increase in gains from the sale and disposition of fixed assets, partially offset by a $14.1 million increase in
provisions for environmental matters in the Administrative segment. See Notes 9 and 18 to the Consolidated Financial
Statements in Item 8 for additional information concerning environmental matters and Other general expense - net, respectively.
As required by the Goodwill and Other Intangibles Topic of the ASC, management performed an annual impairment test of
goodwill and indefinite-lived intangible assets as of October 1, 2020. During the fourth quarter of 2020, the Company
recognized non-cash pre-tax impairment charges totaling $2.3 million related to recently acquired trademarks in the
Performance Coatings Group as a direct result of recent performance which reduced the long-term forecasted net sales in the
Asia Pacific region. During the fourth quarter of 2019, the Company recognized non-cash pre-tax impairment charges totaling
$122.1 million related to recently acquired 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
28
performance which reduced the long-term forecasted net sales and $15.7 million related to other recently acquired trademarks
in various regions. See Note 5 to the Consolidated Financial Statements in Item 8 for additional information.
Interest expense decreased $8.9 million in 2020 primarily due to lower average debt levels. Interest and net investment income
decreased $22.3 million in 2020 to $3.6 million. The decrease is primarily due to the recognition of an $18.8 million gain
during the fourth quarter of 2019 after the Company received a favorable court decision in Brazil related to the recovery of
certain indirect taxes previously paid over gross sales. See Note 18 to the Consolidated Financial Statements in Item 8 for
additional information on the Brazil indirect tax matter.
During the third quarter of 2019, the Company recognized a benefit of $34.7 million related to the California litigation. See
Note 10 to the Consolidated Financial Statements in Item 8 for additional information related to the litigation.
Other expense - net decreased by $11.4 million in 2020 compared to 2019 primarily due to a decrease in foreign currency
transaction related losses primarily in the Performance Coatings Group. In 2020, the Administrative segment recognized a
$21.3 million loss related to the extinguishment of the 2.75% Senior Notes due 2022. In 2019, the Administrative segment
recognized a $32.4 million charge for a domestic pension plan settlement and $14.8 million in losses related to the
extinguishment of the 2.25% Senior Notes due 2020 and 2.75% Senior Notes due 2022, partially offset by a $38.7 million gain
related to the recognition of indirect tax credits. There were no other items within Other income or Other expense that were
individually significant at December 31, 2020 or 2019. See Notes 6, 7 and 18 to the Consolidated Financial Statements in Item
8 for additional information related to debt, pensions and Other expense - net, respectively.
The following tables presents income before income taxes by segment and as a percentage of net sales by segment:
Income Before Income Taxes:
The Americas Group
Consumer Brands Group
Performance Coatings Group
Administrative
Total
Income Before Income Taxes as a % of Net Sales:
The Americas Group
Consumer Brands Group
Performance Coatings Group
Administrative
Total
nm - not meaningful
Income Tax Expense
Year Ended December 31,
2020
2019
$ Change
% Change
$
2,294.1
$
2,056.5
$
579.6
500.1
373.2
379.1
(854.6)
(827.0)
$
2,519.2
$
1,981.8
$
237.6
206.4
121.0
(27.6)
537.4
11.6 %
55.3 %
31.9 %
(3.3) %
27.1 %
22.1 %
19.0 %
10.2 %
nm
13.7 %
20.2 %
13.9 %
7.5 %
nm
11.1 %
The effective income tax rate for 2020 was 19.4% compared to 22.2% in 2019. The decrease in the effective rate was primarily
due to the recognition of a $74.3 million tax credit investment loss in 2019 related to the reversal of certain partnership tax
credits, partially offset by a reduction in research and development credits. The tax credit investment loss negatively impacted
the 2019 effective tax rate by 370 basis points. See Note 19 to the Consolidated Financial Statements in Item 8 for additional
information.
Net Income Per Share
Diluted net income per share for 2020 increased to $22.08 per share from $16.49 per share for 2019. Diluted net income per
share in 2020 included charges for acquisition-related amortization expense of $2.50 per share. Currency translation rate
changes decreased diluted net income per share in the year by $0.07 per share.
Diluted net income per share in 2019 included charges for acquisition-related costs of $3.21 per share and other adjustments
totaling $1.42 per share. Acquisition-related costs include integration costs (which primarily consist of professional service
29
expenses, salaries and other employee-related expenses dedicated directly to the integration effort, and severance expenses all
of which are included in Selling, general and administrative and other expenses and Cost of goods sold) and amortization of
intangible assets recognized in the June 2017 acquisition of Valspar (included in Amortization). Total other adjustments in 2019
included charges of $1.00 per share for non-cash trademark impairment charges, a tax credit investment loss of $0.79 per share
and pension plan settlement expense of $0.27 per share, partially offset by a Brazil indirect tax credit of $0.36 per share and a
benefit from the resolution of the California litigation of $0.28 per share.
FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW
Overview
The Company’s financial condition, liquidity and cash flow continued to be strong in 2020 as net operating cash increased to a
record $3.409 billion primarily due to improved operating results as consolidated income before income taxes increased to
$2.519 billion or 13.7% of net sales. Strong net operating cash provided the funds necessary for the Company to invest $303.8
million in capital expenditures, reduce total debt by $410.3 million and return $2.934 billion to shareholders in the form of cash
dividends and share buybacks during the year.
During 2020, the Company generated EBITDA of $3.441 billion. See the Non-GAAP Financial Measures section in Item 6 for
definition and calculation of EBITDA. As of December 31, 2020, the Company had Cash and cash equivalents of $226.6
million and total debt outstanding of $8.292 billion. Total debt, net of Cash and cash equivalents, was $8.066 billion and was
2.4 times the Company’s EBITDA in 2020.
Net Working Capital
Total current assets less Total current liabilities (net working capital) decreased $112.8 million to a deficit of $3.0 million at
December 31, 2020 from a surplus of $109.8 million at December 31, 2019. The net working capital decrease is due to both a
decrease in current assets and an increase in current liabilities. Accounts receivable decreased $10.8 million, Inventories
decreased $85.5 million, and Other current assets decreased $8.8 million primarily related to refundable income taxes. Current
liabilities excluding Short-term borrowings and the Current portion of long-term debt increased $681.8 million primarily due to
the timing of payments and higher incentive compensation, partially offset by a $609.3 million decrease in Short-term
borrowings and the Current portion of long-term debt.
As a result of the net effect of these changes, the Company’s current ratio decreased to 1.00 at December 31, 2020 from 1.02 at
December 31, 2019. Accounts receivable as a percent of net sales decreased to 11.3% in 2020 from 11.7% in 2019. Accounts
receivable days outstanding decreased to 57 days in 2020 from 61 days in 2019. In 2020, provisions for allowance for doubtful
collection of accounts increased $17.0 million, or 46.6%. Inventories as a percent of net sales decreased to 9.8% in 2020 from
10.6% in 2019. Inventory days outstanding decreased to 74 days in 2020 from 81 days in 2019. The Company has sufficient
total available borrowing capacity to fund its current operating needs.
Property, Plant and Equipment
Net property, plant and equipment decreased $0.7 million to $1.835 billion at December 31, 2020 due primarily to depreciation
expense of $268.0 million and sale or disposition of assets with remaining net book value of $46.9 million, partially offset by
capital expenditures of $303.8 million and currency translation and other adjustments of $10.4 million.
Capital expenditures during 2020 in The Americas Group were primarily attributable to the opening of new paint stores and
renovation and improvements in existing stores. In the Consumer Brands Group and the Performance Coatings Group, capital
expenditures during 2020 were primarily attributable to improvements and normal equipment replacements in manufacturing
and distribution facilities. The Administrative segment incurred capital expenditures primarily to acquire the land for the new
global headquarters (new headquarters) in downtown Cleveland, Ohio and a new research and development (R&D) center in
the Cleveland suburb of Brecksville. The Company expects to invest a minimum of $600 million of capital expenditures to
build both the new headquarters and R&D center. Construction on the new headquarters and R&D center is expected to
commence in 2021, with completion in 2024 at the earliest. The Company has not made any decisions regarding the disposition
of the Company’s current Cleveland-area headquarters and R&D centers, which are all owned by the Company.
In 2021, the Company expects to spend more than 2020 for capital expenditures. The predominant share of the capital
expenditures in 2021 is expected to be for various productivity improvement and maintenance projects at existing
manufacturing, distribution and research and development facilities, new store openings, new or upgraded information systems
hardware and the new global headquarters and R&D center in Ohio. The Company does not anticipate the need for any specific
long-term external financing to support these capital expenditures.
30
Goodwill and Intangible Assets
Goodwill, which represents the excess of cost over the fair value of net assets acquired in purchase business combinations,
increased $44.3 million in 2020 due to foreign currency translation rate fluctuations.
Intangible assets decreased $263.3 million in 2020 primarily due to amortization of finite-lived intangible assets of $313.4
million, impairment of indefinite-lived trademarks of $2.3 million, partially offset by foreign currency translation rate
fluctuations of $51.5 million. See Note 5 to the Consolidated Financial Statements in Item 8 for a description of goodwill,
identifiable intangible assets and asset impairments recognized in accordance with the Goodwill and Other Intangibles Topic of
the ASC and summaries of the remaining carrying values of goodwill and intangible assets.
Deferred Pension and Other Assets
Deferred pension assets of $53.1 million at December 31, 2020 represent the excess of the fair value of assets over the
actuarially determined projected benefit obligations. See Note 7 to the Consolidated Financial Statements in Item 8 and the
Defined Benefit Pension and Other Postretirement Benefit Plans section below.
Other assets increased $79.8 million to $641.2 million at December 31, 2020. The increase was primarily due to incremental
securities purchased with the proceeds generated from the sale of treasury shares to fund future contributions to the Company’s
Qualified Replacement Plan. See Notes 7 and 11 to the Consolidated Financial Statements in Item 8 for additional information
related to the Qualified Replacement Plan and the sale of treasury stock, respectively.
Debt
Total debt including Short-term borrowings decreased by $393.1 million to $8.292 billion in 2020. This was primarily
attributable to the repayment of Short-term borrowings and a net reduction in Long-term debt. In March 2020, the Company
issued $500.0 million of 2.30% Senior Notes due May 2030 and $500.0 million of 3.30% Senior Notes due May 2050 in a
public offering. The net proceeds from the issuance of these notes were used to repurchase a portion of the 2.75% Senior Notes
due 2022 and redeem the 2.25% Senior Notes due May 2020. The repurchase of the 2.75% Senior Notes due 2022 during the
first quarter of 2020 resulted in a loss of $21.3 million recorded in Other expense - net.
On July 19, 2018, the Company 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. 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, 2020 and 2019, there were no
short-term borrowings under this credit agreement.
On May 6, 2016, the Company entered into a five-year credit agreement, subsequently amended on multiple dates to extend the
maturity of the agreement. 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 $875.0 million at December 31, 2020. In September
2017, the Company entered into an additional five-year letter of credit agreement, subsequently amended on multiple dates to
extend the maturity of the agreement, with an aggregate availability of $625.0 million at December 31, 2020. Both of these
credit agreements are being used for general corporate purposes. At December 31, 2020 and 2019, there were no borrowings
outstanding under these credit agreements.
There were no borrowings outstanding under the Company’s domestic commercial paper program at December 31, 2020.
Borrowings outstanding under the Company’s domestic commercial paper program at December 31, 2019 were $191.9 million
with a weighted average interest rate of 2.1%. Borrowings outstanding under various foreign programs were $0.1 million and
$12.8 million at December 31, 2020 and 2019, respectively with a weighted average interest rate of 0.2% and 4.3%,
respectively.
At December 31, 2020, the Company had unused capacity under its various credit agreements of $3.500 billion.
See Note 6 to the Consolidated Financial Statements in Item 8 for a detailed description and summary of the Company’s
outstanding debt and other available financing programs.
Defined Benefit Pension and Other Postretirement Benefit Plans
In 2018, the Company terminated its domestic defined benefit pension plan for salaried employees (Terminated Plan) and the
participants were moved to a qualified replacement plan (Qualified Replacement Plan), which is the Company’s domestic
defined contribution plan. The surplus assets of the Terminated Plan are 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
31
included $131.8 million of Company common stock (300,000 shares). The shares are treated as treasury stock in accordance
with ASC 715. During 2020, the Company sold 275,000 treasury shares from the trust in the Company’s Qualified
Replacement Plan. The proceeds generated from the sale of the treasury shares were used to fund the Company’s 2020
contribution to the Qualified Replacement Plan and purchase securities held in a suspense account to fund future contributions
to the Company’s Qualified Replacement Plan. The Company’s domestic defined benefit pension plan for hourly employees
continues to operate.
In accordance with the accounting prescribed by the Retirement Benefits Topic of the ASC, the Company’s total liability for
unfunded or underfunded defined benefit pension plans increased $17.5 million to $110.3 million primarily due to changes in
the actuarial assumptions. The Company’s liability for other postretirement benefits increased $11.1 million to $291.6 million
at December 31, 2020 due primarily to changes in the actuarial assumptions.
The assumed discount rate used to determine the projected benefit obligation for domestic defined benefit pension plans was
2.9% at December 31, 2020 and 3.4% at December 31, 2019. The assumed discount rate used to determine the projected benefit
obligation for foreign defined benefit pension plans decreased to 1.6% at December 31, 2020 from 2.2% at December 31, 2019.
The decrease in the discount rates for both the domestic and foreign defined benefit pension plans was primarily due to lower
interest rates. The assumed discount rate used to determine the projected benefit obligation for other postretirement benefit
obligations decreased to 2.5% at December 31, 2020 from 3.2% at December 31, 2019 for the same reason.
The rate of compensation increases used to determine the projected benefit obligations at December 31, 2020 was 3.0% for the
domestic pension plan and 2.9% for foreign pension plans, which was comparable to the rates used in the prior year. In deciding
on the rate of compensation increases, management considered historical Company increases as well as expectations for future
increases. The expected long-term rate of return on assets remained 5.0% at December 31, 2020 for the domestic pension plan
and was slightly lower for most foreign plans. In establishing the expected long-term rate of return on plan assets for 2020,
management considered the historical rates of return, the nature of investments and an expectation for future investment
strategies. The assumed health care cost trend rates used to determine the net periodic benefit cost of other postretirement
benefits for 2020 were 5.3% and 9.0%, respectively, for medical and prescription drug cost increases, both decreasing gradually
to 4.5% in 2027. In developing the assumed health care cost trend rates, management considered industry data, historical
Company experience and expectations for future health care costs.
For 2021 net pension cost for the ongoing domestic pension plan, the Company will use a discount rate of 2.9%, an expected
long-term rate of return on assets of 5.0% and a rate of compensation increase of 3.0%. Lower discount rates and expected
long-term rates of return on plan assets will be used for most foreign plans. For 2021 net periodic benefit costs for other
postretirement benefits, the Company will use a discount rate of 2.5%. Net pension cost in 2021 for the ongoing domestic
pension plan is expected to be approximately $1.7 million. Net periodic benefit costs for other postretirement benefits in 2021 is
expected to be approximately $11.3 million. See Note 7 to the Consolidated Financial Statements in Item 8 for additional
information on the Company’s obligations and funded status of its defined benefit pension plans and other postretirement
benefits.
Deferred Income Taxes
Deferred income taxes at December 31, 2020 decreased $123.8 million from the prior year primarily due to the change in
deferred taxes as a result of the amortization of intangible assets in the current year. See Note 19 to the Consolidated Financial
Statements in Item 8 for additional information on deferred taxes.
Other Long-Term Liabilities
Other long-term liabilities increased $177.0 million during 2020 due primarily to legislatively authorized tax payment deferral
mechanisms available primarily for U.S. federal payroll withholding taxes until 2021 and 2022 and the net investment hedges
being in a net loss position at December 31, 2020. See Note 15 to the Consolidated Financial Statements in Item 8 for additional
information on the net investment hedges.
Environmental-Related Liabilities
The operations of the Company, like those of other companies in the same industry, are subject to various federal, state and
local environmental laws and regulations. These laws and regulations not only govern current operations and products, but also
impose potential liability on the Company for past operations. Management expects environmental laws and regulations to
impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that the
Company conducts its operations in compliance with applicable environmental laws and regulations and has implemented
various programs designed to protect the environment and promote continued compliance.
Depreciation of capital expenditures and other expenses related to ongoing environmental compliance measures were included
in the normal operating expenses of conducting business. The Company’s capital expenditures, depreciation and other expenses
32
related to ongoing environmental compliance measures were not material to the Company’s financial condition, liquidity, cash
flow or results of operations during 2020. Management does not expect that such capital expenditures, depreciation and other
expenses will be material to the Company’s financial condition, liquidity, cash flow or results of operations in 2021. See Note 9
to the Consolidated Financial Statements in Item 8 for further information on environmental-related long-term liabilities.
Contractual Obligations and Commercial Commitments
The Company has certain obligations and commitments to make future payments under contractual obligations and commercial
commitments. The following tables summarize such obligations and commitments as of December 31, 2020.
Contractual Obligations
Long-term debt
Interest on Long-term debt
Operating leases
Short-term borrowings
California litigation accrual
Real estate financing transactions
Purchase obligations (1)
Other contractual obligations (2)
Total contractual cash obligations
Payments Due by Period
Total
Less Than
1 Year
1–3 Years
3–5 Years
More Than
5 Years
$
8,359.8 $
25.1 $
661.3 $
1,150.3 $
6,523.1
4,580.4
2,017.7
0.1
64.7
204.4
364.3
228.2
306.5
441.3
0.1
12.0
14.0
364.3
99.1
576.6
711.3
24.0
29.0
44.8
537.0
455.9
28.7
30.5
30.4
3,160.3
409.2
130.9
53.9
$
15,819.6 $
1,262.4 $
2,047.0 $
2,232.8 $
10,277.4
(1) Relate to open purchase orders for raw materials at December 31, 2020.
(2) Relate primarily to estimated future capital contributions to investments in the U.S. affordable housing and historic renovation real estate partnerships
and various other contractual obligations.
Commercial Commitments
Standby letters of credit
Surety bonds
Total commercial commitments
Warranties
$
$
Amount of Commitment Expiration Per Period
Total
Less Than
1 Year
51.3 $
110.0
51.3
110.0
1–3 Years
3–5 Years
More Than
5 Years
161.3 $
161.3 $
— $
— $
—
The Company offers 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 2020, 2019 and 2018, including customer satisfaction settlements during the year, were as
follows:
Balance at January 1
Charges to expense
Settlements
Divestiture and other adjustments
Balance at December 31
2020
2019
2018
$
$
42.3
38.1
(37.1)
57.1
32.5
(47.3)
$
151.4
31.7
(57.8)
(68.2)
$
43.3
$
42.3
$
57.1
Warranty accruals acquired in connection with the Valspar acquisition in 2017 include warranties for certain products under
extended furniture protection plans. The decrease in the accrual in 2018 was primarily due to the divestiture of the furniture
protection plan business during the third quarter of 2018 for an immaterial amount that approximated net book value.
33
Shareholders’ Equity
Shareholders’ equity decreased $512.5 million to $3.611 billion at December 31, 2020 from $4.123 billion last year. The
decrease was primarily attributable to the Company repurchasing $2.446 billion in Treasury stock and declaring $488.0 million
in cash dividends, partially offset by $2.030 billion of net income, an increase of $250.8 million associated with the recognition
of stock-based compensation expense and stock option exercises, and an increase of $182.4 million from the issuance of
treasury stock during the year. During the fourth quarter of 2020, the Company retired 30.6 million common stock shares held
in treasury, which resulted in decreases of Common stock, Retained earnings and Treasury stock of $30.6 million, $8.062
billion, and $8.092 billion, respectively. See the Statements of Consolidated Shareholders’ Equity and Statements of
Consolidated Comprehensive Income in Item 8 for additional information.
The Company purchased 3.9 million shares of its common stock for treasury purposes through open market purchases during
2020. The Company acquires its common stock for general corporate purposes, and depending on its cash position and market
conditions, it may acquire shares in the future. The Company had remaining authorization from its Board of Directors at
December 31, 2020 to purchase 4.55 million shares of its common stock. On February 17, 2021, the Board of Directors
authorized the Company to purchase an additional 15.0 million shares of the Company's stock for treasury purposes.
The Company’s 2020 annual cash dividend of $5.36 per share represented 32.5% of 2019 diluted net income per share. The
2020 annual dividend represented the 42nd consecutive year of increased dividend payments since the dividend was suspended
in 1978. On February 17, 2021, the Board of Directors increased the quarterly cash dividend to $1.65 per share. This quarterly
dividend, if approved in each of the remaining quarters of 2021, would result in an annual dividend for 2021 of $6.60 per share
or a 30% payout of 2020 diluted net income per share.
On February 3, 2021, the Board of Directors approved and declared a three-for-one stock split in the form of a stock dividend.
Each shareholder of record at the close of business on March 23, 2021 will receive two additional common shares for each
then-held common share, to be distributed after close of trading on March 31, 2021.
Net Investment Hedges
In February 2020, the Company settled its $400.0 million U.S. Dollar to Euro cross currency swap contract entered into in May
2019 to hedge the Company’s net investment in its European operations. At the time of the settlement, an unrealized gain of
$11.8 million, net of tax, was recognized in Accumulated other comprehensive income (loss) (AOCI), a component of
Shareholders’ equity.
In February 2020, the Company also entered into two U.S. Dollar to Euro cross currency swap contracts to hedge the
Company’s net investment in its European operations. The contracts, which were designated as net investment hedges, have a
notional value of $500.0 million and $244.0 million, respectively, and mature on June 1, 2024 and November 15, 2021,
respectively. During the term of the $500.0 million 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. During the term of the $244.0 million contract, the Company will pay floating-
rate interest in Euros and receive floating-rate interest in U.S. Dollars.
As of December 31, 2020, the outstanding cross currency swap contracts were in a net loss position of $85.8 million with $31.0
million included in Other accruals and $54.8 million included in Other liabilities, respectively, on the consolidated balance
sheet. As of December 31, 2019, the outstanding cross currency swap contract was in a net gain position of $1.5 million. See
Note 15 to the Consolidated Financial Statements in Item 8 for additional information.
Cash Flow
Net operating cash increased $1.087 billion in 2020 to a cash source of $3.409 billion from $2.321 billion in 2019 due primarily
to an increase in net income and improved working capital management, partially offset by unfavorable changes in non-cash
items when compared to 2019. Net operating cash increased as a percent to sales to 18.6% in 2020 compared to 13.0% in 2019.
During 2020, strong net operating cash continued to provide the funds necessary to pay down total net debt, invest in new stores
and manufacturing and distribution facilities, and return cash to shareholders through treasury stock purchases and dividends
paid.
Net investing cash usage decreased $140.2 million to a usage of $322.4 million in 2020 from a usage of $462.6 million in 2019
due primarily to a decrease in cash used for acquisitions and an increase in proceeds from sale of assets. See Note 3 to the
Consolidated Financial Statements in Item 8 for additional information on the acquisitions in 2019.
Net financing cash usage increased $1.174 billion to a usage of $3.020 billion in 2020 from a usage of $1.846 billion in 2019
due primarily to an increase in treasury stock purchases, repayments of short-term borrowings and cash dividends paid, partially
offset by a decrease in long-term debt repayments and issuances, as well as the issuance of 275,000 shares of treasury stock
34
(which were associated with the domestic defined benefit plan terminated in 2018 as disclosed in Notes 7 and 11 to the
Consolidated Financial Statements in Item 8).
Litigation
See Note 10 to the Consolidated Financial Statements in Item 8 for information concerning litigation.
Market Risk
The Company is exposed to market risk associated with interest rate, foreign currency and commodity fluctuations. The
Company occasionally utilizes derivative instruments as part of its overall financial risk management policy, but does not use
derivative instruments for speculative or trading purposes. In 2020 and 2019, the Company entered into foreign currency
forward contracts with maturity dates of less than twelve months primarily to hedge against value changes in foreign currency
and cross currency swap contracts to hedge its net investment in European operations. See Notes 1, 15 and 18 to the
Consolidated Financial Statements in Item 8 for additional information related to the Company’s use of derivative instruments.
The Company believes it may be exposed to continuing market risk from foreign currency exchange rate and commodity price
fluctuations. However, the Company does not expect that foreign currency exchange rate and commodity price fluctuations or
hedging contract losses will have a material adverse effect on the Company’s financial condition, results of operations or cash
flows.
Financial Covenant
Certain borrowings contain a consolidated leverage covenant. The covenant states the Company’s leverage ratio is not to
exceed 3.75 to 1.00. The leverage ratio is defined as the ratio of total indebtedness (the sum of Short-term borrowings, Current
portion of long-term debt and Long-term debt) at the reporting date to consolidated “Earnings Before Interest, Taxes,
Depreciation and Amortization” (EBITDA) for the 12-month period ended on the same date. Refer to the “Non-GAAP
Financial Measures” section in Item 6 for a reconciliation of EBITDA to net income. At December 31, 2020, the Company was
in compliance with the covenant. The Company’s Notes, Debentures and revolving credit agreement contain various default
and cross-default provisions. In the event of default under any one of these arrangements, acceleration of the maturity of any
one or more of these borrowings may result. See Note 6 to the Consolidated Financial Statements in Item 8 for additional
information.
Employee Stock Ownership Plan
Participants in the Employee Stock Purchase and Savings Plan, the Company’s employee stock ownership plan (ESOP), are
allowed to contribute up to the lesser of 50% of their annual compensation and the maximum dollar amount allowed under the
Internal Revenue Code. The Company matches 6% of eligible employee contributions. The Company’s matching contributions
to the ESOP charged to operations were $120.0 million in 2020 compared to $111.9 million in 2019. At December 31, 2020,
there were 7,318,468 shares of the Company’s common stock being held by the ESOP, representing 8.2% of the total number of
voting shares outstanding. See Note 12 to the Consolidated Financial Statements in Item 8 for additional information
concerning the Company’s ESOP.
35
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (US GAAP) requires
management to make estimates and assumptions that affect amounts reported in the accompanying consolidated financial
statements. These determinations were made based upon management’s best estimates, judgments and assumptions that were
believed to be reasonable under the circumstances, giving due consideration to materiality. We do not believe there is a great
likelihood that materially different amounts would be reported under different conditions or using different assumptions related
to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment
and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
All of the significant accounting policies that were followed in the preparation of the consolidated financial statements are
disclosed in Note 1 to the Consolidated Financial Statements in Item 8. Management believes that the following critical
accounting policies and estimates have a significant impact on our consolidated financial statements.
Inventories
Inventories were stated at the lower of cost or net realizable value with cost determined principally on the last-in, first-out
(LIFO) method based on inventory quantities and costs determined during the fourth quarter. Inventory quantities were adjusted
during the fourth quarter as a result of annual physical inventory counts taken at all locations. If inventories accounted for on
the LIFO method are reduced on a year-over-year basis, then liquidation of certain quantities carried at costs prevailing in prior
years occurs. Management recorded the best estimate of net realizable value for obsolete and discontinued inventories based on
historical experience and current trends through reductions to inventory cost by recording a provision included in Cost of goods
sold. If management estimates that the reasonable market value is below cost or determines that future demand was lower than
current inventory levels, based on historical experience, current and projected market demand, current and projected volume
trends and other relevant current and projected factors associated with the current economic conditions, a reduction in inventory
cost to estimated net realizable value is provided for in the reserve for obsolescence. See Note 4 to the Consolidated Financial
Statements in Item 8 for more information regarding the impact of the LIFO inventory valuation and the reserve for
obsolescence.
Goodwill and Intangible Assets
In accordance with the Goodwill and Other Intangibles Topic of the ASC, management performs impairment tests of goodwill
and indefinite-lived intangible assets on an annual basis, as well as whenever an event occurs or circumstances change that
indicate impairment has more likely than not occurred. An optional qualitative assessment allows companies to skip the annual
quantitative test if it is not more likely than not that impairment has occurred based on monitoring key Company financial
performance metrics and macroeconomic conditions. The qualitative assessment is performed when deemed appropriate.
In accordance with the Goodwill and Other Intangibles Topic of the ASC, management tests goodwill for impairment at the
reporting unit level. A reporting unit is an operating segment per the Segment Reporting Topic of the ASC or one level below
the operating segment (component level) as determined by the availability of discrete financial information that is regularly
reviewed by operating segment management or an aggregate of component levels of an operating segment having similar
economic characteristics. At the time of goodwill impairment testing (if performing a quantitative assessment), management
determines fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate
with the risks involved for each reporting unit. If the calculated fair value is less than the current carrying value, then
impairment of the reporting unit exists. The use of a discounted cash flow valuation model to determine estimated fair value is
common practice in impairment testing. The key assumptions used in the discounted cash flow valuation model for impairment
testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the
Weighted Average Cost of Capital (“WACC”) methodology. The WACC methodology considers market and industry data as
well as Company-specific risk factors for each reporting unit in determining the appropriate discount rates to be used. The
discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such
a business. Operational management, considering industry and Company-specific historical and projected data, develops growth
rates, sales projections and cash flow projections for each reporting unit. Terminal value rate determination follows common
methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a
constant WACC and low long-term growth rates. As an indicator that each reporting unit has been valued appropriately through
the use of the discounted cash flow valuation model, the aggregate of all reporting units’ fair value is reconciled to the total
market capitalization of the Company.
The Company had seven components, some of which are aggregated due to similar economic characteristics, to form three
reporting units (also the operating segments) with goodwill as of October 1, 2020, the date of the annual impairment test. The
annual impairment review performed as of October 1, 2020 did not result in any of the reporting units having impairment or
deemed at risk for impairment.
36
In accordance with the Goodwill and Other Intangibles Topic of the ASC, management tests indefinite-lived intangible assets
for impairment at the asset level, as determined by appropriate asset valuations at acquisition. Management utilizes the royalty
savings method and valuation model to determine the estimated fair value for each indefinite-lived intangible asset or
trademark. In this method, management estimates the royalty savings arising from the ownership of the intangible asset. The
key assumptions used in estimating the royalty savings for impairment testing include discount rates, royalty rates, growth rates,
sales projections, terminal value rates and, to a lesser extent, tax rates. Discount rates used are similar to the rates developed by
the WACC methodology considering any differences in Company-specific risk factors between reporting units and trademarks.
Royalty rates are established by management and valuation experts and periodically substantiated by valuation experts.
Operational management, considering industry and Company-specific historical and projected data, develops growth rates and
sales projections for each significant trademark. Terminal value rate determination follows common methodology of capturing
the present value of perpetual sales estimates beyond the last projected period assuming a constant WACC and low long-term
growth rates. The royalty savings valuation methodology and calculations used in 2020 impairment testing are consistent with
prior years. The annual impairment review performed as of October 1, 2020 resulted in the Company recognizing non-cash pre-
tax impairment charges totaling $2.3 million related to lower than anticipated sales of an acquired indefinite-lived trademark.
The discounted cash flow and royalty savings valuation methodologies require management to make certain assumptions based
upon information available at the time the valuations are performed. Actual results could differ from these assumptions.
Management believes the assumptions used are reflective of what a market participant would have used in calculating fair value
considering the current economic conditions. See Note 5 to the Consolidated Financial Statements in Item 8 for a discussion of
goodwill and intangible assets and the impairment tests performed in accordance with the Goodwill and Other Intangibles
Topic of the ASC.
Valuation of Long-Lived Assets
In accordance with the Property, Plant and Equipment Topic of the ASC, if events or changes in circumstances indicated that
the carrying value of long-lived assets, including Operating lease right-of-use assets, may not be recoverable or the useful life
had changed, impairment tests were performed or the useful life was adjusted. 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. If the
usefulness of an asset was determined to be impaired, then management estimated a new useful life based on the period of time
for projected uses of the asset. Fair value approaches and changes in useful life required management to make certain
assumptions based upon information available at the time the valuation or determination was performed. Actual results could
differ from these assumptions. Management believes the assumptions used are reflective of what a market participant would
have used in calculating fair value or useful life considering the current economic conditions. All tested long-lived assets or
groups of long-lived assets had undiscounted cash flows that were substantially in excess of their carrying value. See Note 5 to
the Consolidated Financial Statements in Item 8 for a discussion of the reductions in carrying value or useful life of long-lived
assets in accordance with the Property, Plant and Equipment Topic of the ASC. See Note 1 to the Consolidated Financial
Statements in Item 8 for the Property, Plant and Equipment accounting policy.
Defined Benefit Pension and Other Postretirement Benefit Plans
To determine the Company’s ultimate obligation under its defined benefit pension plans and other postretirement benefit plans ,
management must estimate the future cost of benefits and attribute that cost to the time period during which each covered
employee works. To determine the obligations of such benefit plans, management uses actuaries to calculate such amounts
using key assumptions such as discount rates, inflation, long-term investment returns, mortality, employee turnover, rate of
compensation increases and medical and prescription drug costs. Management reviews all of these assumptions on an ongoing
basis to ensure that the most current information available is being considered. An increase or decrease in the assumptions or
economic events outside management’s control could have a direct impact on the Company’s results of operations or financial
condition.
In accordance with the Retirement Benefits Topic of the ASC, the Company recognizes each plan’s funded status as an asset for
overfunded plans and as a liability for unfunded or underfunded plans. Actuarial gains and losses and prior service costs are
recognized and 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 and net
periodic benefit costs.
In 2021, pension costs are expected to decrease slightly and other postretirement benefit plan costs are expected to increase
slightly based on the actuarial assumptions being applied. See Note 7 to the Consolidated Financial Statements in Item 8 for
information concerning the Company’s defined benefit pension plans and other postretirement benefit plans.
37
Environmental Matters
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). 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 mostly undiscounted, 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. Actual costs incurred may vary from the accrued estimates due to the
inherent uncertainties involved. See Note 9 to the Consolidated Financial Statements in Item 8 for information concerning the
accrual for extended environmental-related activities and a discussion concerning unaccrued future loss contingencies.
Litigation and Other Contingent Liabilities
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. Management believes that the Company has properly accrued for all known liabilities that existed and those
where a loss was deemed probable for which a fair value was available or an amount could be reasonably estimated in
accordance with US GAAP. However, because litigation is inherently subject to many uncertainties and the ultimate result of
any present or future litigation is unpredictable, the Company’s ultimate liability may result in costs that are significantly higher
than currently accrued. In the event that the Company’s loss contingency is ultimately determined to be significantly higher
than currently accrued, 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 involved, 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. See Note 10 to the Consolidated Financial Statements in Item 8 for information
concerning litigation.
Income Taxes
The Company estimated income taxes for each jurisdiction that it operated in. This involved estimating taxable earnings,
specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets
and possible exposures related to future tax audits. To the extent these estimates change, adjustments to deferred and accrued
income taxes will be made in the period in which the changes occur.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in
the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate resolution. These assessments of uncertain tax positions contain judgments related to
the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a
point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or
further interpretations of, tax laws and regulations. Income tax expense is adjusted in our Statements of Consolidated Income in
the period in which these events occur. See Note 19 to the Consolidated Financial Statements in Item 8 for information
concerning income taxes.
38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk associated with interest rates, foreign currency and commodity fluctuations. We occasionally
utilize derivative instruments as part of our overall financial risk management policy, but do not use derivative instruments for
speculative or trading purposes. In 2019 and 2020, the Company entered into U.S. Dollar to Euro cross currency swap contracts
to hedge the Company’s net investment in its European operations. The contracts have been designated as net investment
hedges and have various maturity dates. See Note 15 to the Consolidated Financial Statements in Item 8. The Company entered
into forward foreign currency exchange contracts during 2020 to hedge against value changes in foreign currency. There were
no material contracts outstanding at December 31, 2020. Forward foreign currency exchange contracts are described in Note 18
to the Consolidated Financial Statements in Item 8. We believe we may experience continuing losses from foreign currency
fluctuations. However, we do not expect currency translation, transaction or hedging contract losses to have a material adverse
effect on our financial condition, results of operations or cash flows.
39
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40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
Report of Management on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on the Consolidated
Financial Statements
Statements of Consolidated Income
Statements of Consolidated Comprehensive Income
Consolidated Balance Sheets
Statements of Consolidated Cash Flows
Statements of Consolidated Shareholders’ Equity
Notes to Consolidated Financial Statements
Page
42
43
44
45
48
49
50
51
52
53
41
Report of Management
On Internal Control Over Financial Reporting
Shareholders of The Sherwin-Williams Company
We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. We recognize that internal control over
financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that involves human diligence and is subject to the possibility
of human error or the circumvention or the overriding of internal control. Therefore, there is a risk that material misstatements
may not be prevented or detected on a timely basis by internal control over financial reporting. However, we believe we have
designed into the process safeguards to reduce, though not eliminate, this risk. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In order to ensure that the Company’s internal control over financial reporting was effective as of December 31, 2020, we
conducted an assessment of its effectiveness under the supervision and with the participation of our management group,
including our principal executive officer and principal financial officer. This assessment was based on the criteria established in
the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on our assessment of internal control over financial reporting under the criteria established in Internal Control –
Integrated Framework, we have concluded that, as of December 31, 2020, the Company’s internal control over financial
reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal
control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered
public accounting firm, and their report on the effectiveness of our internal control over financial reporting is included on page
43 of this report.
J. G. Morikis
Chairman and Chief Executive Officer
A. J. Mistysyn
Senior Vice President - Finance and Chief Financial Officer
J. M. Cronin
Senior Vice President - Corporate Controller
42
Report of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
To the Shareholders and Board of Directors and Shareholders of The Sherwin-Williams Company
Opinion on Internal Control over Financial Reporting
We have audited The Sherwin-Williams Company’s internal control over financial reporting as of December 31, 2020, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Sherwin-Williams Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of The Sherwin-Williams Company as of December 31, 2020, 2019, and 2018, the
related statements of consolidated income, comprehensive income, cash flows and shareholders’ equity for each of the three
years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in Item 15(a) and
our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of
Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Cleveland, Ohio
February 19, 2021
43
Report of Management
On the Consolidated Financial Statements
Shareholders of The Sherwin-Williams Company
We are responsible for the preparation and fair presentation of the consolidated financial statements, accompanying notes and
related financial information included in this report of The Sherwin-Williams Company and its consolidated subsidiaries
(collectively, the “Company”) as of December 31, 2020, 2019 and 2018 and for the years then ended in accordance with U.S.
generally accepted accounting principles. The consolidated financial information included in this report contains certain
amounts that were based upon our best estimates, judgments and assumptions that we believe were reasonable under the
circumstances.
We have conducted an assessment of the effectiveness of internal control over financial reporting based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As discussed in the Report of Management on Internal Control Over Financial Reporting on page 42 of this
report, we concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020.
The Board of Directors pursues its responsibility for the oversight of the Company’s accounting policies and procedures,
financial statement preparation and internal control over financial reporting through the Audit Committee, comprised
exclusively of independent directors. The Audit Committee is responsible for the appointment and compensation of the
independent registered public accounting firm. The Audit Committee meets at least quarterly with financial management,
internal auditors and the independent registered public accounting firm to review the adequacy of financial controls, the
effectiveness of the Company’s internal control over financial reporting and the nature, extent and results of the audit effort.
Both the internal auditors and the independent registered public accounting firm have private and confidential access to the
Audit Committee at all times.
We believe that the consolidated financial statements, accompanying notes and related financial information included in this
report fairly reflect the form and substance of all material financial transactions and fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows as of and for the periods presented.
J. G. Morikis
Chairman and Chief Executive Officer
A. J. Mistysyn
Senior Vice President - Finance and Chief Financial Officer
J. M. Cronin
Senior Vice President - Corporate Controller
44
Report of Independent Registered Public Accounting Firm
On the Consolidated Financial Statements
To the Shareholders and the Board of Directors of The Sherwin-Williams Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Sherwin-Williams Company (the “Company”) as of
December 31, 2020, 2019 and 2018, the related statements of consolidated income, comprehensive income, cash flows and
shareholders’ equity for each of the three years in the period ended December 31, 2020, and the related notes and the financial
statement schedule listed in Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2020, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
45
Description of the Matter
How We Addressed the Matter
in Our Audit
Gibbsboro environmental-related accrual
As described in Note 9 to the consolidated financial statements, the Company
had short-term and long-term accruals for environmental-related activities of
$68.6 million and $300.5 million, respectively, at December 31, 2020. The
Company’s largest and most complex site is the Gibbsboro, New Jersey site
(“Gibbsboro”) and the substantial majority of the environmental-related accrual
relates to this site. Gibbsboro consists of six operable units which contain a
combination of soil, waterbodies and groundwater contamination, and are in
various phases of investigation and remediation with the Environmental
Protection Agency (“EPA”). The Company’s estimated environmental-related
accrual for Gibbsboro is based on industry standards and professional
judgement, and the most significant assumptions underlying the estimated cost
of remediation efforts reserved for Gibbsboro are the types and extent of
contamination.
Auditing the Company’s environmental-related accrual at the Gibbsboro site
required complex judgement due to the inherent challenges in identifying the
type and extent of future remedies and the costs of implementing those remedies
in determining the probable and reasonably estimable loss for which the
Company will be responsible.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company's processes to estimate the
Gibbsboro environmental-related accrual. For example, we tested controls over
management’s review of the environmental loss calculations and the key
assumptions affecting those calculations as described above.
To test the Gibbsboro environmental-related accrual, our audit procedures
included, among others, a review of correspondence with the EPA supporting
the Company’s assessment of the type and extent of contamination at the
Gibbsboro site for which the Company is responsible. We involved our
environmental specialists to confirm our understanding of the remediation plans
for the most significant operable units within the Gibbsboro site and to evaluate
the Company's methodology and assumptions to estimate the unit cost and
extent of contamination in accordance with industry practice, applicable laws
and regulations. We recalculated the remediation cost estimate based on unit
cost and estimated extent of remediation required. We reconciled types and
extent of contamination identified in communications between the Company
and the EPA to the Company’s remediation cost estimates recorded for
Gibbsboro and confirmed a sample of underlying cost estimates with third-
parties. We also conducted a search for publicly available information that
might indicate facts contrary to the types and extent of contamination currently
identified in the Company’s remediation cost estimates recorded for Gibbsboro.
We have served as the Company’s auditor since 1908.
Cleveland, Ohio
February 19, 2021
46
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47
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(millions of dollars, except per share data)
Net sales
Cost of goods sold
Gross profit
Percent to net sales
Selling, general and administrative expenses
Percent to net sales
Other general expense - net
Amortization
Impairment of trademarks
Interest expense
Interest and net investment income
California litigation expense
Other expense - net
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
2020
Year Ended December 31,
2019
$
18,361.7
$
17,900.8
$
9,679.1
8,682.6
47.3 %
5,477.9
29.8 %
27.7
313.4
2.3
340.4
(3.6)
—
5.3
2,519.2
488.8
9,864.7
8,036.1
44.9 %
5,274.9
29.5 %
39.1
312.8
122.1
349.3
(25.9)
(34.7)
16.7
1,981.8
440.5
2,030.4
$
1,541.3
$
2018
17,534.5
10,115.9
7,418.6
42.3 %
5,033.8
28.7 %
189.1
318.1
—
366.7
(5.2)
136.3
20.1
1,359.7
251.0
1,108.7
22.45
22.08
$
$
16.79
16.49
$
$
11.92
11.67
90,425,861
91,942,623
91,803,528
93,446,842
92,992,457
94,988,070
$
$
$
48
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(millions of dollars)
Net income
Other comprehensive loss, net of tax:
Year Ended December 31,
2019
2020
2018
$ 2,030.4
$ 1,541.3
$ 1,108.7
Foreign currency translation adjustments (1)
(14.1)
(49.8)
(254.3)
Pension and other postretirement benefit adjustments:
Amounts recognized in Other comprehensive loss (2)
Amounts reclassified from Other comprehensive loss (3)
Unrealized net gains on cash flow hedges:
Amounts reclassified from Other comprehensive loss (4)
(19.4)
1.4
(18.0)
(5.1)
22.3
17.2
(13.5)
31.3
17.8
(6.7)
(8.7)
(6.2)
Other comprehensive loss, net of tax
(38.8)
(41.3)
(242.7)
Comprehensive income
$ 1,991.6
$ 1,500.0
$
866.0
(1) The years ended December 31, 2020 and 2019 include unrealized losses of $(54.0) million, net of taxes, and unrealized gains of $1.1 million, net of
taxes, respectively, related to net investment hedges.
(2) Net of taxes of $3.4 million, $1.3 million and $6.8 million in 2020, 2019 and 2018, respectively.
(3) Net of taxes of $(0.4) million, $(7.3) million and $(10.2) million in 2020, 2019 and 2018, respectively.
(4) Net of taxes of $2.2 million, $2.8 million and $2.1 million in 2020, 2019 and 2018, respectively.
See notes to consolidated financial statements.
49
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets
Operating lease right-of-use assets
Deferred pension assets
Other assets
Total Assets
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings
Accounts payable
Compensation and taxes withheld
Accrued taxes
Current portion of long-term debt
California litigation accrual
Current portion of operating lease liabilities
Other accruals
Total current liabilities
Long-term debt
Postretirement benefits other than pensions
Deferred income taxes
Long-term operating lease liabilities
Other long-term liabilities
Shareholders’ equity:
Common stock - $1.00 par value:
89.6, 92.1, and 93.1 million shares outstanding
at December 31, 2020, 2019 and 2018, respectively
Other capital
Retained earnings
Treasury stock, at cost
Accumulated other comprehensive loss
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
See notes to consolidated financial statements.
50
December 31,
2020
2019
2018
$
226.6
$
161.8
$
155.5
2,078.1
1,804.1
482.6
4,591.4
1,834.5
7,049.1
4,471.2
1,761.1
53.1
641.2
2,088.9
1,889.6
491.4
4,631.7
1,835.2
7,004.8
4,734.5
1,685.6
43.0
561.4
2,018.8
1,815.3
354.9
4,344.5
1,776.8
6,956.7
5,201.6
270.7
584.0
$ 20,401.6
$ 20,496.2
$ 19,134.3
$
0.1
$
204.7
$
328.4
2,117.8
1,876.3
1,799.4
752.7
183.5
25.1
12.0
387.3
1,115.9
4,594.4
8,266.9
275.6
846.1
1,434.1
1,373.7
552.7
85.7
429.8
12.0
371.6
989.1
4,521.9
8,050.7
263.0
969.9
1,370.7
1,196.7
504.5
80.8
307.2
136.3
1,141.1
4,297.7
8,708.1
257.6
1,130.9
1,009.3
89.9
3,491.4
844.3
(96.5)
(718.3)
3,610.8
119.4
3,153.0
7,366.9
118.4
2,896.4
6,246.5
(5,836.5)
(4,900.7)
(679.5)
4,123.3
(629.9)
3,730.7
$ 20,401.6
$ 20,496.2
$ 19,134.3
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(millions of dollars)
Operating Activities
Net income
Adjustments to reconcile net income to net operating cash:
Depreciation
Non-cash lease expense
Amortization of intangible assets
Loss on extinguishment of debt
Impairment of trademarks
Amortization of credit facility and debt issuance costs
Provisions for environmental-related matters
Deferred income taxes
Defined benefit pension plans net cost
Stock-based compensation expense
Decrease in non-traded investments
(Gain) loss on sale or disposition of assets
Other
Change in working capital accounts:
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
Increase in accounts payable
Increase in accrued taxes
Increase in accrued compensation and taxes withheld
Decrease (increase) in refundable income taxes
(Decrease) increase in California litigation accrual
Other
Change in operating lease liabilities
Costs incurred for environmental-related matters
Other
Net operating cash
Investing Activities
Capital expenditures
Acquisitions of businesses, net of cash acquired
Proceeds from sale of assets
Increase in other investments
Net investing cash
Financing Activities
Net decrease in short-term borrowings
Proceeds from long-term debt
Payments of long-term debt
Payments for credit facility and debt issuance costs
Payments of cash dividends
Proceeds from stock options exercised
Treasury stock purchased
Proceeds from treasury stock issued
Proceeds from real estate financing transactions
Other
Net financing cash
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Taxes paid on income
Interest paid on debt
See notes to consolidated financial statements.
Year Ended December 31,
2020
2019
2018
$
2,030.4 $
1,541.3 $
1,108.7
268.0
381.3
313.4
21.3
2.3
7.2
37.1
(145.3)
7.6
95.9
84.8
(9.4)
(6.9)
10.3
84.4
227.2
99.2
197.7
40.6
(12.0)
(50.0)
(371.4)
(39.0)
133.9
3,408.6
(303.8)
60.7
(79.3)
(322.4)
(204.6)
999.0
(1,204.7)
(10.0)
(488.0)
182.7
(2,446.3)
182.4
(30.6)
(3,020.1)
262.1
370.8
312.8
14.8
122.1
9.2
23.0
(131.1)
43.1
101.7
82.3
16.1
10.2
(73.2)
(75.5)
36.2
5.1
49.6
(47.8)
(59.6)
18.8
(368.4)
(26.1)
83.8
2,321.3
(328.9)
(77.3)
6.9
(63.3)
(462.6)
(122.8)
1,332.8
(1,875.8)
(13.6)
(420.8)
154.6
(778.8)
7.2
(129.2)
(1,846.4)
(1.3)
64.8
161.8
226.6 $
437.2 $
340.8
(6.0)
6.3
155.5
161.8 $
407.5 $
336.1
$
$
51
278.2
318.1
12.1
176.3
(143.4)
36.4
82.6
72.5
12.8
(14.8)
18.4
(119.5)
113.8
2.7
4.6
20.1
136.3
(46.7)
(17.7)
(107.8)
1,943.7
(251.0)
38.4
(39.0)
(251.6)
(300.9)
(852.6)
(5.2)
(322.9)
90.7
(613.3)
225.3
32.2
(1,746.7)
5.9
(48.7)
204.2
155.5
292.2
368.0
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
Balance at December 31, 2018
118.4
2,896.4
0.8
172.4
0.8
(millions of dollars, except per share data)
Balance at January 1, 2018
Net income
Other comprehensive loss
Adjustment to initially adopt ASU 2016-01
Treasury stock purchased
Stock-based compensation activity
Other adjustments
Cash dividends -- $3.44 per share
Net income
Other comprehensive loss
Adjustment to initially adopt ASU 2016-02
Adjustment to initially adopt ASU 2018-02
Treasury stock purchased
Treasury stock transferred from defined
benefit pension plan
Stock-based compensation activity
Other adjustments
Cash dividends -- $4.52 per share
Balance at December 31, 2019
Net income
Other comprehensive loss
Adjustment to initially adopt ASU 2016-13
Treasury stock purchased
Treasury stock issued
Treasury stock retired
Stock-based compensation activity
Other adjustments
Cash dividends -- $5.36 per share
Common
Stock
Other
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
$
117.6 $ 2,723.2 $ 5,458.4 $ (4,266.4) $
(384.9) $ 3,647.9
1,108.7
2.3
(322.9)
6,246.5
1,541.3
(8.4)
8.3
(420.8)
7,366.9
2,030.4
(3.0)
(613.3)
(21.0)
(4,900.7)
(778.8)
(131.8)
(25.2)
(5,836.5)
1.0
254.5
2.1
119.4
3,153.0
(30.6)
1.1
61.6
276.4
0.4
(2,446.3)
120.8
(8,061.6) 8,092.2
(26.7)
(0.4)
(488.0)
1,108.7
(242.7)
(2.3)
(242.7)
—
(613.3)
152.2
0.8
(322.9)
(629.9) 3,730.7
1,541.3
(41.3)
(41.3)
(8.3)
(8.4)
—
(778.8)
(131.8)
230.3
2.1
(420.8)
(679.5) 4,123.3
2,030.4
(38.8)
(38.8)
(3.0)
(2,446.3)
182.4
—
250.8
—
(488.0)
Balance at December 31, 2020
$
89.9 $ 3,491.4 $
844.3 $
(96.5) $
(718.3) $ 3,610.8
See notes to consolidated financial statements.
52
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
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.
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 $53.5 million, $36.5 million and $45.9 million at December 31, 2020, 2019 and 2018,
respectively, to reduce Accounts receivable to the net amount expected to be collected (estimated net realizable value).
Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, “Measurement of Credit
Losses on Financial Instruments” (ASC 326) using the modified retrospective transition method, electing to not restate prior
periods. This ASU replaced the incurred loss impairment methodology 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. As a
result of the transition method elected, the required comparative period disclosures are prepared in accordance with the incurred
loss impairment methodology.
Under ASC 326, the Company reviews the collectibility of the Accounts receivable balance each reporting period and estimates
the allowance based on historical bad debt experience, aging of accounts receivable, current creditworthiness of customers,
current economic factors, as well as reasonable and supportable forward-looking information. Accounts receivable balances are
written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful
accounts are included in Selling, general and administrative expenses. See Notes 2 and 17 for further details.
53
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
Automobiles and trucks
6.7% – 33.3%
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. 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 5 for further details.
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 Note 5 for further details.
Derivative Instruments
The Company utilizes derivative instruments to mitigate certain risk exposures as part of its overall financial risk management
policy and accounts for these instruments in accordance with the Derivatives and Hedging Topic of the ASC. Derivatives are
recorded as assets or liabilities in the consolidated balance sheets at fair value. Changes in fair value of the derivative
instruments are recognized immediately in earnings unless the derivative instrument qualifies for and is designated in an
effective hedging relationship.
The Company entered into foreign currency forward contracts with maturity dates of less than twelve months in 2020, 2019,
and 2018, primarily to hedge against value changes in foreign currency. There were no material foreign currency option and
forward contracts outstanding at December 31, 2020, 2019 and 2018. See Note 18 for further details.
The Company also entered into cross currency swap contracts to hedge its net investment in European operations in 2020 and
2019. These contracts qualified for and were designated as net investment hedges as permitted under US GAAP. The changes
in fair value for the cross currency swaps are recognized in the foreign currency translation adjustments component of AOCI.
The cash flow impact of these instruments is classified as an investing activity in the consolidated statement of cash flows. See
Note 15 for further details.
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 ASU 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 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 $198.2 million, $176.2 million and $181.2 million at December 31, 2020, 2019 and
2018, respectively. The liabilities recorded on the balance sheets for estimated future capital contributions to the investments
were $216.3 million, $174.4 million and $183.0 million at December 31, 2020, 2019 and 2018, respectively.
54
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 $51.3 million, $61.2 million and $65.6 million at December 31, 2020, 2019 and 2018,
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 2020, 2019 and 2018, including customer satisfaction settlements
during the year, were as follows:
Balance at January 1
Charges to expense
Settlements
Divestiture and other adjustments
Balance at December 31
2020
2019
2018
$
$
42.3
38.1
57.1
32.5
(37.1)
(47.3)
$ 151.4
31.7
(57.8)
(68.2)
$
43.3
$
42.3
$
57.1
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 7 for further details.
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. Accrued amounts were primarily 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 9 and 18 for further details.
ESOP
The Company accounts for the Employee Stock Purchase and Savings Plan, its employee stock ownership 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 12 for further details.
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 13 for further details.
55
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. Estimates were 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 accumulated other
comprehensive income (loss) (AOCI), a component of Shareholders’ equity.
Revenue Recognition
The Company recognized revenue when performance obligations under the terms of the agreement were satisfied. This
generally occurs with the transfer of control of our products to the customer. Collectibility of amounts recorded as revenue was
probable at the time of recognition. See Note 17 for further details.
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 $97.1 million, $103.1 million
and $51.9 million for 2020, 2019 and 2018, 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 $363.4 million, $355.2 million and $357.8 million in advertising
costs during 2020, 2019 and 2018, 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 11) 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 for further
details.
Reclassifications
Certain amounts in the consolidated financial statements and notes to the consolidated financial statements for 2018 and 2019
have been reclassified to conform to the 2020 presentation.
56
NOTE 2 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted in 2020
Effective January 1, 2020, the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial
Instruments” (ASC 326). This ASU replaced the incurred loss impairment methodology 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 Company adopted ASU 2016-13 using the modified retrospective
transition method. The adoption of ASU 2016-13 did not result in a material cumulative-effect adjustment to the opening
balance of retained earnings at January 1, 2020 and did not have a material impact on the Company’s results of operations,
financial condition or liquidity. See Note 17 for additional information.
Not Yet Adopted
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 by removing certain exceptions to the general principles in ASC
740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying
and amending existing guidance. The standards update is effective for fiscal years and interim periods beginning after
December 15, 2020, with early adoption permitted. The adoption of ASU 2019-12 is not expected to have a material impact on
the Company’s financial position, results of operations or cash flows.
NOTE 3 – ACQUISITIONS AND DIVESTITURES
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 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 February 17, 2021, the Company signed a definitive agreement to divest Wattyl, an Australian and New Zealand
manufacturer and seller of architectural and protective paint and coatings with annual revenue of approximately $200 million
and 750 employees. The divestiture will allow the Company to focus its resources on global opportunities which align with our
long-term strategies. The transaction is expected to close during the first quarter of 2021, subject to customary closing
conditions. In connection with the sale, we expect to incur a loss in the first quarter of 2021 that is not material.
NOTE 4 – INVENTORIES
Included in Inventories were the following:
Finished goods
2020
2019
2018
$
1,427.6
$
1,509.6
$
1,426.4
Work in process and raw materials
376.5
380.0
388.9
Inventories
$
1,804.1
$
1,889.6
$
1,815.3
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.
Percentage of total inventories on LIFO
72 %
72 %
72 %
Excess of FIFO over LIFO
$
312.1
$
339.8
$
377.1
2020
2019
2018
The Company recorded a reserve for obsolescence of $125.8 million, $115.4 million and $105.9 million at December 31, 2020,
2019 and 2018, respectively, to reduce Inventories to their estimated net realizable value.
57
NOTE 5 – GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS
Included in Property, plant and equipment, net were the following:
Land
Buildings
Machinery and equipment
Construction in progress
Property, plant and equipment, gross
Less allowances for depreciation
2020
2019
2018
$
283.5
$
242.1
$
1,098.0
3,026.8
140.5
4,548.8
2,714.3
1,044.2
2,952.1
144.0
4,382.4
2,547.2
244.6
979.1
2,668.5
147.9
4,040.1
2,263.3
Property, plant and equipment, net
$
1,834.5
$
1,835.2
$
1,776.8
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 2020, 2019 or 2018.
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. 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.
The annual impairment review performed as of October 1, 2020 resulted in trademark impairment of $2.3 million in the
Performance Coatings Group related to lower than anticipated sales of an acquired brand and no goodwill impairment.
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 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.
58
A summary of changes in the Company’s carrying value of goodwill by Reportable Segment is as follows:
Goodwill
Balance at January 1, 2018 (1)
Acquisition adjustments
Currency and other adjustments
Balance at December 31, 2018 (1)
Acquisitions
Currency and other adjustments
Balance at December 31, 2019 (1)
Currency and other adjustments
Balance at December 31, 2020 (1)
The Americas
Group
Consumer
Brands
Group
Performance
Coatings
Group
Consolidated
Totals
$
2,555.6
$
2,233.2
$
2,025.5
$
6,814.3
(273.9)
(25.1)
2,256.6
2,256.6
(413.3)
(66.1)
1,753.8
0.1
1,753.9
0.7
900.8
20.0
2,946.3
14.2
33.8
2,994.3
43.6
213.6
(71.2)
6,956.7
14.2
33.9
7,004.8
44.3
$
2,256.6
$
1,754.6
$
3,037.9
$
7,049.1
(1) Net of accumulated impairment losses of $19.4 ($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
Software
Customer
Relationships
Intellectual
Property
All Other
Subtotal
Trademarks
With
Indefinite
Lives (1)
Total
Intangible
Assets
December 31, 2020
Gross
$
166.8 $
3,181.6 $ 1,730.3 $
306.8 $ 5,385.5
Accumulated amortization
(142.8)
(804.7)
(310.0)
(273.4)
(1,530.9)
Net value
$
24.0 $
2,376.9 $ 1,420.3 $
33.4 $ 3,854.6
$
616.6
$ 4,471.2
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
(1) Trademarks with indefinite lives as of December 31, 2020 is net of accumulated impairment losses of $124.4 million. 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.
Amortization of finite-lived intangible assets is estimated as follows for the next five years: $308.8 million in 2021,
$306.4 million in 2022, $303.7 million in 2023, $301.0 million in 2024 and $297.3 million in 2025.
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.
59
NOTE 6 – DEBT
The table below summarizes the carrying value of the Company’s outstanding debt, net of capitalized debt issuance costs:
3.45% Senior Notes
4.50% Senior Notes
2.95% Senior Notes
3.80% Senior Notes
3.125% Senior Notes
2.30% Senior Notes
3.30% Senior Notes
4.20% Senior Notes
3.45% Senior Notes
4.55% Senior Notes
3.95% Senior Notes
4.00% Senior Notes
2.75% Senior Notes
3.30% Senior Notes
4.40% Senior Notes
7.375% Debentures
0.92% Fixed Rate Loan
7.45% Debentures
0.53% to 8.00% Promissory Notes
Floating Rate Loan
2.25% Senior Notes
7.25% Senior Notes
Total (1)
Less amounts due within one year
Long-term debt
2020
2019
2018
$
1,485.0
1,229.4
$
Due Date
2027
2047
2029
2049
2024
2030
2050
2022
2025
2045
2026
2042
2022
2025
2045
2027
2021
2097
Through 2027
2021
2020
2019
1,488.6
1,230.8
791.7
542.8
497.7
495.8
493.7
405.7
398.3
394.5
357.8
296.6
259.6
249.5
239.6
119.1
24.4
3.5
2.3
$
1,486.8
1,230.1
790.7
542.5
497.0
411.3
398.0
394.3
359.3
296.4
757.1
249.4
239.2
119.1
22.4
3.5
2.9
251.9
428.6
8,292.0
25.1
8,266.9
$
8,480.5
429.8
8,050.7
$
$
496.3
416.8
397.6
394.1
360.8
296.3
1,242.9
249.3
238.7
119.0
22.9
3.5
3.3
257.4
1,496.0
306.0
9,015.3
307.2
8,708.1
(1) Net of capitalized debt issuance costs of $52.9 million, $50.6 million and $49.1 million at December 31, 2020, 2019 and 2018, respectively.
Maturities of long-term debt are as follows for the next five years: $25.1 million in 2021; $661.0 million in 2022; $0.3 million
in 2023, $500.2 million in 2024 and $650.1 million in 2025. Interest expense on long-term debt was $320.5 million, $321.3
million and $343.1 million for 2020, 2019 and 2018, 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 March 2020, the Company issued $500.0 million of 2.30% Senior Notes due May 2030 and $500.0 million of 3.30% Senior
Notes due May 2050 in a public offering. The net proceeds from the issuance of these notes were used to repurchase a portion
of the 2.75% Senior Notes due 2022 and redeem the 2.25% Senior Notes due May 2020. The repurchase of the 2.75% Senior
Notes due 2022 during the first quarter of 2020 resulted in a loss of $21.3 million recorded in Other expense - 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 in a public offering. The net proceeds from the issuance of these are being used for general corporate purposes.
In August 2019, the Company repurchased $1.010 billion of its 2.25% Senior Notes due 2020 and $490.0 million of
its 2.75% Senior Notes due 2022. These repurchases resulted in a loss of $14.8 million recorded in Other expense - net. See
Note 18.
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.
60
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, 2020, 2019 and 2018, there were no short-term borrowings under this credit agreement.
On May 6, 2016, the Company entered into a five-year credit agreement, subsequently amended on multiple dates to extend the
maturity of the agreement. 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 $875.0 million at December 31, 2020. In September
2017, the Company entered into an additional five-year letter of credit agreement, subsequently amended on multiple dates to
extend the maturity of the agreement, with an aggregate availability of $625.0 million at December 31, 2020. Both of these
credit agreements are being used for general corporate purposes. At December 31, 2020, 2019 and 2018, there were no
borrowings outstanding under these credit agreements.
There were no borrowings outstanding under the Company’s domestic commercial paper program at December 31, 2020.
Borrowings outstanding under the Company’s domestic commercial paper program at December 31, 2019 and 2018 were
$191.9 million and $291.4 million, respectively with a weighted average interest rate of 2.1% and 3.0%, respectively.
Borrowings outstanding under various foreign programs were $0.1 million, $12.8 million and $37.0 million at December 31,
2020, 2019 and 2018, respectively with a weighted average interest rate of 0.2%, 4.3% and 9.3%, respectively.
NOTE 7 – PENSION, HEALTH CARE AND OTHER POSTRETIREMENT BENEFITS
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 (credit).
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 27,782, 27,030 and 26,323 active employees entitled to receive benefits under these
plans at December 31, 2020, 2019 and 2018, respectively. The cost of these benefits for active employees, which includes
claims incurred and claims incurred but not reported, amounted to $298.8 million, $301.6 million and $298.8 million for 2020,
2019 and 2018, respectively.
Defined Contribution Pension Plans
The Company’s annual contribution for its domestic defined contribution pension plan was $77.0 million, $72.7 million and
$65.2 million for 2020, 2019 and 2018, 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 $22.5 million, $24.5 million and $19.5 million for 2020, 2019
and 2018, 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.
61
Defined Benefit Pension Plans
In 2018, the Company’s domestic defined benefit pension 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. See Note 11. The remaining surplus consists of investment funds held at fair value. See Note 16.
At December 31, 2020, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $118.6
million, fair value of plan assets of $144.3 million and excess plan assets of $25.7 million. The plan was funded in accordance
with all applicable regulations at December 31, 2020. 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. 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.
The Company has thirty-one foreign defined benefit pension plans. At December 31, 2020, 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 $231.5 million, $259.9 million, $149.6 million
and $110.3 million, respectively.
The Company expects to make the following benefit payments for all domestic and foreign defined benefit pension plans: $15.9
million in 2021; $14.1 million in 2022; $15.7 million in 2023; $16.2 million in 2024; $16.7 million in 2025; and $95.2 million
in 2026 through 2030. The Company expects to contribute $5.2 million to the foreign plans in 2021.
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 2021 are $1.5 million and $1.0 million, respectively.
62
The following table summarizes the components of the net pension costs and AOCI related to the defined benefit pension plans:
Net pension cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial losses
Ongoing pension cost (credit)
Settlement costs (credits)
Curtailment cost
Net pension cost
Other changes in plan assets and projected benefit
obligation recognized in AOCI (before taxes):
Net actuarial losses (gains) arising during the
year
Amortization of actuarial losses
Amortization of prior service cost
(Loss) gain recognized for settlement
Prior service cost recognized for curtailment
(Gain) arising from curtailment
Exchange rate gain (loss) recognized during the
year
Total recognized in AOCI
Total recognized in net pension cost and
AOCI
Domestic
Defined Benefit Pension Plans
Foreign
Defined Benefit Pension Plans
2020
2019
2018
2020
2019
2018
$
4.4 $
3.5 $
7.3 $
6.8 $
5.9 $
3.2
4.8
32.2
6.9
9.4
8.2
9.5
(6.3)
(5.3)
(53.0)
(10.0)
(10.3)
(10.8)
1.4
3.5
1.4
2.7
4.4
32.4
2.7
36.8
(4.5)
(22.0)
(10.0)
37.6
0.8
28.4
1.0
4.7
0.2
4.9
1.0
6.0
0.3
6.3
1.5
8.4
(0.4)
8.0
29.9
4.6
7.0
(0.5)
13.2
(5.1)
(1.0)
(1.0)
(1.5)
(1.4)
(1.4)
(3.5)
(32.4)
(37.6)
(0.2)
(0.3)
0.4
(0.8)
(0.8)
(5.7)
(52.7)
(8.2)
(0.7)
1.0
12.2
1.7
7.0
(2.0)
(8.2)
$
(3.0) $
(15.9) $
20.2 $
11.9 $
18.5 $
(0.2)
Prior service cost (credit) arising during the year
0.2
3.1
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 - 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.
63
The following tables summarize the fair value of the defined benefit pension plan assets at December 31, 2020, 2019 and 2018.
The presentation is in accordance with the Retirement Benefits Topic of the ASC.
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair value at
December 31,
2020
Investments at fair value:
Equity investments (1)
Fixed income investments (2)
Other assets (3)
Total investments in fair value hierarchy
Investments measured at NAV or its equivalent (4)
Total investments
$
134.9
$
182.3
39.2
$
13.9
24.3
356.4
$
38.2
$
121.0
158.0
39.2
318.2
106.1
462.5
$
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair value at
December 31,
2019
Investments at fair value:
Equity investments (1)
Fixed income investments (2)
Other assets (3)
Total investments in fair value hierarchy
Investments measured at NAV or its equivalent (4)
Total investments
$
115.7
$
7.9
$
173.4
36.6
29.7
325.7
$
37.6
$
107.8
143.7
36.6
288.1
88.3
414.0
$
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair value at
December 31,
2018
Investments at fair value:
Equity investments (1)
Fixed income investments (2)
Other assets (3)
Total investments in fair value hierarchy
Investments measured at NAV or its equivalent (4)
Total investments
$
215.8
$
124.0
$
609.9
38.4
462.8
864.1
$
586.8
$
91.8
147.1
38.4
277.3
166.4
$
1,030.5
(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 there were 300,000 shares of the Company’s common stock with a market value of $118.0 million
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, 2020 and
December 31, 2019 due to the wind-up of the Terminated Plan.
64
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:
Accumulated benefit obligations
at end of year
Projected benefit obligations:
Domestic
Defined Benefit Pension Plans
Foreign
Defined Benefit Pension Plans
2020
2019
2018
2020
2019
2018
$ 114.2
$
97.2
$
521.0
$ 370.2
$
331.7
$
280.0
Balances at beginning of year
$ 103.0
$
524.7
$
916.2
$ 360.7
$
315.8
$
349.6
Service cost
Interest cost
Actuarial losses (gains)
Contributions and other
Settlements
Effect of foreign exchange
Benefits paid
Balances at end of year
Plan assets:
Balances at beginning of year
Actual returns on plan assets
Contributions and other
Settlements
Transfer related to plan termination
Effect of foreign exchange
Benefits paid
Balances at end of year
Excess (deficient) plan assets over
projected benefit obligations
Assets and liabilities recognized in the
Consolidated Balance Sheets:
Deferred pension assets
Other accruals
Other long-term liabilities
Amounts recognized in AOCI:
Net actuarial gains (losses)
Prior service (costs) credits
Weighted-average assumptions used to
determine projected benefit obligations:
Discount rate
Rate of compensation increase
Weighted-average assumptions used to
determine net pension cost:
Discount rate
Expected long-term rate of
return on assets
Rate of compensation increase
4.4
3.2
11.0
0.2
(3.2)
118.6
125.9
21.6
(3.2)
144.3
3.5
4.8
4.4
3.1
7.3
32.2
(13.6)
3.8
(429.3)
(379.1)
(8.2)
103.0
(42.1)
524.7
6.8
6.9
25.3
(0.1)
(4.3)
16.0
(10.2)
401.1
5.9
9.4
36.2
0.7
(6.6)
7.8
(8.5)
360.7
8.2
9.5
(21.0)
1.6
(6.3)
(16.3)
(9.5)
315.8
777.0
1,188.6
288.1
253.5
280.0
31.7
9.6
(429.3)
(245.3)
(8.2)
125.9
(379.1)
(42.1)
777.0
28.9
5.9
(4.3)
9.8
(10.2)
318.2
33.3
7.7
(6.6)
8.7
(8.5)
288.1
(4.9)
8.3
(6.3)
(14.1)
(9.5)
253.5
$
25.7
$
22.9
$
252.3
$
(82.9)
$
(72.6)
$
(62.3)
$
25.7
$
22.9
$
252.3
$
27.4
$
20.1
$
18.4
$
25.7
$
22.9
$
252.3
$
(82.9)
$
(72.6)
$
(62.3)
(2.5)
(107.8)
(2.3)
(90.4)
(2.7)
(78.0)
$
$
2.5
(6.2)
(3.7)
$
$
(2.0)
(7.4)
(9.4)
$
(56.4)
$
(5.7)
(45.4)
0.5
$
(37.9)
$
(25.7)
$
(62.1)
$
(44.9)
$
(37.9)
$
(25.7)
2.85 %
3.00 %
3.44 %
3.00 %
3.60 %
3.17 %
1.63 %
2.91 %
2.17 %
3.09 %
3.04 %
3.65 %
3.44 %
3.60 %
3.60 %
2.17 %
3.04 %
2.73 %
5.00 %
3.00 %
5.00 %
3.17 %
5.00 %
3.33 %
3.62 %
3.09 %
4.09 %
3.65 %
3.84 %
3.69 %
65
Other Postretirement Benefits
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 3,465, 3,481 and 3,498 retired employees entitled to receive
such postretirement benefits at December 31, 2020, 2019 and 2018, respectively.
The following table summarizes the obligation and the assumptions used for other postretirement benefits:
Benefit obligation:
Balance at beginning of year - unfunded
$
280.5
$
274.6
$
290.8
Other Postretirement Benefits
2020
2019
2018
Service cost
Interest cost
Actuarial loss (gain)
Plan amendments
Benefits paid
Balance at end of year - unfunded
Liabilities recognized in the Consolidated Balance Sheets:
Other accruals
Postretirement benefits other than pensions
Amounts recognized in AOCI:
Net actuarial losses
Prior service (cost) credits
1.5
7.6
19.7
1.0
1.5
11.2
12.8
(18.7)
(19.6)
291.6
$
280.5
$
2.0
10.2
(9.0)
(0.1)
(19.3)
274.6
(16.0)
$
(17.5)
$
(275.6)
(263.0)
(291.6)
$
(280.5)
$
(17.0)
(257.6)
(274.6)
(62.8)
$
(45.1)
$
(32.8)
(0.9)
1.1
6.1
(63.7)
$
(44.0)
$
(26.7)
$
$
$
$
$
Weighted-average assumptions used to determine benefit obligation:
Discount rate
Health care cost trend rate - pre-65
Health care cost trend rate - post-65
Prescription drug cost increases
Employer Group Waiver Plan (EGWP) trend rate
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate
Health care cost trend rate - pre-65
Health care cost trend rate - post-65
Prescription drug cost increases
2.49 %
6.06 %
5.13 %
8.25 %
8.25 %
3.22 %
6.38 %
5.25 %
9.00 %
3.22 %
6.38 %
5.25 %
9.00 %
9.00 %
4.21 %
6.69 %
4.94 %
9.75 %
4.21 %
6.69 %
4.94 %
9.75 %
9.75 %
3.61 %
7.00 %
5.00 %
11.00 %
66
The following table summarizes the components of the net periodic benefit cost and AOCI related to postretirement benefits
other than pensions:
Net periodic benefit cost:
Service cost
Interest cost
Amortization of actuarial losses
Amortization of prior service credit
Net periodic benefit cost
Other changes in projected benefit obligation recognized in
AOCI (before taxes):
Net actuarial loss (gain) arising during the year
Prior service cost (credit) arising during the year
Amortization of actuarial losses
Amortization of prior service credit
Total recognized in AOCI
Other Postretirement Benefits
2020
2019
2018
$
1.5 $
1.5 $
7.6
2.0
(1.1)
10.0
19.7
0.9
(2.0)
1.1
19.7
11.2
0.5
(5.0)
8.2
12.8
(0.5)
5.0
17.3
Total recognized in net periodic benefit cost and AOCI
$
29.7 $
25.5 $
2.0
10.2
2.3
(6.6)
7.9
(9.0)
(0.1)
(2.3)
6.6
(4.8)
3.1
The estimated net actuarial losses and prior service costs for other postretirement benefits that are expected to be amortized
from AOCI into net periodic benefit cost in 2021 are $4.7 million and $0.3 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 2021 both decrease in each successive year until reaching 4.5% in 2027.
The Company expects to make retiree health care benefit cash payments as follows:
2021
2022
2023
2024
2025
2026 through 2030
$
16.1
16.8
17.0
18.3
18.3
84.8
Total expected benefit cash payments $
171.3
67
NOTE 8 – 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. The Company does not account for lease and non-lease components of contracts
separately for any underlying asset class. 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 underlying asset class 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 transition method, electing to not restate prior periods. As a result, the required
comparative period disclosures for the period ended December 31, 2018, are reported in accordance with the previous
accounting standard, ASC 840.
Additional lease information is summarized below:
Operating lease cost (1)
Short-term lease cost (2)
Variable lease cost
2020
2019
2018
$
464.5
$
452.9
$
552.7
41.1
80.7
39.7
73.6
68.2
Operating cash outflows from operating leases (2)
Leased assets obtained in exchange for new operating lease liabilities (2)
$
$
446.1
469.9
$
$
430.9
346.4
Weighted average remaining lease term (2)
Weighted average discount rate (2)
6.0 years
6.0 years
3.4 %
3.9 %
(1) Operating lease cost for the period ended December 31, 2018, includes short-term lease cost in accordance with ASC 840 disclosure requirements.
(2) Disclosure was not required for periods reported under ASC 840.
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, 2020. The reconciliation excludes short-term leases that are not
recorded on the balance sheet.
Year Ending December 31,
2021
2022
2023
2024
2025
$
Thereafter
Total lease payments
Amount representing interest
Present value of operating lease liabilities
$
441.3
388.7
322.6
260.3
195.6
409.2
2,017.7
(196.3)
1,821.4
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 $198.9 at December 31, 2020.
68
NOTE 9 – 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 mostly undiscounted, 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, 2020, 2019 and 2018, the Company had accruals reported
on the balance sheet as Other long-term liabilities of $300.5 million, $314.8 million and $322.5 million, respectively. Estimated
costs of current investigation and remediation activities of $68.6 million, $57.6 million and $51.0 million are included in Other
accruals at December 31, 2020, 2019 and 2018, 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 $114.5 million higher than the minimum accruals at December 31, 2020.
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, 2020. At December 31, 2020, $315.0 million, or 85.4% of the total accrual, related directly to the Major Sites. In
the aggregate unaccrued maximum of $114.5 million at December 31, 2020, $90.8 million, or 79.3%, 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
69
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, 2020, 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.
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NOTE 10 – 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. 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.
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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. On July 17, 2019, after nearly twenty years of litigation, the
Company and two other defendants—ConAgra Grocery Products Company and NL Industries, Inc.—reached an agreement in
principle with the plaintiffs to resolve the litigation. 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. 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. At December 31, 2020 and 2019, the Company had accruals
for this agreement reported on the balance sheet of $64.7 million and $76.7 million, respectively, with $12.0 million included in
Current liabilities and the remaining $52.7 million and $64.7 million, respectively, 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. Following the plaintiffs’ efforts to remand both cases, which the
defendants opposed, both cases were ordered to be remanded to state court on July 21, 2020.
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 both actions, the defendants filed preliminary objections on December 21, 2020, seeking to dismiss the complaints with
prejudice. The briefing associated with the preliminary objections is scheduled to be concluded on February 23, 2021, with oral
argument for the Lehigh County, Pennsylvania action scheduled for March 3, 2021.
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 to the United States Court of Appeals for the
Third Circuit. On July 31, 2020, the Third Circuit affirmed the federal trial court’s dismissal of the Complaint. The Company
filed a petition for writ of certiorari to the United States Supreme Court on December 28, 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
72
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. On
February 27, 2020, the trial court denied the Company’s post-trial motion for judgment as a matter of law. On April 10, 2020,
the trial court granted the Company’s post-trial motion for a new trial to the extent that the damages award to plaintiff Glenn
Burton, Jr. shall be remitted to $800,000, and denied the motion in all other respects. The Company filed a notice of appeal with
the United States Court of Appeals for the Seventh Circuit on May 8, 2020 and its opening brief on July 17, 2020. The plaintiffs
filed their opposition brief on October 7, 2020. The Company filed its reply brief on November 12, 2020. Oral argument
regarding the briefs occurred on December 9, 2020, and the parties are awaiting the Seventh Circuit’s decision.
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 selected four of the cases to proceed to
expert discovery and to prepare for trial. The District Court previously issued an order scheduling trial in the four cases to
commence on June 15, 2020, but the trial date was continued due to the COVID-19 pandemic, and no new trial date has been
scheduled.
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. On May 21, 2020, the Supreme Court of Illinois reversed the Appellate Court’s
judgment, affirmed the Circuit Court’s summary judgment dismissing the claims of the two plaintiffs for whom Medicaid paid
for their children’s testing, and remanded the case for further proceedings consistent with the Supreme Court’s decision. On
August 19, 2020, the defendants filed their renewed motion for class decertification and entry of final judgment with the Circuit
Court. The parties filed their respective briefs on the renewed motion, and oral argument occurred on February 4, 2021. The
parties are awaiting the Circuit Court’s decision.
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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. The trial court entered an order
on December 4, 2020, granting the liability insurers’ motion for summary judgment, denying the Company’s motion, and
entering final judgment in favor of the liability insurers. The Company filed a notice of appeal to the Court of Appeals of
Cuyahoga County, Ohio, Eighth Appellate District on December 21, 2020, and the liability insurers filed a notice of cross-
appeal on December 30, 2020. 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. On February 21, 2020, the Company filed a motion to dismiss. On April 7, 2020, the plaintiffs filed a brief
in opposition. The Company filed a reply brief on April 20, 2020. An initial hearing on the motion to dismiss occurred on
January 29, 2021. The hearing is scheduled to continue on April 20-21, 2021.
NOTE 11 – CAPITAL STOCK
At December 31, 2020, 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 7,002,637,
8,258,768 and 9,643,433 shares of common stock at December 31, 2020, 2019 and 2018, respectively, were reserved for the
exercise and future grants of option rights and future grants of restricted stock and restricted stock units. See Note 13 for
additional information related to stock-based compensation. Shares outstanding shown in the following table included 489,904,
489,783 and 489,647 shares of common stock held in a revocable trust at December 31, 2020, 2019 and 2018, 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.
74
Shares
in Treasury
Shares
Outstanding
23,676,733
93,883,645
1,159
52,144
1,525,000
25,255,036
3,838
(1,159)
661,599
(52,144)
149,821
(1,525,000)
93,116,762
(3,838)
901,878
(55,095)
160,132
(1,675,000)
(300,000)
92,144,839
(3,380)
957,882
(44,359)
128,895
Balance at January 1, 2018
Shares tendered as payment for option rights exercised
Shares issued for exercise of option rights
Shares tendered in connection with vesting of restricted stock units
Net shares issued for vesting of restricted stock units
Treasury stock purchased
Balance at December 31, 2018
Shares tendered as payment for option rights exercised
Shares issued for exercise of option rights
Shares tendered in connection with vesting of restricted stock units
55,095
Net shares issued for vesting of restricted stock units
Treasury stock purchased
Shares transferred from defined benefit pension plan (1)
Balance at December 31, 2019
Shares tendered as payment for option rights exercised
Shares issued for exercise of option rights
1,675,000
300,000
27,288,969
3,380
Shares tendered in connection with vesting of restricted stock units
44,359
Net shares issued for vesting of restricted stock units
Treasury stock purchased
Treasury stock retired
Shares sold (1)
3,900,000
(3,900,000)
(30,582,144)
(275,000)
275,000
Balance at December 31, 2020
89,558,877
(1) During the year ended December 31, 2019, 300,000 shares were transferred from the Company’s terminated domestic defined benefit pension plan
surplus assets in connection with the plan’s termination as described in Note 7. In accordance with ASC 715, the transferred shares are treated as
treasury stock. During the year ended December 31, 2020, the Company received proceeds of $182.4 million in conjunction with the issuance of
275,000 treasury shares to fund Company contributions to the domestic defined contribution plan.
379,564
Common Stock Split
On February 3, 2021, the Board of Directors approved and declared a three-for-one stock split in the form of a stock dividend.
Each shareholder of record at the close of business on March 23, 2021 will receive two additional common shares for each
then-held common share, to be distributed after close of trading on March 31, 2021.
NOTE 12 – ESOP
As of December 31, 2020, 42,219 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 fifty 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 $196.5 million, $180.5 million and $170.3 million in 2020, 2019 and 2018,
respectively. The Company’s matching contributions to the ESOP charged to operations were $120.0 million, $111.9 million
and $104.7 million for 2020, 2019 and 2018, respectively.
At December 31, 2020, there were 7,318,468 shares of the Company’s common stock being held by the ESOP, representing
8.2% 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.
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NOTE 13 – 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 2006
Employee Plan permits the granting of option rights, appreciation rights, restricted stock, RSUs, performance shares and
performance units to eligible employees. At December 31, 2020, 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, 2020, no option rights or appreciation rights had been granted under the Nonemployee Director Plan.
In connection with the acquisition of Valspar in 2017, 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 converted RSUs vested in 2020, and there were no outstanding
awards at December 31, 2020.
The cost of the Company’s stock-based compensation is recorded in accordance with the Stock Compensation Topic of the
ASC. At December 31, 2020, the Company had total unrecognized stock-based compensation expense of $146.0 million that is
expected to be recognized over a weighted-average period of 1.07 years. Stock-based compensation expense during 2020, 2019
and 2018 was $95.9 million, $101.7 million and $82.6 million, respectively. The related tax benefit was $23.6 million, $25.1
million and $20.5 million during 2020, 2019 and 2018, 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, 2020, 2019 and 2018, the Company’s excess tax benefit from options exercised and RSUs vested
reduced the income tax provision by $94.7 million, $65.2 million, and $43.4 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:
Risk-free interest rate
Expected life of option rights
Expected dividend yield of stock
Expected volatility of stock
2020
.39 %
5.05 years
.88 %
26.7 %
2019
1.64 %
5.05 years
.87 %
23.2 %
2018
2.99 %
5.05 years
.89 %
21.1 %
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 $72.0 million at December 31, 2020. 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.
The weighted-average per share grant date fair value of options granted during 2020, 2019 and 2018 was $139.69, $116.41 and
$90.86, respectively. The total intrinsic value of option rights exercised during 2020, 2019, and 2018 was $407.9 million,
$285.8 million and $190.2 million, respectively. The total fair value of options vested during 2020, 2019 and 2018 was $51.0
million, $43.2 million and $38.6 million, respectively. There were no outstanding option rights for nonemployee directors at
December 31, 2020, 2019 and 2018.
76
A summary of the Company’s non-qualified and incentive stock option right activity is shown in the following table:
2020
Weighted-
Average
Exercise
Price
Per Share
Optioned
Shares
Aggregate
Intrinsic
Value
(in millions)
Optioned
Shares
2019
Weighted-
Average
Exercise
Price
Per Share
Aggregate
Intrinsic
Value
(in millions)
Optioned
Shares
2018
Weighted-
Average
Exercise
Price
Per Share
Aggregate
Intrinsic
Value
(in millions)
Outstanding at
beginning of year
4,039,729 $
290.45
4,485,249 $ 238.53
4,646,313 $ 204.33
Granted
Exercised
Forfeited
Expired
Outstanding at
end of year
Exercisable at
end of year
457,931
(957,612)
(37,905)
(1,017)
640.16
190.90
512.40
418.65
498,886
(902,166)
(40,312)
(1,928)
549.32
171.37
380.13
345.68
565,336
(662,218)
(60,288)
(3,894)
410.00
137.03
327.08
238.26
3,501,126 $
361.01 $
1,309.1
4,039,729 $ 290.45 $
1,184.0
4,485,249 $ 238.53 $
704.2
2,560,480 $
285.20 $
1,151.5
2,973,656 $ 226.51 $
1,061.7
3,274,780 $ 188.48 $
671.3
The weighted-average remaining term for options outstanding at the end of 2020, 2019 and 2018 was 6.12, 6.02 and 6.09 years,
respectively. The weighted-average remaining term for options exercisable at the end of 2020, 2019 and 2018 was 5.06, 4.95
and 5.01 years, respectively.
Shares reserved for future grants of option rights, restricted stock and RSUs were 3,501,511, 4,217,446 and 5,135,822 at
December 31, 2020, 2019 and 2018, 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 2020, 2019 and 2018 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 $72.2 million at
December 31, 2020 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 0.91 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 $1.8 million at
December 31, 2020 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 0.91 years.
A summary of the Company’s RSU activity for the years ended December 31 is shown in the following table:
Outstanding at beginning of year
Granted
Vested
Forfeited
Outstanding at end of year
2020
248,172
95,973
2019
290,402
131,275
2018
335,796
116,636
(128,895)
(168,730)
(150,576)
(6,789)
208,461
(4,775)
248,172
(11,454)
290,402
The weighted-average per share fair value of RSUs granted during 2020, 2019 and 2018 was $581.36, $432.55 and $404.08,
respectively.
77
NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of 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
Gains on Cash
Flow Hedges
Total
Balance at January 1, 2018
$
(353.3) $
(84.9) $
2.3 $
51.0 $
(384.9)
Adjustment to initially adopt ASU
2016-01
Amounts recognized in AOCI
Amounts reclassified from AOCI
Balance at December 31, 2018
Reclassifications from AOCI to
Retained earnings for adoption of
ASU 2018-02
Amounts recognized in AOCI
Amounts reclassified from AOCI
Balance at December 31, 2019
Amounts recognized in AOCI
Amounts reclassified from AOCI
(254.3)
(607.6)
(49.8)
(657.4)
(14.1)
(13.5)
31.3
(67.1)
(19.3)
(5.1)
22.3
(69.2)
(19.4)
1.4
(2.3)
—
—
Balance at December 31, 2020
$
(671.5) $
(87.2) $
— $
(2.3)
(267.8)
25.1
(629.9)
(8.3)
(54.9)
13.6
(679.5)
(33.5)
(5.3)
(718.3)
(6.2)
44.8
11.0
(8.7)
47.1
(6.7)
40.4 $
NOTE 15 – DERIVATIVES AND HEDGING
In February 2020, the Company entered into two U.S. Dollar to Euro cross currency swap contracts to hedge the Company’s net
investment in its European operations. The contracts, which were designated as net investment hedges, have a notional value of
$500.0 million and $244.0 million, respectively, and mature on June 1, 2024 and November 15, 2021, respectively. During the
term of the $500.0 million 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. During the term of the $244.0 million contract, the Company will pay floating-rate interest in
Euros and receive floating-rate interest in U.S. Dollars.
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 was designated as a net
investment hedge and had a maturity date of January 15, 2022. During the term of the contract, the Company paid fixed-rate
interest in Euros and received 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. In February 2020, the Company settled its $400.0
million U.S. Dollar to Euro cross currency swap contract. At the time of the settlement, an unrealized gain of $11.8 million, net
of tax, was recognized in AOCI.
As of December 31, 2020, the outstanding cross currency swap contracts were in a net loss position of $85.8 million, with $31.0
million included in Other accruals and $54.8 million included in Other long-term liabilities, respectively, on the consolidated
balance sheet. As of December 31, 2019, the outstanding cross currency swap contract was in a net gain position of $1.5 million
and included in Other assets on the consolidated balance sheet. See Note 16 for additional information on the fair value of these
contracts.
The changes in fair value of the cross currency swap contracts are recognized in the foreign currency translation adjustments
component of AOCI. For the year ended December 31, 2020, an unrealized loss of $54.0 million, net of tax, was recognized in
AOCI. For the year ended December 31, 2019, an unrealized gain of $1.1 million, net of tax, was recognized in AOCI.
78
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.
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,
2020
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)
Qualified Replacement Plan assets (2)
Liabilities:
Deferred compensation plan liabilities (3)
Net investment hedge liability (4)
$
$
$
$
69.2
$
37.9
$
31.3
161.5
161.5
230.7
$
199.4
$
31.3
—
$
92.2
92.2
85.8
178.0
$
92.2
$
$
85.8
85.8
—
(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 $58.1 million.
(2) The Qualified Replacement Plan assets consist of investment funds maintained for future contributions to the Company’s domestic defined
contribution plan. See Note 7. The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC. The
investments are valued using quoted market prices multiplied by the number of shares. The cost basis of the investment funds is $159.6 million.
(3) The Company’s liabilities under its deferred compensation plans represent the fair value of the participant shadow accounts, and the value is based on
quoted market prices in active markets for identical assets.
(4) The net investment hedge liability is the fair value of the cross currency swaps (see Note 15). The fair value is based on a valuation model that uses
observable inputs, including interest rate curves and foreign currency rate.
Except for the impairments described in Note 5, there were no assets and liabilities measured at fair value on a nonrecurring
basis.
The table below summarizes the carrying amounts and fair values of the Company’s publicly traded debt and non-traded debt.
2020
December 31,
2019
2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Publicly traded debt
Non-traded debt
$ 8,265.2 $ 9,707.0
$
8,203.2 $ 8,735.8
$ 8,731.7 $
8,330.2
26.8
26.5
277.3
270.7
283.6
272.7
79
NOTE 17 – REVENUE
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 estimates variable consideration for these sales on the basis
of both historical information and current trends to estimate the expected amount of discounts to which customers are likely to
be entitled.
The remaining revenue is governed by long-term supply agreements and related purchase orders (“contracts”) 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 contract. 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
Accounts
receivable
Contract Assets
(Current)
Other current
assets
Contract Assets
(Long-Term)
Contract
Liabilities
(Current)
Contract
Liabilities
(Long-Term)
Other assets
Other accruals Other liabilities
Balance sheet caption:
Balance at December 31, 2019
$
2,088.9 $
50.5 $
178.2 $
242.8 $
Balance at December 31, 2020
2,078.1
52.0
170.7
266.3
10.4
8.2
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily
results from the timing difference between the Company’s performance and the customer’s payment.
Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue per ASC
606 when the products are sold. 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. 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
80
were not material individually or in the aggregate.
Allowance for Credit Losses
The Company’s primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful
accounts reduces the Accounts receivable balance to the estimated net realizable value. The Company reviews the collectibility
of the Accounts receivable balance each reporting period and estimates the allowance based on historical bad debt experience,
aging of accounts receivable, current creditworthiness of customers, current economic factors, as well as reasonable and
supportable forward-looking information. Accounts receivable balances are written-off against the allowance if a final
determination of uncollectibility is made. All provisions for allowances for doubtful accounts are included in Selling, general
and administrative expenses. See Note 2 for additional information.
The following table summarizes the movement in the Company’s allowance for doubtful accounts:
Beginning balance
Adjustment upon adoption of ASU 2016-13(1)
Bad debt expense
Uncollectible accounts written off, net of recoveries
Ending balance
2020
2019
2018
36.5
$
45.9
$
53.0
3.0
56.8
(42.8)
53.1
(62.5)
53.5
$
36.5
$
38.2
(45.3)
45.9
$
$
(1) The Company adopted ASU 2016-13 effective January 1, 2020, using the modified retrospective transition method, electing to not restate prior
periods. Refer to Note 1 for additional detail.
NOTE 18 – OTHER EXPENSE (INCOME)
Other General Expense - Net
Included in Other general expense - net were the following:
Provisions for environmental matters - net
(Gain) loss on sale or disposition of assets
Total
$
$
37.1
(9.4)
27.7
$
$
23.0
16.1
39.1
$
$
176.3
12.8
189.1
2020
2019
2018
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 9 for further details on the Company’s
environmental-related activities.
The (gain) loss on sale or disposition of assets represents the net realized (gain) loss 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.
81
Other Expense - Net
Included in Other expense - net were the following:
Investment and royalty income
Loss on extinguishment of debt (see Note 6)
Net expense from banking activities
Foreign currency transaction related losses
Domestic pension plan settlement expense
Miscellaneous pension expense (income)
Indirect tax credits
Other income
Other expense
Total
2020
2019
2018
$
$
(16.4) $
21.3
10.4
7.2
4.9
(44.7)
22.6
5.3
$
(12.0) $
14.8
10.7
19.7
32.4
8.0
(38.7)
(32.8)
14.6
16.7
$
(4.3)
9.7
7.5
37.6
(10.8)
(32.2)
12.6
20.1
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, 2020, 2019 and 2018.
Miscellaneous pension expense (income) consists of the non-service components of net pension costs (credits). See Note 7 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. As a result of the COVID-19 pandemic, the
Supreme Court has postponed the hearing on the clarification sought by the Brazilian Office of the Attorney General of the
National Treasury. No date for the hearing has been rescheduled. 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
in December 31, 2020, 2019 and 2018.
NOTE 19 – INCOME TAXES
In response to the COVID-19 outbreak, global legislation concerning income taxes was passed throughout 2020. The Company
assessed the applicability of the stimulus elements within the global legislation, and it did not have a material impact on the
Company’s consolidated financial statements. The primary benefit to the Company was the delay of payment of U.S. federal
and state income taxes as well as U.S. federal payroll withholding taxes until subsequent periods.
During 2019, the Company recorded an increase to the tax provision of $74.3 million related to the reversal of all 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. The facts relating to the Company’s investments in the funds continue to be developed. In 2020, there
were no adjustments recognized in the Company’s tax provision for this matter.
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.
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.
82
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020, 2019 and 2018 were as
follows:
2020
2019
2018
Deferred tax assets:
Environmental and other similar items
$
82.9
$
83.5
$
Employee related and benefit items
Operating lease liabilities
Other items
Total deferred tax assets
Deferred tax liabilities:
166.6
448.9
232.8
931.2
129.3
430.6
204.0
847.4
Intangible assets and Property, plant, and equipment
1,156.4
1,232.6
LIFO inventories
Operating lease right-of-use assets
Other items
87.6
434.0
31.7
80.5
417.8
28.1
Total deferred tax liabilities
1,709.7
1,759.0
84.5
97.0
161.6
343.1
1,303.6
64.5
29.5
1,397.6
Net deferred tax liabilities
$
778.5
$
911.6
$
1,054.5
As of December 31, 2020, 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 $104.6 million, $84.6 million and $73.5
million at December 31, 2020, 2019 and 2018, respectively. The increase in the valuation allowance in 2020 is primarily due to
net operating losses of certain foreign subsidiaries. The Company has $19.4 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 $355.7 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 2020 to 2040.
Significant components of the provisions for income taxes were as follows:
Current:
Federal
Foreign
State and local
Total current
Deferred:
Federal
Foreign
State and local
Total deferred
2020
2019
2018
$
457.7
$
440.1
$
288.8
92.0
84.4
634.1
(102.7)
(19.0)
(23.6)
(145.3)
71.1
60.4
571.6
(83.7)
(32.3)
(15.1)
(131.1)
53.2
52.4
394.4
(102.1)
(35.3)
(6.0)
(143.4)
251.0
Total provisions for income taxes
$
488.8
$
440.5
$
Under provisions of the Tax Cuts and Jobs Act (Tax Act), the Company received an income tax benefit of $12.0 million, $10.4
million and $8.6 million in 2020, 2019 and 2018, respectively, related to foreign derived intangible income and incurred income
tax expense of $7.0 million, $7.9 million and $5.5 million in 2020, 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:
83
Domestic
Foreign
2020
2019
2018
$
$
2,317.9
201.3
2,519.2
$
$
1,899.6
82.2
1,981.8
$
$
1,309.3
50.4
1,359.7
A reconciliation of the statutory federal income tax rate to the effective tax rate follows:
Statutory federal income tax rate
Effect of:
State and local income taxes
Investment vehicles
Employee share-based payments
Research and development credits
Amended returns and refunds
Tax credit reversal
Other - net
Subtotal
Effect of Tax Act
2020
2019
2018
21.0 %
21.0 %
21.0 %
2.5
(0.8)
(3.8)
(0.5)
0.3
0.7
19.4 %
2.3
(1.3)
(3.3)
(1.1)
0.1
3.7
0.8
22.2 %
3.2
(1.2)
(3.2)
(1.3)
(1.6)
(0.3)
16.6 %
1.9
18.5 %
Reported effective tax rate
19.4 %
22.2 %
The decrease in the effective tax rate for 2020 compared to 2019 was primarily due to the reversal of certain partnership tax
credits in 2019 that did not recur in 2020, partially offset by a reduction in research and development credits.
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. As a result of these
audits, certain adjustments have been assessed. The Company has filed a protest and submitted additional information for
consideration. The Company is evaluating the adjustments and believes that it is adequately reserved for any potential exposure.
As of December 31, 2020, the U.S. federal statute of limitations has not expired for the 2013 through 2019 tax years.
As of December 31, 2020, the Company is subject to non-U.S. income tax examinations for the tax years of 2013 through 2019.
In addition, the Company is subject to state and local income tax examinations for the tax years 1998 through 2020.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at beginning of year
Additions from the Valspar acquisition
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapses of statutes of limitations
Balance at end of year
2020
2019
2018
$
203.0
$
89.5
$
13.8
16.4
(3.3)
(2.0)
(0.9)
14.9
107.9
(3.6)
(5.7)
$
227.0
$
203.0
$
59.0
12.4
12.9
11.0
(2.0)
(1.4)
(2.4)
89.5
The increase in unrecognized tax benefits was primarily due to the reversal of tax benefits recognized in previous tax years
from federal research and development credits. Other increases in the balance of unrecognized tax benefits at December 31,
2020 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, 2020, 2019 and 2018, the Company had unrecognized tax benefits of
$216.3 million, $195.3 million, $83.0 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, 2020 is $16.8 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.
84
The Company classifies all income tax related interest and penalties as income tax expense. During the year ended
December 31, 2020, there was an increase in income tax interest and penalties of $4.0 million. There was an increase in income
tax interest and penalties of $1.6 million and a decrease of $4.9 million for the years ended December 31, 2019 and 2018,
respectively. The Company accrued $30.3 million, $26.2 million and $24.8 million at December 31, 2020, 2019 and 2018,
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.
(millions of dollars, except share and per share data)
Basic
Net income
Average shares outstanding
Basic net income per share
Diluted
2020
2019
2018
$
$
2,030.4 $
1,541.3 $
1,108.7
90,425,861
91,803,528
92,992,457
22.45 $
16.79 $
11.92
Net income
Average shares outstanding assuming dilution:
Average shares outstanding
Stock options and other contingently issuable shares (1)
Non-vested restricted stock grants
$
2,030.4 $
1,541.3 $
1,108.7
90,425,861
91,803,528
92,992,457
1,501,142
1,601,213
1,938,586
15,620
42,101
57,027
Average shares outstanding assuming dilution
91,942,623
93,446,842
94,988,070
Diluted net income per share
11.67
(1) Stock options and other contingently issuable shares excludes 318,947, 449,167 and 28,321 shares at December 31, 2020, 2019 and 2018,
22.08 $
16.49 $
$
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 4,774 company-operated specialty paint stores in the United States, Canada, Latin America
and the Caribbean region at December 31, 2020. Each store in this segment is engaged in servicing the needs of architectural
and industrial paint contractors and do-it-yourself homeowners. These 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, 2020, The Americas Group
85
consisted of operations from subsidiaries in 10 foreign countries. During 2020, this segment opened 16 net new stores,
consisting of 56 new stores opened (53 in the United States, 1 in Canada, 1 in Mexico and 1 in South America) and 40 stores
closed (10 in the United States, 6 in Canada, 17 in South America and 7 in Mexico). In 2019 and 2018, this segment opened 62
and 76 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 paint, 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 55% of the total sales of the Consumer Brands Group in
2020 were intersegment transfers of products primarily sold through The Americas Group. At December 31, 2020, 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-label 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 and related 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 282 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 2020, this segment opened 1 new branch and did not close any branches for a net
increase of 1 branch. At December 31, 2020, the Performance Coatings Group consisted of operations in the United States and
subsidiaries in 44 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 represent 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 $3.581 billion, $3.679 billion and $4.028 billion for 2020, 2019
and 2018, 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 $15.810 billion,
$15.865 billion and, $14.790 billion at December 31, 2020, 2019 and 2018, respectively. Long-lived assets of consolidated
foreign subsidiaries totaled $3.167 billion, $3.211 billion and $3.290 billion at December 31, 2020, 2019 and 2018,
respectively.
86
Total Assets of the Company were $20.402 billion, $20.496 billion and $19.134 billion at December 31, 2020, 2019 and 2018,
respectively. Total assets of consolidated foreign subsidiaries were $4.834 billion, $4.829 billion and $4.809 billion, which
represented 23.7%, 23.6% and 25.1% of the Company’s total assets at December 31, 2020, 2019 and 2018, 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.
The Americas
Group
Consumer
Brands
Group
2020
Performance
Coatings
Group
Net external sales
Intersegment transfers
$ 10,383.2
$
3,053.4
$
4,922.4
3,688.4
137.1
Total net sales and intersegment transfers
$ 10,383.2
$
6,741.8
$
5,059.5
Segment profit
Interest expense
Administrative expenses and other
$
2,294.1
$
579.6
$
500.1
Income before income taxes
$
2,294.1
$
579.6
$
500.1
% to net external sales
22.1 %
19.0 %
10.2 %
Identifiable assets
Capital expenditures
Depreciation
Amortization
Net external sales
Intersegment transfers
$
5,386.6
$
5,387.4
$
8,071.1
63.9
73.0
4.5
89.8
87.6
90.0
43.0
69.1
213.9
2019
The Americas
Group
Consumer
Brands
Group
Performance
Coatings
Group
$ 10,171.9
$
2,676.8
$
5,049.2
3,607.0
116.2
Total net sales and intersegment transfers
$ 10,171.9
$
6,283.8
$
5,165.4
Segment profit
$
2,056.5
$
373.2
$
379.1
California litigation expense provision reduction
Interest expense
Administrative expenses and other
Income before income taxes
$
2,056.5
$
373.2
$
379.1
% to net external sales
20.2 %
13.9 %
7.5 %
Identifiable assets
Capital expenditures
Depreciation
Amortization
$
5,399.1
$
5,600.8
$
8,175.6
73.3
72.2
4.8
133.4
81.1
90.3
84.2
70.9
212.9
Administrative
Consolidated
Totals
$
$
$
$
$
2.7
$
18,361.7
(3,825.5)
—
(3,822.8)
$
18,361.7
$
3,373.8
(340.4)
(514.2)
(340.4)
(514.2)
(854.6)
$
2,519.2
1,556.5
$
20,401.6
107.1
38.3
5.0
303.8
268.0
313.4
Administrative
Consolidated
Totals
$
$
$
$
$
$
2.9
$
(3,723.2)
17,900.8
—
(3,720.3)
$
17,900.8
$
2,808.8
34.7
(349.3)
(512.4)
34.7
(349.3)
(512.4)
(827.0)
$
1,981.8
1,320.7
$
20,496.2
38.0
37.9
4.8
328.9
262.1
312.8
87
The Americas
Group
Consumer
Brands
Group
2018
Performance
Coatings
Group
Net external sales
Intersegment transfers
$
9,625.1
$
2,739.1
$
5,166.4
0.5
3,460.2
22.4
Total net sales and intersegment transfers
$
9,625.6
$
6,199.3
$
5,188.8
Segment profit
California litigation expense
Interest expense
Administrative expenses and other
$
1,898.4
$
261.1
$
452.1
Income before income taxes
$
1,898.4
$
261.1
$
452.1
% to net external sales
19.7 %
9.5 %
8.8 %
Identifiable assets
Capital expenditures
Depreciation
Amortization
$
4,070.9
$
5,385.3
$
8,535.2
69.5
72.3
4.8
95.7
88.8
97.5
60.8
77.6
210.7
Administrativ
e
Consolidated
Totals
$
$
$
$
$
$
3.9
$
17,534.5
(3,483.1)
—
(3,479.2)
$
17,534.5
$
2,611.6
(136.3)
(366.7)
(748.9)
(136.3)
(366.7)
(748.9)
(1,251.9)
$
1,359.7
1,142.9
$
19,134.3
25.0
39.5
5.1
251.0
278.2
318.1
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, 2020 and 2019.
Net sales
Gross profit
Net income
Net income per share:
Basic
Diluted
Net sales
Gross profit
Net income
Net income per share:
Basic
1st Quarter
2nd Quarter
2020
3rd Quarter
4th Quarter
$
4,146.7 $
4,604.0 $
5,122.2 $
4,488.8 $
Full Year (1)
18,361.7
1,889.7
321.7
2,208.9
595.9
2,455.3
705.8
2,128.7
407.0
8,682.6
2,030.4
$
$
3.53 $
3.46 $
6.59 $
6.48 $
7.80 $
7.66 $
4.54 $
4.46 $
22.45
22.08
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2019
$
4,040.9 $
4,877.8 $
4,867.7 $
4,114.4 $
Full Year (1)
17,900.8
1,735.1
245.2
2,181.4
471.0
2,225.6
576.5
1,894.0
248.6
8,036.1
1,541.3
$
2.67 $
5.13 $
6.28 $
2.71 $
16.79
Diluted
16.49
(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
2.62 $
6.16 $
2.66 $
5.03 $
$
for each quarter and the full year are calculated independently.
88
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation
of our Chairman and Chief Executive Officer and our Senior Vice President – Finance and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15d-15 of the Securities Exchange
Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, our Chairman and Chief Executive Officer and our
Senior Vice President – Finance and Chief Financial Officer concluded that as of the end of the period covered by this report
our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file
or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and accumulated and communicated to our management, including our
Chairman and Chief Executive Officer and our Senior Vice President – Finance and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
Internal Control Over Financial Reporting
The “Report of Management on Internal Control over Financial Reporting” and the “Report of the Independent Registered
Public Accounting Firm on Internal Control over Financial Reporting” are set forth in Item 8.
There were no changes in our internal control over financial reporting identified in connection with the evaluation that occurred
during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
89
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The information regarding our directors and director nominees is set forth in our Proxy Statement under the captions “Proposal
1 – Election of Directors” and “Director Compensation” and is incorporated herein by reference.
There were no material changes to the procedures by which security holders may recommend nominees to our Board of
Directors during 2020. Please refer to the information set forth in our Proxy Statement under the caption “Board Meetings and
Committees,” which information is incorporated herein by reference.
Executive Officers
The information regarding our executive officers is set forth under the caption “Information About Our Executive Officers” in
Part I of this report, which is incorporated herein by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
To the extent disclosure of any delinquent form under Section 16(a) of the Securities Exchange Act of 1934 is made by the
Company, such disclosure will be set forth in our Proxy Statement under the caption “Delinquent Section 16(a) Reports” and is
incorporated herein by reference.
Audit Committee
The information regarding the Audit Committee of our Board of Directors and audit committee financial experts is set forth in
our Proxy Statement under the caption “Board Meetings and Committees” and is incorporated herein by reference.
Code of Ethics
We have adopted a Code of Conduct, which applies to all directors and employees, including our executive officers, of
Sherwin-Williams and our subsidiaries wherever located. Our Code of Conduct contains the general guidelines and principles
for conducting Sherwin-Williams’ business consistent with the highest standards of business ethics. Under our Code of Ethics
for Senior Financial Management, our chief executive officer, chief financial officer and senior financial management are
responsible for creating and maintaining a culture of high ethical standards and of commitment to compliance throughout our
company to ensure the fair and timely reporting of Sherwin-Williams’ financial results and condition. Senior financial
management includes the controller, the treasurer, the principal financial/accounting personnel in our operating groups and
divisions, and all other financial/accounting personnel within our corporate departments and operating groups and divisions
with staff supervision responsibilities. Please refer to the information set forth in our Proxy Statement under the caption
“Corporate Governance – Code of Conduct,” which information is incorporated herein by reference. Our Code of Conduct and
Code of Ethics for Senior Financial Management are available on our Investor Relations website, investors.sherwin-
williams.com.
We intend to disclose on our Investor Relations website, investors.sherwin-williams.com, any amendment to, or waiver from, a
provision of our Code of Conduct or Code of Ethics for Senior Financial Management that applies to our directors and
executive officers, including our principal executive officer, principal financial officer, principal accounting officer or
controller, or any persons performing similar functions, and that is required to be publicly disclosed pursuant to the rules of the
SEC.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in our Proxy Statement under the captions “Director Compensation,”
“Compensation Committee Report,” “Compensation Risk Assessment,” “Compensation Discussion and Analysis” and
“Executive Compensation” and is incorporated herein by reference.
90
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information regarding security ownership of certain beneficial owners and management is set forth in our Proxy Statement
under the captions “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” and is
incorporated herein by reference.
The information regarding securities authorized for issuance under the Company’s equity compensation plans is set forth in our
Proxy Statement under the caption “Equity Compensation Plan Information” and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is set forth in our Proxy Statement under the captions “Certain Relationships and
Transactions with Related Persons” and “Independence of Directors” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is set forth in our Proxy Statement under the caption “Matters Relating to the Independent
Registered Public Accounting Firm” and is incorporated herein by reference.
91
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
Statements of Consolidated Income
Statements of Consolidated Comprehensive Income
Consolidated Balance Sheets
Statements of Consolidated Cash Flows
Statements of Consolidated Shareholders’ Equity
Notes to Consolidated Financial Statements
Page Number in
Form 10-K
48
49
50
51
52
53
(2) Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2020, 2019
and 2018 is set forth below. All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
Valuation and Qualifying Accounts and Reserves
(Schedule II)
Changes in deferred tax asset valuation allowances were as follows:
(millions of dollars)
Beginning balance
Additions (deductions) (1)
Acquired balances
Ending balance
2020
2019
2018
$ 84.6
$ 73.5
$ 44.1
20.0
—
7.4
3.7
10.6
18.8
$ 104.6
$ 84.6
$ 73.5
(1) Additions (deductions) did not have a material impact on the Income Statement in 2020, 2019 or 2018.
92
(3) Exhibits
2.
3.
Agreement and Plan of Merger, among the Company, Viking Merger Sub, Inc., and The Valspar
Corporation, dated as of March 19, 2016, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-
K dated March 19, 2016, and incorporated herein by reference.
(a) Amended and Restated Articles of Incorporation of the Company, as amended through February 18, 2015,
filed as Exhibit 3 to the Company's Current Report on Form 8-K dated February 18, 2015, and
incorporated herein by reference.
(b) Regulations of the Company, as amended and restated October 17, 2018, filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K dated October 17, 2018, and incorporated herein by reference.
4.
(a) Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934, filed as
Exhibit 4(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,
and incorporated herein by reference.
(b) Indenture between the Company and The Bank of New York Mellon (as successor to Chemical Bank), as
trustee, dated as of February 1, 1996, filed as Exhibit 4(a) to Form S-3 Registration Statement Number
333-01093 dated February 20, 1996, and incorporated herein by reference.
(c) Second Supplemental Indenture by and between the Company and The Bank of New York Mellon, as
trustee (including Form of Note), dated as of December 7, 2012, filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated December 4, 2012, and incorporated herein by reference.
(d) Third Supplemental Indenture by and between the Company and The Bank of New York Mellon, as
trustee (including Form of Note), dated as of December 7, 2012, filed as Exhibit 4.2 to the Company's
Current Report on Form 8-K dated December 4, 2012, and incorporated herein by reference.
(e) Indenture by and between the Company and Wells Fargo Bank, National Association, as trustee, dated
July 31, 2015, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 28, 2015, and
incorporated herein by reference.
(f) First Supplemental Indenture by and between the Company and Wells Fargo Bank, National Association,
as trustee, dated July 31, 2015, (including Form of Note), filed as Exhibit 4.2 to the Company’s Current
Report on Form 8-K dated July 28, 2015, and incorporated herein by reference.
(g) Second Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated July 31, 2015, (including Form of Note), filed as Exhibit 4.3 to the
Company’s Current Report on Form 8-K dated July 28, 2015, and incorporated herein by reference.
(h) Third Supplemental Indenture by and between the Company and Wells Fargo Bank, National Association,
as trustee, dated May 16, 2017 (including Form of Note), filed as Exhibit 4.1 to the Company’s Current
Report on Form 8-K dated May 16, 2017, and incorporated herein by reference.
(i) Fourth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated May 16, 2017 (including Form of Note), filed as Exhibit 4.2 to the
Company’s Current Report on Form 8-K dated May 16, 2017, and incorporated herein by reference.
(j) Fifth Supplemental Indenture by and between the Company and Wells Fargo Bank, National Association,
as trustee, dated May 16, 2017 (including Form of Note), filed as Exhibit 4.3 to the Company’s Current
Report on Form 8-K dated May 16, 2017, and incorporated herein by reference.
(k) Sixth Supplemental Indenture by and between the Company and Wells Fargo Bank, National Association,
as trustee, dated May 16, 2017 (including Form of Note), filed as Exhibit 4.4 to the Company’s Current
Report on Form 8-K dated May 16, 2017, and incorporated herein by reference.
(l) Seventh Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated May 16, 2017 (including Form of Note), filed as Exhibit 4.5 to the
Company’s Current Report on Form 8-K dated May 16, 2017, and incorporated herein by reference.
(m) Eighth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated June 2, 2017 (including Form of Note), filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K dated June 2, 2017, and incorporated herein by reference.
(n) Ninth Supplemental Indenture by and between the Company and Wells Fargo Bank, National Association,
as trustee, dated June 2, 2017 (including Form of Note), filed as Exhibit 4.2 to the Company’s Current
Report on Form 8-K dated June 2, 2017, and incorporated herein by reference.
93
(o) Tenth Supplemental Indenture by and between the Company and Wells Fargo Bank, National Association,
as trustee, dated June 2, 2017 (including Form of Note), filed as Exhibit 4.3 to the Company’s Current
Report on Form 8-K dated June 2, 2017, and incorporated herein by reference.
(p) Eleventh Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated June 2, 2017 (including Form of Note), filed as Exhibit 4.4 to the
Company’s Current Report on Form 8-K dated June 2, 2017, and incorporated herein by reference.
(q) Twelfth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated June 2, 2017 (including Form of Note), filed as Exhibit 4.5 to the
Company’s Current Report on Form 8-K dated June 2, 2017, and incorporated herein by reference.
(r) Thirteenth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated August 26, 2019 (including Form of Note), filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K dated August 26, 2019, and incorporated herein by reference.
(s) Fourteenth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated August 26, 2019 (including Form of Note), filed as Exhibit 4.2 to the
Company’s Current Report on Form 8-K dated August 26, 2019, and incorporated herein by reference.
(t) Fifteenth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated March 17, 2020 (including Form of Note), filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K dated March 17, 2020, and incorporated herein by reference.
(u) Sixteenth Supplemental Indenture by and between the Company and Wells Fargo Bank, National
Association, as trustee, dated March 17, 2020 (including Form of Note), filed as Exhibit 4.2 to the
Company’s Current Report on Form 8-K dated March 17, 2020, and incorporated herein by reference.
(v) Credit Agreement, dated as of July 19, 2018, by and among the Company, Sherwin-Williams Canada Inc.,
Sherwin-Williams Luxembourg S.à r.l. and Sherwin-Williams UK Holding Limited, as borrowers, the
lenders party thereto, the issuing lenders party thereto and Citibank, N.A., as administrative agent, filed as
Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 19, 2018, and incorporated herein
by reference.
(w) Amendment No. 1 to Credit Agreement, dated as of October 8, 2019, by and among the Company,
Sherwin-Williams Canada Inc., Sherwin-Williams Luxembourg S.à r.l. and Sherwin-Williams UK
Holding Limited, as borrowers, the lenders party thereto, the issuing lenders party thereto and Citibank,
N.A. as administrative agent, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
October 11, 2019, and incorporated herein by reference.
(x) Credit Agreement, dated as of May 9, 2016, by and among the Company, Citicorp USA, Inc., as
administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit 4.1 to the Company’s
Current Report on Form 8-K dated May 9, 2016, and incorporated herein by reference.
(y) Agreement for Letter of Credit, dated as of May 9, 2016, by and between the Company and Citibank, N.A.
filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 9, 2016, and incorporated
herein by reference.
(z) Amendment No. 1 to the Credit Agreement, dated as of May 12, 2016, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated May 12, 2016, and incorporated herein by
reference.
(aa) Amendment No. 2 to the Credit Agreement, dated as of June 20, 2016, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated June 20, 2016, and incorporated herein by
reference.
(bb) Amendment No. 3 to the Credit Agreement, dated as of August 1, 2016, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated August 1, 2016, and incorporated herein by
reference.
(cc) Amendment No. 4 to the Credit Agreement, dated as of January 31, 2017, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated January 31, 2017, and incorporated herein by
reference.
94
(dd) Amendment No. 5 to the Credit Agreement, dated as of February 13, 2017, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated February 13, 2017, and incorporated herein by
reference.
(ee) Amendment No. 6 to the Credit Agreement, dated as of February 27, 2017, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated February 27, 2017, and incorporated herein by
reference.
(ff) Amendment No. 7 to the Credit Agreement, dated as of May 8, 2017, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated May 8, 2017, and incorporated herein by
reference.
(gg) Amendment No. 8 to the Credit Agreement, dated as of May 11, 2017, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated May 11, 2017, and incorporated herein by
reference.
(hh) Amendment No. 9 to the Credit Agreement, dated as of February 27, 2018, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated February 27, 2018, and incorporated herein by
reference.
(ii) Amendment No. 10 to the Credit Agreement, dated as of July 26, 2018, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated July 26, 2018, and incorporated herein by
reference.
(jj) Amendment No. 11 to the Credit Agreement, dated as of September 14, 2020, by and among the
Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto,
filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 14, 2020, and
incorporated herein by reference.
(kk) Amendment No. 12 to the Credit Agreement, dated as of November 9, 2020, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated November 9, 2020, and incorporated herein by
reference.
(ll) Amendment No. 13 to the Credit Agreement, dated as of December 7, 2020, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated December 7, 2020, and incorporated herein by
reference.
(mm) Amendment No. 14 to the Credit Agreement, dated as of February 16, 2021, by and among the Company,
Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated February 16, 2021, and incorporated herein by
reference.
(nn) Amendment No. 1 to the Agreement for Letter of Credit, dated as of July 26, 2018, by and between the
Company and Citibank, N.A., filed as Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2018, and incorporated herein by reference.
(oo) Assignable Loan Agreement, dated as of August 17, 2017, relating to a Floating Rate Loan by and among
Sherwin-Williams Coatings S.à r.l., as Borrower, the Company, as Guarantor, and Citibank Europe plc,
UK Branch, as Lender, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August
17, 2017, and incorporated herein by reference.
(pp) Assignable Loan Agreement, dated as of August 17, 2017, relating to a Fixed Rate Loan by and among
Sherwin-Williams Coatings S.à r.l., as Borrower, the Company, as Guarantor, and Citibank Europe plc,
UK Branch, as Lender, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated August
17, 2017, and incorporated herein by reference.
(qq) Credit Agreement, dated as of September 11, 2017, by and among the Company, Goldman Sachs Bank
USA, as administrative agent and Goldman Sachs Mortgage Company, as issuing bank, and the lenders
party thereto, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 11,
2017, and incorporated herein by reference.
(rr) Continuing Agreement for Standby Letters of Credit, dated as of September 11, 2017, by and among the
Company and Goldman Sachs Bank USA, filed as Exhibit 4.2 to the Company’s Current Report on Form
8-K dated September 11, 2017, and incorporated herein by reference.
95
(ss) First Amendment to Credit Agreement, dated as of October 30, 2017, by and among the Company,
Goldman Sachs Bank USA, as administrative agent, Goldman Sachs Mortgage Company, as issuing bank,
and the lenders party thereto, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
October 30, 2017, and incorporated herein by reference.
(tt) Second Amendment to Credit Agreement, dated as of September 6, 2018, by and among the Company,
Goldman Sachs Bank USA, as administrative agent, Goldman Sachs Mortgage Company, as issuing bank,
and the lenders party thereto, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
September 6, 2018, and incorporated herein by reference.
(uu) First Amendment to Continuing Agreement for Standby Letters of Credit, dated as of September 6, 2018,
by and among the Company and Goldman Sachs Bank USA, filed as Exhibit 4.6 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, and incorporated
herein by reference.
10.
**(a) Forms of Amended and Restated Severance Agreements filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2010, and incorporated herein by reference.
**(b) Schedule of Executive Officers who are Parties to the Amended and Restated Severance Agreements in
the forms referred to in Exhibit 10(a) above (filed herewith).
**(c) Amended and Restated Aircraft Time Sharing Agreement between the Company and John G. Morikis,
dated October 1, 2019, filed as Exhibit 10(c) to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2019, and incorporated herein by reference.
**(d) The Sherwin-Williams Company 2005 Deferred Compensation Savings and Pension Equalization Plan
(Amended and Restated Effective as of January 1, 2016) filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2015, and incorporated herein by reference.
**(e) The Sherwin-Williams Company 2005 Key Management Deferred Compensation Plan (Amended and
Restated Effective as of January 1, 2016) filed as Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2015, and incorporated herein by reference.
**(f) Adoption Agreement for The Valspar Corporation Nonqualified Deferred Compensation Plan filed as
Exhibit 10.1 to The Valspar Corporation’s Current Report on Form 8-K dated May 15, 2014, and
incorporated herein by reference.
**(g) The Valspar Corporation Nonqualified Deferred Compensation Plan filed as Exhibit 10.2 to The Valspar
Corporation’s Current Report on Form 8-K dated May 15, 2014, and incorporated herein by reference.
**(h) Amendment to Valspar Corporation Nonqualified Deferred Compensation Plan and Adoption Agreement
filed as Exhibit 10.1 to The Valspar Corporation’s Current Report on Form 8-K dated September 27,
2016, and incorporated herein by reference.
**(i) The Sherwin-Williams Company 2005 Director Deferred Fee Plan (Amended and Restated Effective as of
January 1, 2019) filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, and incorporated herein by reference.
**(j) The Sherwin-Williams Company Executive Disability Income Plan filed as Exhibit 10(g) to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (SEC File Number
001-04851), and incorporated herein by reference.
**(k) Amendment Number One to The Sherwin-Williams Company Executive Disability Income Plan filed as
Exhibit 10(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
and incorporated herein by reference.
**(l) Summary of The Sherwin-Williams Company Revised Executive Disability Plan filed as Exhibit 10(o) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and
incorporated herein by reference.
**(m) The Sherwin-Williams Company 2008 Amended and Restated Executive Life Insurance Plan filed as
Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2009, and incorporated herein by reference.
**(n) Amended and Restated The Valspar Corporation Employee Health Plan filed as Exhibit 10.24 to The
Valspar Corporation’s Annual Report on Form 10-K for the fiscal year ended October 28, 2016, and
incorporated herein by reference.
**(o) The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as
of April 19, 2017) filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2017, and incorporated herein by reference.
96
**(p) Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance
Incentive Plan filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2012, and incorporated herein by reference.
**(q) Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance
Incentive Plan filed as Exhibit 10(z) to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2014, and incorporated herein by reference.
**(r) Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance
Incentive Plan filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2015, and incorporated herein by reference.
**(s) Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance
Incentive Plan filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2017, and incorporated herein by reference.
**(t) Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance
Incentive Plan filed as Exhibit 10(p) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2017, and incorporated herein by reference.
**(u) Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance
Incentive Plan filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, and incorporated herein by reference.
**(v) Form of Restricted Stock Units Award Agreement under The Sherwin-Williams Company 2006 Equity
and Performance Incentive Plan filed as Exhibit 10(s) to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2017, and incorporated herein by reference.
**(w) Form of Restricted Stock Units Award Agreement under The Sherwin-Williams Company 2006 Equity
and Performance Incentive Plan filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2018, and incorporated herein by reference.
**(x) The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors (Amended and Restated as
of April 20, 2016) filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2016, and incorporated herein by reference.
**(y) Form of Restricted Stock Units Award Agreement under The Sherwin-Williams Company 2006 Stock
Plan for Nonemployee Directors filed as Exhibit 10(gg) to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2016, and incorporated herein by reference.
**(z) The Sherwin-Williams Company 2007 Executive Annual Performance Bonus Plan (Amended and
Restated as of April 19, 2017) filed as Exhibit 10(w) to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2017, and incorporated herein by reference.
**(aa) The Sherwin-Williams Company Key Employee Separation Plan as Amended and Restated Effective
March 1, 2019 filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, and incorporated herein by reference.
21.
23.
24.
Subsidiaries (filed herewith).
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).
(a) Powers of Attorney (filed herewith).
(b) Certified Resolution Authorizing Signature by Power of Attorney (filed herewith).
31.
(a) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).
(b) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith).
32.
(a) Section 1350 Certification of Chief Executive Officer (furnished herewith).
(b) Section 1350 Certification of Chief Financial Officer (furnished herewith).
97
101.INS
Inline XBRL Instance Document - the instance document does not appear in the interactive data file
because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page from this Annual Report on Form 10-K for the fiscal year ended December 31, 2020,
formatted in Inline XBRL and contained in Exhibit 101.
*
Certain exhibits and schedules have been omitted and the Company agrees to furnish supplementally to the
Securities and Exchange Commission a copy of any omitted exhibits and schedules upon request.
** Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
98
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 19, 2021.
SIGNATURES
THE SHERWIN-WILLIAMS COMPANY
By:
/S/ MARY L. GARCEAU
Mary L. Garceau, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on February 19, 2021.
* JOHN G. MORIKIS
John G. Morikis
* ALLEN J. MISTYSYN
Allen J. Mistysyn
* JANE M. CRONIN
Jane M. Cronin
* KERRII B. ANDERSON
Kerrii B. Anderson
* ARTHUR F. ANTON
Arthur F. Anton
* JEFF M. FETTIG
Jeff M. Fettig
* RICHARD J. KRAMER
Richard J. Kramer
* SUSAN J. KROPF
Susan J. Kropf
* CHRISTINE A. POON
Christine A. Poon
* MICHAEL H. THAMAN
Michael H. Thaman
* MATTHEW THORNTON III
Matthew Thornton III
* STEVEN H. WUNNING
Steven H. Wunning
Chairman and Chief Executive Officer, Director
(Principal Executive Officer)
Senior Vice President – Finance and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President – Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
*
The undersigned, by signing her name hereto, does sign this report on behalf of the designated officers and directors of
the Company pursuant to powers of attorney executed on behalf of each such officer and director and filed as an exhibit
to this report.
By:
/S/
MARY L. GARCEAU
Mary L. Garceau, Attorney-in-fact
February 19, 2021
99
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Board of
Directors
Susan J. Kropf, 72
Retired, former President and Chief Operating Officer
Avon Products, Inc.
John G. Morikis, 57
Chairman and Chief Executive Officer
The Sherwin-Williams Company
Kerrii B. Anderson, 63
Retired, former Chief Executive Officer and President
Wendy’s International, Inc.
Christine A. Poon, 68
Executive in Residence
The Ohio State University Max M. Fisher College of Business
Retired, former Vice Chairman
Johnson & Johnson
Arthur F. Anton, 63*
Retired, former Chairman and Chief Executive Officer
Swagelok Company
Michael H. Thaman, 57
Chief Executive Officer
UBQ Materials Inc.
Jeff M. Fettig, 64*
Retired, former Chairman of the Board and
Chief Executive Officer
Whirlpool Corporation
Richard J. Kramer, 57*
Chairman of the Board,
Chief Executive Officer and President
The Goodyear Tire & Rubber Company
Matthew Thornton III, 62*
Retired, former Executive Vice President and
Chief Operating Officer
FedEx Freight
FedEx Corporation
Steven H. Wunning, 69
Retired, former Group President
Caterpillar Inc.
* Audit Committee Member
Corporate Officers
John G. Morikis, 57*
Chairman and Chief Executive Officer
David B. Sewell, 52*
President and Chief Operating Officer
Allen J. Mistysyn, 52*
Senior Vice President – Finance and
Chief Financial Officer
Jane M. Cronin, 53*
Senior Vice President – Corporate
Controller
James R. Jaye, 54*
Senior Vice President – Investor
Relations and Communications
John D. Hullibarger, 40
Vice President – Corporate Audit and
Loss Prevention
Mary L. Garceau, 48*
Senior Vice President, General
Counsel and Secretary
Thomas P. Gilligan, 60*
Senior Vice President – Human
Resources
Bryan J. Young, 45*
Senior Vice President – Corporate
Strategy and Development
Lawrence J. Boron, 62
Vice President – Taxes and Assistant
Secretary
Jeffrey J. Miklich, 46
Vice President and Treasurer
Stephen J. Perisutti, 58
Vice President, Deputy General
Counsel and Assistant Secretary
Operating Management
Joshua A. Bagshaw, 40
President & General Manager
Mid Western Division
The Americas Group
Justin T. Binns, 45*
President
Performance Coatings Group
Colin M. Davie, 52
President & General Manager
Industrial Wood Coatings Division
Performance Coatings Group
Brian L. Gallagher, 49
President & General Manager
Automotive Finishes Division
Performance Coatings Group
Richard M. Gilmore, 52
President & General Manager
Canada Division
The Americas Group
Peter J. Ippolito, 56*
President
The Americas Group
Karl J. Jorgenrud, 44
President & General Manager
General Industrial Division
Performance Coatings Group
T. Burt Marchman, 58
President & General Manager
Packaging Division
Performance Coatings Group
Brian E. Padden, 49*
President
Consumer Brands Group
Mark A. Provenson, 47
President & General Manager
Eastern Division
The Americas Group
Jonathan N. Reid, 49
President & General Manager
South Western Division
The Americas Group
Joseph F. Sladek, 50*
President & General Manager
Global Supply Chain Division
Consumer Brands Group
Todd A. Stephenson, 51
President & General Manager
Protective & Marine Division
Performance Coatings Group
Todd V. Wipf, 56
President & General Manager
South Eastern Division
The Americas Group
* Executive Officer as defined by the Securities
Exchange Act of 1934
The Sherwin-Williams Company • 101 W. Prospect Avenue • Cleveland, Ohio 44115-1075
www.sherwin-williams.com