THE SHERWIN-WILLIAMS COMPANY (Exact name of registrant as specified - PDF document

10-Q 1 shw-2016630_10q.htm 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Period Ended June 30, 2016 or o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to Commission file number 1-04851 THE SHERWIN-WILLIAMS COMPANY (Exact name of registrant as specified in its charter) OHIO 34-0526850 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 West Prospect Avenue, Cleveland, Ohio 44115-1075 (Address of principal executive offices) (Zip Code) (216) 566-2000 (Registrant’s telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:) Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. Common Stock, $1.00 Par Value – 92,221,707 shares as of June 30, 2016.

TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements 2 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 30 Item 4. Controls and Procedures 31 PART II. OTHER INFORMATION Item 1. Legal Proceedings 32 Item 1A. Risk Factors 33 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 Item 5. Other Information 36 Item 6. Exhibits 37 SIGNATURES 38 INDEX TO EXHIBITS 39 EX-4.1 EX-4.2 EX-4.3 EX-4.4 EX-31(a) EX-31(b) EX-32(a) EX-32(b) EX-101 INSTANCE DOCUMENT EX-101 SCHEMA DOCUMENT EX-101 PRESENTATION LINKBASE DOCUMENT EX-101 CALCULATION LINKBASE DOCUMENT EX-101 LABEL LINKBASE DOCUMENT EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION Item 1. Financial Statements THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME (UNAUDITED) Thousands of dollars, except per share data Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015 Net sales $ 3,219,525 $ 3,132,139 $ 5,793,549 $ 5,582,423 Cost of goods sold 1,583,732 1,602,153 2,896,011 2,919,988 Gross profit 1,635,793 1,529,986 2,897,538 2,662,435 Percent to net sales 50.8% 48.8% 50.0% 47.7% Selling, general and administrative expenses 1,053,972 999,224 2,056,327 1,928,421 Percent to net sales 32.7% 31.9% 35.5% 34.5% Other general expense - net 9,971 8,298 2,733 20,287 Interest expense 40,878 12,885 66,610 25,236 Interest and net investment income (952) (553) (1,439) (975) Other (income) expense - net (52) 677 174 432 Income before income taxes 539,214 507,782 755,579 701,023 Income taxes 161,150 157,845 212,639 219,682 $ 378,064 $ 349,937 $ 542,940 $ 481,341 Net income Net income per common share: Basic $ 4.12 $ 3.79 $ 5.93 $ 5.20 Diluted $ 3.99 $ 3.70 $ 5.76 $ 5.07 91,788,734 92,260,367 91,632,297 92,500,213 Average shares outstanding - basic 94,669,751 94,592,057 94,305,997 94,927,670 Average shares and equivalents outstanding - diluted $ 361,580 $ 436,637 Comprehensive income $ 284,060 $ 467,946 See notes to condensed consolidated financial statements. 2

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) Thousands of dollars June 30, December 31, June 30, 2016 2015 2015 Assets Current assets: $ $ Cash and cash equivalents $ 402,656 205,744 75,068 Accounts receivable, less allowance 1,473,078 1,114,275 1,454,045 Inventories: Finished goods 975,366 840,603 945,918 Work in process and raw materials 176,866 177,927 186,058 1,152,232 1,018,530 1,131,976 Deferred income taxes 155,407 87,883 107,902 Other current assets 300,569 230,748 234,923 Total current assets 3,483,942 2,657,180 3,003,914 Goodwill 1,144,700 1,143,333 1,151,720 Intangible assets 247,070 255,371 273,882 Deferred pension assets 246,090 244,882 251,684 Other assets 436,309 442,056 471,618 Property, plant and equipment: Land 119,608 119,530 122,503 Buildings 708,573 696,202 696,426 Machinery and equipment 2,109,786 2,026,617 1,980,796 Construction in progress 100,508 81,082 69,274 3,038,475 2,923,431 2,868,999 Less allowances for depreciation 1,966,218 1,881,569 1,863,680 1,072,257 1,041,862 1,005,319 $ 6,665,677 $ 5,778,937 $ 6,128,575 Total Assets Liabilities and Shareholders’ Equity Current liabilities: Short-term borrowings $ 59,203 $ 39,462 $ 1,159,284 Accounts payable 1,289,406 1,157,561 1,253,894 Compensation and taxes withheld 311,111 338,256 267,352 Accrued taxes 230,294 81,146 193,834 Current portion of long-term debt 3,154 3,179 2,179 Other accruals 733,020 522,280 479,696 Total current liabilities 2,625,213 2,141,859 3,357,239 Long-term debt 1,909,217 1,907,278 1,116,667 Postretirement benefits other than pensions 251,812 248,523 279,650 Other long-term liabilities 632,806 613,367 617,677 Shareholders’ equity: Common stock—$1.00 par value: 92,221,707, 92,246,525 and 93,210,645 shares outstanding at June 30, 2016, December 31, 2015 and June 30, 2015, respectively 116,259 115,761 115,394 Other capital 2,412,599 2,330,426 2,241,197 Retained earnings 3,616,095 3,228,876 2,780,764 (4,236,235) (4,220,058) Treasury stock, at cost (3,863,351) (662,089) (587,095) Cumulative other comprehensive loss (516,662) Total shareholders' equity 1,246,629 867,910 757,342 Total Liabilities and Shareholders’ Equity $ 6,665,677 $ 5,778,937 $ 6,128,575 See notes to condensed consolidated financial statements. 3

THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) Thousands of dollars Six Months Ended June 30, June 30, 2016 2015 OPERATING ACTIVITIES Net income $ 542,940 $ 481,341 Adjustments to reconcile net income to net operating cash: Depreciation 86,724 84,581 Amortization of intangible assets 12,003 13,720 Stock-based compensation expense 31,948 32,578 Amortization of credit facility and debt issuance costs 25,691 2,166 Provisions for qualified exit costs 1,422 1,482 Provisions for environmental-related matters 11,560 20,536 Defined benefit pension plans net cost 9,948 3,576 Net increase in postretirement liability 961 (111) Other 1,196 (4,539) Change in working capital accounts - net (211,572) (238,809) Costs incurred for environmental-related matters (6,716) (5,573) Costs incurred for qualified exit costs (4,155) (5,045) Other (943) (27,907) Net operating cash 509,983 349,020 INVESTING ACTIVITIES Capital expenditures (114,081) (87,542) Proceeds from sale of assets 2,039 8,021 Increase in other investments (36,950) (1,486) Net investing cash (148,992) (81,007) FINANCING ACTIVITIES Net increase in short-term borrowings 484,636 15,318 Payments of long-term debt (84) — Payments for credit facility and debt issuance costs (61,433) — Payments of cash dividends (155,721) (125,251) Proceeds from stock options exercised 43,708 57,420 Income tax effect of stock-based compensation exercises and vesting (see Note 11) — 72,529 Treasury stock purchased — (679,449) Other (12,645) (34,081) Net financing cash (170,857) (224,196) Effect of exchange rate changes on cash 6,778 (9,481) Net increase in cash and cash equivalents 196,912 34,336 Cash and cash equivalents at beginning of year 205,744 40,732 $ 402,656 $ 75,068 Cash and cash equivalents at end of period Income taxes paid $ 73,636 $ 45,319 Interest paid 66,583 25,234 See notes to condensed consolidated financial statements. 4