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Form 10-K SHERWIN WILLIAMS CO For: Dec 31

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February 25, 2015 2:25 PM EST

 
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, 2014
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 incorporation or organization)
  
(I.R.S. Employer 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
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on which registered
Common Stock, Par Value $1.00
  
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  x        No  o
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  o        No  x
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 website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).        Yes  x        No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.         x
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
 
Smaller reporting company    o
 
 
 
  
(Do not check if a smaller reporting company)
 
 
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
At January 31, 2015, 94,894,689 shares of common stock were outstanding, net of treasury shares. The aggregate market value of common stock held by non-affiliates of the Registrant at June 30, 2014 was $20,077,799,869 (computed by reference to the price at which the common stock was last sold on such date).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Annual Report to Shareholders for the fiscal year ended December 31, 2014 (“2014 Annual Report”) are incorporated by reference into Parts I, II and IV of this report.
Portions of our Proxy Statement for the 2015 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, 2014 are incorporated by reference into Part III of this report.

 


THE SHERWIN-WILLIAMS COMPANY
Table of Contents
 
  
 
Page
 
 
Item 1.
 
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
 
 



PART I
ITEM 1.    BUSINESS
Introduction
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 and Asia. 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 the “Investor Relations” page of our website at www.sherwin.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 in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com.
Basis of Reportable Segments
We report our segment information in the same way that management internally organizes our business for assessing performance and making decisions regarding allocation of resources in accordance with the Segment Reporting Topic of the Financial Accounting Standards Board Accounting Standards Codification (ASC). We have four reportable operating segments: Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group (individually, a "Reportable Segment" and collectively, the “Reportable Segments”). Factors considered in determining our Reportable Segments 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 our Board of Directors. We report all other business activities and immaterial operating segments that are not reportable in the Administrative segment. For more information about the Reportable Segments, see pages 6 through 15 of our 2014 Annual Report, which is incorporated herein by reference.
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 profit or loss before income taxes 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 on pages 44 through 47 of our 2014 Annual Report, which is incorporated herein by reference.
Paint Stores Group
The Paint Stores Group consisted of 4,003 company-operated specialty paint stores in the United States, Canada, Puerto Rico, Virgin Islands, Trinidad and Tobago, St. Maarten, Jamaica, Curacao, Aruba and St. Lucia at December 31, 2014. Each store in this segment is engaged in the related business activity of selling paint, coatings and related products to end-use customers. The Paint Stores Group markets and sells Sherwin-Williams® branded architectural paint and coatings, protective and marine products, original equipment manufacturer (“OEM”) product finishes and related items. These products are produced by manufacturing facilities in the Consumer Group. In addition, each store sells selected purchased associated products. The loss of any single customer would not have a material adverse effect on the business of this segment. During 2014, this segment opened 95 net new stores, consisting of 109 new stores opened (95 in the United States, 9 in Canada, 2 in Puerto Rico, 1 in Trinidad and Tobago, 1 in Jamaica and 1 in St. Lucia) and 14 stores closed (11 in the United States and 3 in Canada). During 2013, this segment acquired 306 stores and opened 82 net new stores. During 2012, this segment opened 70 net new stores. A map on the cover flap of our 2014 Annual Report, which is incorporated herein by reference, shows the number of paint stores and their geographic locations. The CODM uses discrete financial information about the Paint Stores Group, supplemented with information by geographic region, product type and customer type, to assess performance of and allocate resources to the Paint Stores Group as a whole. In accordance with ASC 280-10-50-9, the Paint Stores Group as a

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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.
Consumer Group
The Consumer Group develops, manufactures and distributes a variety of paint, coatings and related products to third party customers primarily in the United States and Canada and the Paint Stores Group. Approximately 66 percent of the total sales of the Consumer Group in 2014 were intersegment transfers of products primarily sold through the Paint Stores Group. Sales and marketing of certain controlled brand and private labeled products are 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 Group had sales to certain customers that, individually, may be a significant portion of the sales of the segment. However, the loss of any single customer would not have a material adverse effect on the overall profitability of the segment. This segment incurred most of the Company’s capital expenditures related to ongoing environmental compliance measures. The CODM uses discrete financial information about the Consumer Group, supplemented with information by product types and customer, to assess performance of and allocate resources to the Consumer Group as a whole. In accordance with ASC 280-10-50-9, the Consumer 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.
Global Finishes Group
The Global Finishes Group develops, licenses, manufactures, distributes and sells a variety of protective and marine products, automotive finishes and refinish products, OEM product finishes and related products in North and South America, Europe and Asia. This segment meets the demands of its customers for a consistent worldwide product development, manufacturing and distribution presence and approach to doing business. This segment licenses certain technology and trade names worldwide. Sherwin-Williams® and other controlled brand products are distributed through the Paint Stores Group and this segment’s 300 company-operated branches and by a direct sales staff and outside sales representatives to retailers, dealers, jobbers, licensees and other third party distributors. During 2014, this segment opened 1 new branch in the United States and closed 1 branch in the United States resulting in no net change. At December 31, 2014, the Global Finishes Group consisted of operations in the United States, subsidiaries in 34 foreign countries and income from licensing agreements in 16 foreign countries. The CODM uses discrete financial information about the Global Finishes Group, supplemented with information about geographic divisions, business units, and subsidiaries, to assess performance of and allocate resources to the Global Finishes Group as a whole. In accordance with ASC 280-10-50-9, the Global Finishes 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. A map on the cover flap of our 2014 Annual Report, which is incorporated herein by reference, shows the number of branches and their geographic locations.
Latin America Coatings Group
The Latin America Coatings Group develops, licenses, manufactures, distributes and sells a variety of architectural paint and coatings, protective and marine products, OEM product finishes and related products in North and South America. This segment meets the demands of its customers for consistent regional product development, manufacturing and distribution presence and approach to doing business. Sherwin-Williams® and other controlled brand products are distributed through this segment’s 276 company-operated stores and by a direct sales staff and outside sales representatives to retailers, dealers, licensees and other third party distributors. During 2014, this segment opened 3 new stores in South America and closed 9 (7 in South America and 2 in Mexico) for a net decrease of 6 stores. At December 31, 2014, the Latin America Coatings Group consisted of operations from subsidiaries in 9 foreign countries, 4 foreign joint ventures and income from licensing agreements in 7 foreign countries. The CODM uses discrete financial information about the Latin America Coatings Group, supplemented with information about geographic divisions, business units, and subsidiaries, to assess performance of and allocate resources to the Latin America Coatings Group as a whole. In accordance with ASC 280-10-50-9, the Latin America 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. A map on the cover flap of our 2014 Annual Report, which is incorporated herein by reference, shows the number of stores and their geographic locations.
Administrative Segment
The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site. Also included in the Administrative segment was interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which were not directly associated with the Reportable Segments. The Administrative segment did not include any significant foreign operations. Also included in the Administrative segment was a real estate management unit that is responsible for the ownership, management, and leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities. Sales of this segment represented external leasing revenue of excess headquarters space or leasing of facilities no longer used

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by the Company in its primary businesses. Gains and losses from the sale of property were not a significant operating factor in determining the performance of the Administrative segment.
Segment Financial Information
For financial information regarding our Reportable Segments, including net external sales, segment profit, identifiable assets and other information by Reportable Segment, see Note 18 of the Notes to Consolidated Financial Statements on pages 71 through 73 of our 2014 Annual Report, which is incorporated herein by reference.
Domestic and Foreign Operations
Financial and other information regarding domestic and foreign operations is set forth in Note 18 of the Notes to Consolidated Financial Statements on page 72 of our 2014 Annual Report, which is incorporated herein by reference.
Additional information regarding risks attendant to foreign operations is set forth on page 30 of our 2014 Annual Report under the caption “Market Risk” of “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” which is incorporated herein by reference.
Business Developments
For additional information regarding our business and business developments, see pages 6 through 15 of our 2014 Annual Report and the “Letter to Shareholders” on pages 2 through 5 of our 2014 Annual Report, which is incorporated herein by reference.
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 2015. 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. There is no significant seasonality in sales for the Administrative segment.
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 pages 24 through 30 of our 2014 Annual Report under the caption “Financial Condition, Liquidity and Cash Flow” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated herein by reference.
Trademarks and Trade Names
Customer recognition of our trademarks and trade names collectively contribute significantly to our sales. The major trademarks and trade names used by each of the Reportable Segments are set forth below.
•
Paint Stores Group:    Sherwin-Williams®, ProMar®, SuperPaint®, A-100®, Duron®, MAB®, PrepRite®, Duration®, Duration Home®, ProGreen®, Harmony®, ProClassic®, Woodscapes®, Deckscapes®, Cashmere®, HGTV Home® by Sherwin-Williams, Emerald®, Duracraft™, Solo®, ProIndustrial™, ProPark®, Frazee®, Parker™ Paints, Kwal®, Color Wheel™ and General Paint™.
•
Consumer Group:    Dutch Boy®, Krylon®, Minwax®, Thompson’s® WaterSeal®, Pratt & Lambert®, Martin Senour®, H&C®, White Lightning®, Dupli-Color®, Rubberset®, Purdy®, Bestt Liebco®, Accurate Dispersions™, Uniflex®, VHT®, Kool Seal®, Snow Roof®, Altax™, Tri-Flow®, Sprayon®, Ronseal™, DuraSeal®, Geocel®, Conco®, Duckback®, Superdeck® and Mason's Select®, HGTV HOME® by Sherwin-Williams.
•
Global Finishes Group:    Sherwin-Williams®, Lazzuril®, Excelo®, Baco®, Planet Color®, AWX Performance Plus™, Ultra™, Ultra-Cure®, Martin Senour®, Kem Aqua®, Sher-Wood®, Powdura®, Polane®, Euronavy®, Inchem®, Sayerlack®, Becker Acroma®, Firetex®, Macropoxy®, Oece™, Arti™, Acrolon®, Sher-Nar®, PermaClad®, Heat-Flex®, Magnalux™, ATX™, Genesis®, Dimension®, Finish 1™, Lanet™, DFL™, Conely™, Envirolastic® and Fastline™.
•
Latin America Coatings Group:    Sherwin-Williams®, Marson®, Metalatex®, Novacor®, Loxon®, Colorgin®, Andina®, Napko™, Martin Senour®, Sumare®, Condor®, Euronavy®, Krylon®, Kem Tone®, Minwax® and Pratt & Lambert®.

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Patents
Although patents and licenses are not of material importance to our business as a whole or any segment, the Global Finishes Group and Latin America 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 2015.
Research and Development
For information regarding our costs of research and development included in technical expenditures, see Note 1 of the Notes to Consolidated Financial Statements on page 47 of our 2014 Annual Report, which is incorporated herein by reference.
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 Paint Stores 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 Group, domestic and foreign competitors include manufacturers and distributors of branded and private labeled 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 Global Finishes 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.
In the Latin America Coatings 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.
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.
Employees
We employed 39,674 persons at December 31, 2014.
Environmental Compliance
For additional information regarding environmental-related matters, see page 27 of our 2014 Annual Report under the caption “Environmental-Related Liabilities” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 1, 8 and 13 of the Notes to Consolidated Financial Statements on pages 46, 58 and 67, respectively, of our 2014 Annual Report, which is incorporated herein by reference.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to” and similar expressions.
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

4

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 the growth in the coatings industry;
•
competitive factors, including pricing pressures and product innovation and quality;
•
changes in raw material and energy supplies and pricing;
•
changes in our relationships with customers and suppliers;
•
our ability to attain cost savings from productivity initiatives;
•
our ability to successfully integrate past and future acquisitions into our existing operations, including the recent acquisition of the Comex business in the United States and Canada, as well as the performance of the businesses acquired;
•
changes in general domestic 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;
•
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 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; and
•
unusual weather conditions.
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.
ITEM 1A.    RISK FACTORS
The risks described below and in other documents that 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.
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.
Adverse changes in general business and economic conditions in the United States and worldwide may reduce the demand for some of our products and 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, and other economic factors could adversely affect our results of operations, cash flow, liquidity or financial condition.
A weakening or reversal of the general economic recovery in the United States and other countries and regions in which we do business, or the continuation or worsening of the economic downturn in other countries and regions, may adversely affect our results of operations, cash flow, liquidity or financial condition.
Global economic uncertainty continues to exist. A weakening or reversal of the general economic recovery in the United States and other countries and regions in which we do business, or the continuation or worsening of the economic downturn in other countries and regions, 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, 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

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banks in these credit and financing facilities are unable to perform on their commitments, which could adversely affect our ability to fund seasonal working capital needs and obtain funding for other general corporate purposes, our cash flow, liquidity or financial condition could be adversely impacted.
Although we currently have available credit facilities to fund our current operating needs, we cannot be certain that 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 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 that such value may not be recoverable. Impairment assessment involves judgment as to assumptions regarding future sales and cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions and may result in changes in our estimates of future sales and cash flows that may result 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.
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 and manufacturing. 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.
During the recent recession, the U.S. homebuilding industry experienced a significant and sustained decrease in demand for new homes and an oversupply of new and existing homes available for sale. During this same time period, the U.S. real estate industry also experienced a significant decrease in existing home turnover. The commercial and industrial building and maintenance sectors also experienced a significant decline. The downturn in each of these segments contributed to an unprecedented decline in the demand for some of our products. The recovery in new home starts, existing home sales and new commercial construction has been sluggish and erratic in many markets and remain below their pre-recession highs. Challenging market conditions are expected to continue for the foreseeable future and may worsen. A worsening in these segments will reduce the demand for some of our products and may adversely impact sales, earnings and cash flow.
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 proplylene) and energy for use in the manufacturing, distribution and sale of our products. Factors such as adverse weather conditions, including hurricanes, and other disasters can disrupt raw material and fuel supplies and increase our costs. 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 offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the prices of our products. While we have experienced some easing of the prices of certain raw materials recently, raw material pricing has in the past and likely will in the future 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 network. During 2014, 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.
Adverse weather conditions may temporarily reduce the demand for some of our products and could have a negative effect on our sales, earnings or cash flow.

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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 in certain parts of the United States have had an adverse effect on our sales of paint, coatings and related products. For example, unusually cold and rainy weather, especially during the exterior painting season, could 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.
Increased competition 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 and have greater financial 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 the key competitive factors for our business. Competition 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.
To service our debt, we will require a significant amount of cash. 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, 2014, we had total debt of approximately $1.8 billion. 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 that 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 that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from our operations or that 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. 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. In addition, 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. In addition, 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.
Our results of operations, cash flow or financial condition may be negatively impacted if we do not successfully integrate past and 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. In 2013, we acquired the Comex business in the United States and Canada. This acquisition involves challenges and risks. In the event that we do not continue to successfully integrate the Comex acquisition 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 19.8%, 20.9% and 21.5% of our total consolidated net sales in 2014, 2013 and 2012, 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 international factors, including general economic conditions, inflation rates, recessions, 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

7

external economic and political factors. Our inability to successfully manage the risks and uncertainties relating to 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 that we are prohibited from engaging in because of regulations that are applicable to us, such as the Foreign Corrupt Practices Act and the UK Bribery Act. Although we have internal control policies and procedures designed to ensure compliance with these regulations, there can be no assurance that 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.
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 British pound, the Argentine peso, the Brazilian real, the Chilean peso, the Canadian dollar and the Mexican peso 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.
We are subject to a wide variety of complex domestic and foreign laws 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 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, 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 that we have adopted appropriate risk management and compliance programs to mitigate these risks, the global and diverse nature of our operations means that 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, 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. 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 that 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 assess that there is not a greater than 50% likelihood that 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 14 of the Notes to Consolidated Financial Statements on pages 68 and 69 of our 2014 Annual Report.

8

Unauthorized disclosure of sensitive or confidential customer, employee, supplier or Company information, whether through a breach of our computer systems, including cyber attacks or otherwise, could severely harm our business.
As part of our business, we collect, process, and retain sensitive and confidential personal information about our customers, employees and suppliers. Despite the security measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third party distributors with which we do business, may be vulnerable to security breaches, cyber attacks, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer, employee, supplier or Company information, whether by us or by the retailers, dealers, licensees and other third party distributors with which we do business, could result in losses, severely damage our reputation, expose us to the risks of litigation and liability, disrupt our operations and have a material adverse effect on our business, results of operations and financial condition. The regulatory environment related to information security, data collection and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs.
We are required to comply with numerous complex and increasingly stringent domestic and foreign health, safety and environmental laws and regulations, 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 and regulations. These laws and regulations 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 and regulations to impose increasingly stringent requirements upon our industry and us in the future. Our costs to comply with these laws and regulations may increase as these requirements 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 on page 23 of our 2014 Annual Report under the caption “Environmental Matters,” page 27 of our 2014 Annual Report under the caption “Environmental-Related Liabilities” and in Note 8 of the Notes to Consolidated Financial Statements on pages 58 through 60 of our 2014 Annual Report.

9

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, intellectual property, 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 that 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. 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.
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 that the litigation brought to date is without merit or subject to meritorious defenses and are vigorously defending such litigation. We have not settled any material lead pigment or lead-based paint litigation. We expect that 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.
Notwithstanding our views on the merits, litigation is inherently subject to many uncertainties, and we ultimately may not prevail. Adverse court rulings, such as the court's decision in the Santa Clara County, California proceeding, the jury verdict against us and other defendants in the State of Rhode Island action and the Wisconsin State Supreme Court’s determination that Wisconsin’s risk contribution theory may apply in the lead pigment litigation, 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. 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 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 that any legislation and/or administrative regulations may have on the litigation or against us. 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. We have not accrued any amounts for such litigation. With respect to such litigation, including the public nuisance litigation, the Company does not believe that it is probable that a loss has occurred, and it is not possible to estimate the range of potential losses as there is no prior history of a loss of this nature and there is no substantive information upon which an estimate could be based. In addition, any potential liability that may result from any changes to legislation and regulations cannot reasonably be estimated. In the event any significant liability is determined to be attributable to us relating to such litigation, the recording of the liability may result in a material impact on net income for the annual or interim period during which such liability is accrued. Additionally, due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to us arising out of such litigation may have a material adverse effect on our results of operations, cash flow, liquidity or financial

10

condition. An estimate of the potential impact on our results of operations, cash flow, liquidity or financial condition cannot be made due to the aforementioned uncertainties.
A trial commenced in the Santa Clara County, California proceeding on July 15, 2013 and ended on August 22, 2013. The court entered final judgment on January 27, 2014, finding in favor of the plaintiffs and against the Company and two other defendants, and holding the Company jointly and severally liable with the other two defendants to pay $1.15 billion into a fund to abate the public nuisance. The Company has filed a notice of appeal. However, if the appeal process is unsuccessful at reversing the decision or otherwise reducing the amount of the judgment, we and the other defendants will be subject to significant liabilities, costs and expenses to abate the public nuisance in, on and around residences in the plaintiffs' jurisdictions, which could encourage an increase in future public nuisance claims and proceedings. Any adverse court rulings or any determinations of liability against us may result in a material impact on our results of operations, 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 on page 23 of our 2014 Annual Report under the caption “Litigation and Other Contingent Liabilities,” and pages 29 and 30 of our 2014 Annual Report under the caption “Litigation” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 9 of the Notes to Consolidated Financial Statements on pages 60 through 63 of our 2014 Annual Report.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.

11

ITEM 2.    PROPERTIES
We own our world headquarters located in Cleveland, Ohio, which includes the world headquarters for the Paint Stores Group, Consumer Group, Global Finishes Group and Latin America 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, and have sufficient productive capacity, to meet our current needs.

CONSUMER GROUP
 
Manufacturing Facilities
Andover, Kansas
Owned
 
Homewood, Illinois
Owned
Arlington, Texas
Owned
 
Lawrenceville, Georgia
Owned
Baltimore, Maryland
Owned
 
Manchester, Georgia
Owned
Bedford Heights, Ohio
Owned
 
Memphis, Tennessee
Owned
Beltsville, Maryland
Owned
 
Morrow, Georgia
Owned
Chicago, Illinois
Owned
 
Ontario, California
Leased
Cincinnati, Ohio
Owned
 
Orlando, Florida
Owned
Columbus, Ohio
Owned
 
Plymouth, United Kingdom
Leased
Crisfield, Maryland
Leased
 
Portland, Oregon
Leased
Elkhart, Indiana
Owned
 
Rexdale, Ontario, Canada
Owned
Ennis, Texas
Owned
 
Richmond, Kentucky
Owned
Fernley, Nevada
Owned
 
Rockford, Illinois
Leased
Flora, Illinois
Owned
 
San Diego, California
Owned
Fort Erie, Ontario, Canada
Owned
 
Sheffield, United Kingdom
Owned
Garland, Texas
Owned
 
South Holland, Illinois
Owned
Greensboro, North Carolina (2)
Owned
 
Szamotuly, Poland
Owned
Grimsby, Ontario, Canada
Owned
 
Vancouver, British Columbia, Canada
Owned
Grove City, Ohio
Owned
 
Victorville, California
Owned
Holland, Michigan
Owned
 
 
 
 
Distribution Facilities
Aurora, Colorado
Leased
 
Richmond, Kentucky
Owned
Buford, Georgia
Leased
 
Shawinigan, Quebec, Canada
Leased
Effingham, Illinois
Leased
 
Sheffield, United Kingdom
Owned
Fredericksburg, Pennsylvania
Owned
 
Swaffham, United Kingdom
Leased
Moreno Valley, California
Leased
 
Szamotuly, Poland
Owned
Plymouth, United Kingdom
Leased
 
Waco, Texas
Leased
Reno, Nevada
Leased
 
Winter Haven, Florida
Owned
 

12

GLOBAL FINISHES GROUP
 
Manufacturing Facilities
Bello, Sweden
Owned
 
Pianoro, Italy
Owned
Binh Duong Province, Vietnam
Owned
 
Saint Cheron, France
Owned
Bolton, United Kingdom
Owned
 
Sao Paulo, Brazil
Owned
Brantford, Ontario, Canada
Owned
 
Shanghai, China
Leased
Cavezzo, Italy
Owned
 
Texcoco, Mexico
Owned
Changzhou, China
Leased
 
Valencia, Spain
Owned
Mariano Comense, Italy
Owned
 
Wuppertal, Germany
Owned
Marsta, Sweden
Owned
 
Zhao Qing, China
Leased
Pasir Gudang, Johor, Malaysia
Owned
 
 
 
 
Distribution Facilities
Bolton, United Kingdom
Owned
 
Nassjo, Sweden
Leased
Cavezzo, Italy
Leased
 
Sao Paulo, Brazil
Owned
Changzhou, China
Owned
 
Shanghai, China
Owned
Guadalajara, Mexico
Leased
 
Texcoco, Mexico
Owned
Lima, Peru
Leased
 
Quito, Ecuador
Owned
Mexico City, Mexico
Owned
 
 
 
 
LATIN AMERICA COATINGS GROUP
 
Manufacturing Facilities
Buenos Aires, Argentina
Owned
 
Sao Paulo, Brazil (2)
Owned
Montevideo City, Uruguay
Owned
 
Sao Paulo, Brazil
Leased
Santiago, Chile
Owned
 
Quito, Ecuador
Owned
Santiago, Chile (2)
Leased
 
Vallejo, Mexico
Owned
 
Distribution Facilities
Buenos Aires, Argentina
Owned
 
Quito, Ecuador
Owned
Hermosillo, Mexico
Leased
 
Santa Catarina, Brazil
Leased
Lima, Peru
Leased
 
Santiago, Chile
Owned
Machala, Ecuador
Leased
 
Sao Paulo, Brazil (2)
Owned
Maceio, Brazil
Leased
 
Vallejo, Mexico
Owned
Montevideo City, Uruguay
Owned
 
 
 
The operations of the Paint Stores Group included a manufacturing and distribution facility in Jamaica and 4,003 company-operated specialty paint stores, of which 209 were owned, in the United States, Canada, Puerto Rico, Virgin Islands, Trinidad and Tobago, St. Maarten, Jamaica, Curacao, Aruba and St. Lucia at December 31, 2014. These paint stores are divided into four 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 2014:
•
the Mid Western Division operated 1,026 paint stores primarily located in the midwestern and upper west coast states;
•
the Eastern Division operated 803 paint stores along the upper east coast and New England states;
•
the Canada Division operated 191 paint stores throughout Canada;
•
the Southeastern Division operated a manufacturing and distribution facility in Jamaica and 1,031 paint stores principally covering the lower east and gulf coast states, Puerto Rico, Jamaica, Trinidad and Tobago, St. Maarten, Virgin Islands, Curacao, Aruba and St. Lucia; and
•
the South Western Division operated 952 paint stores in the central plains and the lower west coast states.

13

During 2014, the Paint Stores Group opened 95 net new stores, consisting of 109 new stores opened (95 in the United States, 9 in Canada, 2 in Puerto Rico, 1 in Trinidad and Tobago, 1 in Jamaica and 1 in St. Lucia) and 14 stores closed (11 in the United States and 3 in Canada).
The Global Finishes Group operated 241 branches in the United States, of which 8 were owned, at December 31, 2014. The Global Finishes Group also operated 59 branches internationally, of which 7 were owned, at December 31, 2014, consisting of branches in Canada (24), Europe (16), Chile (14), Mexico (3), Peru (1) and Thailand (1). During 2014, the Global Finishes Group opened 1 new branch in the United States and closed 1 branch in the United States resulting in no net change.
The Latin America Coatings Group operated 276 stores, of which 8 were owned, at December 31, 2014, consisting of stores in Mexico (119), Brazil (87), Chile (42), Ecuador (15), Uruguay (9), Peru (3) and Colombia (1). During 2014, the Latin America Coatings Group opened 3 new stores in South America and closed 9 (7 in South America and 2 in Mexico) for a net decrease of 6 stores.
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 17 of the Notes to Consolidated Financial Statements on page 70 of our 2014 Annual Report, which is incorporated herein by reference.
ITEM 3.    LEGAL PROCEEDINGS
For information regarding environmental-related matters and other legal proceedings, see pages 27, and 29 and 30 of our 2014 Annual Report under the captions “Environmental-Related Liabilities” and “Litigation” of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 1, 8, 9 and 13 of the Notes to Consolidated Financial Statements on pages 46, 58 through 60, 60 through 63 and 67, respectively, of our 2014 Annual Report, which is incorporated herein by reference.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is the name, age and present position of each of our executive officers at February 18, 2015, as well as all prior positions held by each during the last five years and the date when each was first elected or appointed as an executive officer. 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
Date When
First Elected
or Appointed
Christopher M. Connor
58
Chairman and Chief Executive Officer, Director
1994
John G. Morikis
51
President and Chief Operating Officer
1999
Sean P. Hennessy
57
Senior Vice President – Finance and Chief Financial Officer
2001
Thomas E. Hopkins
57
Senior Vice President – Human Resources
1997
Catherine M. Kilbane
51
Senior Vice President, General Counsel and Secretary
2013
Allen J. Mistysyn
46
Senior Vice President – Corporate Controller
2010
Steven J. Oberfeld
62
Senior Vice President – Corporate Planning and Development
2006
Robert J. Wells
57
Senior Vice President – Corporate Communications and Public Affairs
2006
Robert J. Davisson
54
President, The Americas Group
2010
David B. Sewell
46
President, Global Finishes Group
2014

Mr. Connor has served as Chairman since April 2000 and Chief Executive Officer since October 1999. Mr. Connor has served as a Director since October 1999 and has been employed with the Company since January 1983.
Mr. Morikis has served as President and Chief Operating Officer since October 2006. Mr. Morikis has been employed with the Company since December 1984.

14

Mr. Hennessy has served as Senior Vice President – Finance and Chief Financial Officer since August 2001. Mr. Hennessy has been employed with the Company since September 1984.
Mr. Hopkins has served as Senior Vice President – Human Resources since February 2002. Mr. Hopkins has been employed with the Company since September 1981.
Ms. Kilbane has served as Senior Vice President, General Counsel and Secretary since January 2013. Prior to joining the Company, Ms. Kilbane was Senior Vice President, General Counsel and Secretary of American Greetings Corporation from October 2003 to December 2012. Ms. Kilbane has been employed with the Company since January 2013.
Mr. Mistysyn has served as Senior Vice President – Corporate Controller since October 2014. Mr. Mistysyn served as Vice President – Corporate Controller from May 2010 to October 2014 and Vice President – Assistant Corporate Controller from August 2009 to May 2010. Mr. Mistysyn has been employed with the Company since June 1990.
Mr. Oberfeld has served as Senior Vice President – Corporate Planning and Development since November 2010. Mr. Oberfeld served as President, Paint Stores Group from October 2006 to November 2010. Mr. Oberfeld has been employed with the Company since October 1984.
Mr. Wells has served as Senior Vice President – Corporate Communications and Public Affairs since February 2009. Mr. Wells has been employed with the Company since May 1998.
Mr. Davisson has served as President, The Americas Group since August 2014. Mr. Davisson served as President, Paint Stores Group from November 2010 to August 2014 and President & General Manager, Southeastern Division, Paint Stores Group from October 1999 to November 2010. Mr. Davisson has been employed with the Company since April 1986.
Mr. Sewell has served as President, Global Finishes Group since August 2014. Mr. Sewell served as President & General Manager, Product Finishes Division, Global Finishes Group from July 2012 to August 2014, Senior Vice President, North American Sales, Automotive Division, Global Finishes Group from September 2011 to July 2012, and Vice President, Sales, Automotive Division, Global Finishes Group from October 2009 to September 2011. Mr. Sewell has been employed with the Company since February 2007.


15

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, 2015 was 7,224.
Information regarding market prices and dividend information with respect to our common stock is set forth on page 75 of our 2014 Annual Report, which is incorporated herein by reference. The performance graph set forth on page 16 of our 2014 Annual Report is incorporated herein by reference. The information with respect to securities authorized for issuance under the Company’s equity compensation plans is set forth under the caption “Equity Compensation Plan Information” in our Proxy Statement, which is incorporated herein by reference.
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 2014. 
Period
 
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
October 1 – October 31
 
 
 
 
 
 
 
 
Share repurchase program (a)
 
 
 
 
 
 
 
6,825,000

Employee transactions (b)
 
70

 
$
208.49

 
 
 
NA

November 1 – November 30
 
 
 
 
 
 
 
 
Share repurchase program (a)
 
 
 
 
 
 
 
6,825,000

December 1 – December 31
 
 
 
 
 
 
 
 
Share repurchase program (a)
 
1,600,000

 
246.62

 
1,600,000

 
5,225,000

Employee transactions (b)
 
162

 
191.19
 
 
 
NA

Total
 
 
 
 
 
 
 
 
Share repurchase program (a)
 
1,600,000

 
$246.62
 
1,600,000

 
5,225,000

Employee transactions (b)
 
232

 
$196.41
 
 
 
NA

(a)
All shares were purchased through the Company’s publicly announced share repurchase program. On October 20, 2011, the Board of Directors of the Company authorized the Company to purchase an additional 20,000,000 shares of its common stock. The Company had remaining authorization at December 31, 2014 to purchase 5,225,000 shares. There is no expiration date specified for the program. The Company intends to repurchase stock under the program in the future.
(b)
All shares were delivered to satisfy the exercise price and/or tax withholding obligations by employees who exercised stock options.

16

ITEM 6. SELECTED FINANCIAL DATA
(millions of dollars, except per common share data)
 
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
Operations
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
11,130

 
$
10,186

 
$
9,534

 
$
8,766

 
$
7,776

 
Net income
 
866

 
753

 
631

 
442

 
462

 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Position
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
5,706

 
$
6,383

 
$
6,235

 
$
5,229

 
$
5,169

 
Long-term debt
 
1,123

 
1,122

 
1,632

 
639

 
648

 
Ratio of earnings to fixed charges (a)
 
7.7x

 
7.4x

 
7.2x

 
6.3x

 
5.1x

 
 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share Data
 
 
 
 
 
 
 
 
 
 
 
Net income — basic 
 
$
8.95

 
$
7.41

 
$
6.15

 
$
4.22

 
$
4.28

 
Net income — diluted
 
8.78

 
7.26

 
6.02

 
4.14

 
4.21

 
Cash dividends
 
2.20

 
2.00

 
1.56

 
1.46

 
1.44

 
(a)
For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes plus fixed charges. Fixed charges consist of interest expense, net, including amortization of discount and financing costs and the portion of operating rental expense which management believes is representative of the interest component of rent expense. The following schedule includes the figures used to calculate the ratios:
 
 
2014
 
2013
 
2012
 
2011
 
2010
 
Income before income taxes
 
$
1,258

 
$
1,086

 
$
907

 
$
742

 
$
678

 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
64

 
63

 
43

 
42

 
71

 
Interest component of rent expense
 
125

 
108

 
103

 
97

 
93

 
Total fixed charges
 
189

 
171

 
146

 
139

 
164

 
Earnings
 
$
1,447

 
$
1,257

 
$
1,053

 
$
881

 
$
842

 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is set forth on pages 19 through 35 of our 2014 Annual Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated herein by reference.
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. The Company entered into foreign currency option and forward currency exchange contracts during 2014 to hedge against value changes in foreign currency. There were no material contracts outstanding at December 31, 2014. Foreign currency option and forward contracts are described in Note 13 of the Notes to Consolidated Financial Statements on page 67 of our 2014 Annual Report. 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.
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on pages 38 through 73 of our 2014 Annual Report under the captions “Report of Management on the Consolidated Financial Statements,” “Report of the Independent Registered Public Accounting Firm on the Consolidated Financial Statements,” “Statements of Consolidated Income and Comprehensive Income,” “Consolidated Balance Sheets,” “Statements of Consolidated Cash Flows,” “Statements of Consolidated Shareholders’ Equity,” and “Notes to Consolidated Financial Statements,” which is incorporated herein by reference. Unaudited quarterly data is set forth in Note 16 of the Notes to Consolidated Financial Statements on page 70 of our 2014 Annual Report, which is incorporated herein by reference.

17

 
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” is set forth on page 36 of our 2014 Annual Report, which is incorporated herein by reference.
The “Report of the Independent Registered Public Accounting Firm on Internal Control over Financial Reporting” is set forth on page 37 of our 2014 Annual Report, which is incorporated herein by reference.
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.

18

PART III
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The information regarding our directors is set forth under the captions “Proposal 1 - Election of Directors” and “Experiences, Qualifications, Attributes and Skills of Directors and Nominees” in our Proxy Statement, which 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 2014. Please refer to the information set forth under the caption “Board Meetings and Committees” in our Proxy Statement, which is incorporated herein by reference.
Executive Officers
The information regarding our executive officers is set forth under the caption “Executive Officers of the Registrant” in Part I of this report, which is incorporated herein by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
The information regarding compliance with Section 16 of the Securities Exchange Act of 1934 is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement, which is incorporated herein by reference.
Audit Committee
The information regarding the Audit Committee of our Board of Directors and the information regarding audit committee financial experts are set forth under the caption “Board Meetings and Committees” in our Proxy Statement, which is incorporated herein by reference.
Code of Ethics
We have adopted a Code of Conduct, which applies to all directors, officers and employees 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 under the caption “Corporate Governance – Code of Conduct” in our Proxy Statement, which is incorporated herein by reference. Our Code of Conduct and Code of Ethics for Senior Financial Management are available in the “Corporate Governance” section on the “Investor Relations” page of our website at www.sherwin.com.
We intend to disclose on our website 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 Securities and Exchange Commission.
ITEM 11.    EXECUTIVE COMPENSATION
The information required by this item is set forth under the captions “Compensation Committee Report,” “Compensation Risk Assessment,” “2014 Director Compensation Table” and “Director Compensation Program” in our Proxy Statement, and under the Executive Compensation section of our Proxy Statement commencing with the information under the caption “Compensation Discussion and Analysis (CD&A)” and continuing through the information under the caption “Estimated Payments upon Termination or Change in Control Table,” which is incorporated herein by reference.

19

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 under the captions “Security Ownership of Management” and “Security Ownership of Certain Beneficial Owners” in our Proxy Statement, which is incorporated herein by reference.
The information regarding securities authorized for issuance under the Company’s equity compensation plans is set forth under the caption “Equity Compensation Plan Information” in our Proxy Statement, which is incorporated herein by reference. 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is set forth under the captions “Certain Relationships and Transactions with Related Persons,” and “Independence of Directors” in our Proxy Statement, which is incorporated herein by reference.
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is set forth under the caption “Matters Relating to the Independent Registered Public Accounting Firm” in our Proxy Statement, which is incorporated herein by reference.

20

PART IV
ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
The following consolidated financial statements of the Company included in our 2014 Annual Report are incorporated by reference in Item 8.
(i)
Report of Management on the Consolidated Financial Statements (page 38 of our 2014 Annual Report);
(ii)
Report of the Independent Registered Public Accounting Firm on the Consolidated Financial Statements (page 39 of our 2014 Annual Report);
(iii)
Statements of Consolidated Income and Comprehensive Income for the years ended December 31, 2014, 2013 and 2012 (page 40 of our 2014 Annual Report);
(iv)
Consolidated Balance Sheets at December 31, 2014, 2013 and 2012 (page 41 of our 2014 Annual Report);
(v)
Statements of Consolidated Cash Flows for the years ended December 31, 2014, 2013 and 2012 (page 42 of our 2014 Annual Report);
(vi)
Statements of Consolidated Shareholders’ Equity for the years ended December 31, 2014, 2013 and 2012 (page 43 of our 2014 Annual Report); and
(vii)
Notes to Consolidated Financial Statements for the years ended December 31, 2014, 2013 and 2012 (pages 44 through 73 of our 2014 Annual Report).
(2)
Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2014, 2013 and 2012 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 the allowance for doubtful accounts were as follows: 
(thousands of dollars)
2014
 
2013
 
2012
Beginning balance
$
54,460

 
$
47,667

 
$
51,747

Amount acquired through acquisitions
 
 
896

 
226

Bad debt expense
34,810

 
31,192

 
20,922

Uncollectible accounts written off, net of recoveries
(35,500
)
 
(25,295
)
 
(25,228
)
Ending balance
$
53,770

 
$
54,460

 
$
47,667

 
(3)
Exhibits
See the Exhibit Index on pages 23 through 26 of this report.

21

SIGNATURES
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 25, 2015.
 
THE SHERWIN-WILLIAMS COMPANY
 
 
By:
/S/
CATHERINE M. KILBANE
 
 
Catherine M. Kilbane, 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 25, 2015.
* CHRISTOPHER M. CONNOR
 
Chairman and Chief Executive Officer, Director
(Principal Executive Officer)
    Christopher M. Connor
 
 
* SEAN P. HENNESSY
 
Senior Vice President – Finance and Chief Financial Officer (Principal Financial Officer)
    Sean P. Hennessy
 
 
* ALLEN J. MISTYSYN
 
Senior Vice President – Corporate Controller
(Principal Accounting Officer)
    Allen J. Mistysyn
 
 
* ARTHUR F. ANTON
 
Director
    Arthur F. Anton
 
 
* DAVID F. HODNIK
 
Director
    David F. Hodnik
 
 
* THOMAS G. KADIEN
 
Director
    Thomas G. Kadien
 
 
* RICHARD J. KRAMER
 
Director
    Richard J. Kramer
 
* SUSAN J. KROPF
 
Director
    Susan J. Kropf
 
 
* CHRISTINE A. POON
 
Director
    Christine A. Poon
 
* RICHARD K. SMUCKER
 
Director
    Richard K. Smucker
 
 
* JOHN M. STROPKI
 
Director
    John M. Stropki
 
* MATTHEW THORNTON III
 
Director
    Matthew Thornton III
 

*
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/
CATHERINE M. KILBANE
  
February 25, 2015
 
 
Catherine M. Kilbane, Attorney-in-fact
  
 

22



EXHIBIT INDEX
3.
(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 April 20, 2011, filed as Exhibit 3 to the Company's Current Report on Form 8-K dated April 20, 2011, and incorporated herein by reference.
 
 
 
4.
(a)
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.
 
 
 
 
(b)
First Supplemental Indenture between the Company and The Bank of New York Mellon, as trustee (including Form of Note), dated as of December 21, 2009, filed as Exhibit 4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, 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 between Sherwin-Williams Development Corporation, as issuer, the Company, as guarantor, and Harris Trust and Savings Bank, as trustee, dated June 15, 1986, filed as Exhibit 4(b) to Form S-3 Registration Statement Number 33-6626 dated June 20, 1986, and incorporated herein by reference.
 
 
 
 
(f)
Credit Agreement, dated as of July 8, 2011, among the Company, the lenders party thereto, Bank of America, N.A., as administrative agent, Wells Fargo Bank, N.A., as syndication agent, and JPMorgan Chase Bank, N.A. and Citibank, N.A., as co-documentation agents, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated July 8, 2011, and incorporated herein by reference.
 
 
 
 
(g)
Credit Agreement, dated as of June 29, 2012, among Sherwin-Williams Canada Inc., as borrower, the Company, as guarantor, the lenders party thereto, KeyBank National Association, as joint lead arranger, sole bookrunner and administrative agent, and PNC Bank National Association, as joint lead arranger and syndication agent, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated June 29, 2012, and incorporated herein by reference.
 
 
 
 
(h)
First Amendment Agreement, dated as of March 18, 2013, among Sherwin-Williams Canada Inc., as borrower, the Company, as guarantor, the lenders party thereto, KeyBank National Association, as joint lead arranger, sole book runner and administrative agent, PNC Bank, National Association, as joint lead arranger and syndication agent, and Royal Bank of Canada, as joint lead arranger and documentation agent, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated March 18, 2013, and incorporated herein by reference.
 
 
 
 
(i)
Credit Agreement, dated as of September 19, 2012, among Sherwin-Williams Luxembourg S.à r.l., as borrower, the Company, as guarantor, the lenders party thereto, J.P. Morgan Europe Limited, as administrative agent and L/C issuer, J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and HSBC Securities (USA) Inc., as joint lead arrangers and bookrunners, and Citigroup Global Markets Inc. and HSBC Securities (USA) Inc., as syndication agents, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated September 19, 2012, and incorporated herein by reference.
 
 
 
 
(j)
Five Year Credit Agreement, dated as of January 30, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders from time to time party thereto, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 30, 2012, and incorporated herein by reference.
 
 
 
 
(k)
Agreement for Letter of Credit, dated as of January 30, 2012, 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 January 30, 2012, and incorporated herein by reference.
 
 
 
 
(l)
Five Year Credit Agreement Amendment No. 1, dated as of February 6, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders from time to time party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated February 6, 2012, and incorporated herein by reference.
 
 
 

23

 
(m)
Five Year Credit Agreement Amendment No. 2, dated as of February 13, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders from time to time party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated February 13, 2012, and incorporated herein by reference.
 
 
 
 
(n)
Five Year Credit Agreement Amendment No. 3, dated as of February 27, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders from time to time party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated February 27, 2012, and incorporated herein by reference.
 
 
 
 
(o)
Five Year Credit Agreement, dated as of April 23, 2012, 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 April 23, 2012, and incorporated herein by reference.
 
 
 
 
(p)
Agreement for Letter of Credit, dated as of April 23, 2012, 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 April 23, 2012, and incorporated herein by reference.
 
 
 
 
(q)
Five Year Credit Agreement Amendment No. 1, dated as of April 25, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated April 25, 2012, and incorporated herein by reference.
 
 
 
 
(r)
Five Year Credit Agreement Amendment No. 2, dated as of May 7, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated May 7, 2012, and incorporated herein by reference.
 
 
 
 
(s)
Three Year Credit Agreement, dated as of November 14, 2012, 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 14, 2012, and incorporated herein by reference.
 
 
 
 
(t)
Agreement for Letter of Credit, dated as of November 14, 2012, 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 November 14, 2012, and incorporated herein by reference.
 
 
 
 
(u)
Three Year Credit Agreement Amendment No. 1, dated as of November 26, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated November 26, 2012, and incorporated herein by reference.
 
 
 
 
(v)
Three Year Credit Agreement Amendment No. 2, dated as of December 3, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated December 3, 2012, and incorporated herein by reference.
 
 
 
 
(w)
Three Year Credit Agreement Amendment No. 3, dated as of December 10, 2012, by and among the Company, Citicorp USA, Inc., as administrative agent and issuing bank, and the lenders party thereto, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated December 10, 2012, and incorporated herein by reference.
 
 
 
10.
*(a)
Summary of Compensation Payable to Non-Employee Directors (filed herewith).
 
 
 
 
*(b)
Summary of Base Salary and Annual Incentive Compensation Payable to Named Executive Officers (filed herewith).
 
 
 
 
*(c)
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.
 
 
 
 
*(d)
Schedule of Executive Officers who are Parties to the Amended and Restated Severance Agreements in the forms referred to in Exhibit 10(c) above, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, and incorporated herein by reference.
 
 
 
 
*(e)
The Sherwin-Williams Company 2005 Deferred Compensation Savings and Pension Equalization Plan (As Amended and Restated) filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and incorporated herein by reference.
 
 
 
 
*(f)
Amendment No. 1 to The Sherwin-Williams Company 2005 Deferred Compensation Savings and Pension Equalization Plan (As Amended and Restated) filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and incorporated herein by reference.
 
 
 
 
*(g)
Amendment No. 2 to The Sherwin-Williams Company 2005 Deferred Compensation Savings and Pension Equalization Plan (As Amended and Restated) filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and incorporated herein by reference.
 
 
 

24

 
*(h)
The Sherwin-Williams Company 2005 Key Management Deferred Compensation Plan (As Amended and Restated) filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference.
 
 
 
 
*(i)
The Sherwin-Williams Company Director Deferred Fee Plan (1997 Amendment and Restatement) filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference.
 
 
 
 
*(j)
2004-1 Amendment to The Sherwin-Williams Company Director Deferred Fee Plan (1997 Amendment and Restatement) filed as Exhibit 10(d) to the Company's Current Report on Form 8-K dated July 20, 2005, and incorporated herein by reference.
 
 
 
 
*(k)
The Sherwin-Williams Company 2005 Director Deferred Fee Plan (As Amended and Restated) filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference.
 
 
 
 
*(l)
Amendment to The Sherwin-Williams Company 2005 Director Deferred Fee Plan (As Amended and Restated) filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference.
 
 
 
 
*(m)
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, and incorporated herein by reference.
 
 
 
 
*(n)
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.
 
 
 
 
*(o)
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.
 
 
 
 
*(p)
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.
 
 
 
 
*(q)
The Sherwin-Williams Company 2003 Stock Plan filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and incorporated herein by reference.
 
 
 
 
*(r)
Form of Stock Option Grant under The Sherwin-Williams Company 2003 Stock Plan filed as Exhibit 10(b) to the Company's Current Report on Form 8-K dated February 2, 2005, and incorporated herein by reference.
 
 
 
 
*(s)
The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan filed as Exhibit 10(b) to the Company's Current Report on Form 8-K dated April 19, 2006, and incorporated herein by reference.
 
 
 
 
*(t)
Form of Nonqualified Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and incorporated herein by reference.
 
 
 
 
*(u)
Form of Incentive 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, 2007, and incorporated herein by reference.
 
 
 
 
*(v)
The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and incorporated herein by reference.
 
 
 
 
*(w)
First Amendment to The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) (filed herewith).
 
 
 
 
*(x)
Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) filed as Exhibit 10(b) to the Company's Current Report on Form 8-K dated April 20, 2010, and incorporated herein by reference.
 
 
 
 
*(y)
Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) 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.
 
 
 
 
*(z)
Forms of Stock Option Award under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) (filed herewith).
 
 
 

25

 
*(aa)
Form of Restricted Stock Grant under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) filed as Exhibit 10(a) to the Company's Current Report on Form 8-K dated February 15, 2011, and incorporated herein by reference.
 
 
 
 
*(bb)
Form of Restricted Stock Grant under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) filed as Exhibit 10 to the Company's Current Report on Form 8-K dated February 14, 2012, and incorporated herein by reference.
 
 
 
 
*(cc)
Form of Restricted Stock Grant under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated herein by reference.
 
 
 
 
*(dd)
The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of February 17, 2015) (filed herewith).
 
 
 
 
*(ee)
Form of Restricted Stock Units Award Agreement under The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of February 17, 2015) (filed herewith).
 
 
 
 
*(ff)
The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors filed as Exhibit 10(c) to the Company's Current Report on Form 8-K dated April 19, 2006, and incorporated herein by reference.
 
 
 
 
*(gg)
Form of Restricted Stock Grant under The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors filed as Exhibit 10(d) to the Company's Current Report on Form 8-K dated April 20, 2010, and incorporated herein by reference.
 
 
 
 
*(hh)
The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors (Amended and Restated as of February 17, 2015) (filed herewith).
 
 
 
 
*(ii)
Form of Restricted Stock Units Award Agreement under The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors (Amended and Restated as of February 17, 2015) (filed herewith).
 
 
 
 
*(jj)
The Sherwin-Williams Company 2007 Executive Performance Bonus Plan (As Amended and Restated Effective January 1, 2012) filed as Exhibit 10(a) to the Company's Current Report on Form 8-K dated April 18, 2012, and incorporated herein by reference.
 
 
 
13.
 
Our 2014 Annual Report, portions of which are incorporated herein by reference (filed herewith). With the exception of those portions of our 2014 Annual Report that are specifically incorporated by reference in this report, our 2014 Annual Report shall not be deemed “filed” as part of this report.
 
 
 
21.
 
Subsidiaries (filed herewith).
 
 
 
23.
 
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).
 
 
 
24.
(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).
 
 
 
101.INS
XBRL Instance Document
 
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

 
*
Management contract or compensatory plan or arrangement.



26


EXHIBIT 10(a)

SUMMARY OF COMPENSATION
PAYABLE TO NON-EMPLOYEE DIRECTORS


Director Fees. The cash compensation payable to Sherwin-Williams’ non-employee directors is as follows:

•
An annual cash retainer of $110,000;
•
An additional annual cash retainer of $25,000 for the Lead Director;
•
An additional annual cash retainer of $21,000 for the chair of the Audit Committee;
•
An additional annual cash retainer of $21,000 for the chair of the Compensation and Management Development Committee;
•
An additional annual cash retainer of $15,000 for the chair of the Nominating and Corporate Governance Committee; and
•
A meeting fee of $1,750 for each Board or Committee meeting attended in excess of twelve meetings during a calendar year. For purposes of calculating the number of meetings during a calendar year, any Board and Committee meetings held within 24 hours shall constitute one meeting.
  
All retainer amounts are payable in quarterly installments in advance. All meeting fees are payable on the date of the meeting.

In addition, non-employee directors receive an annual grant of restricted stock units of approximately $125,000, valued over a prior 30-day period, under The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors.

Other Benefits. All directors are reimbursed for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board and of committees of the Board.

Sherwin-Williams provides liability insurance and business travel accident insurance for all directors, including $300,000 accidental death and dismemberment coverage and $300,000 permanent total disability coverage, while the directors are traveling on Sherwin-Williams’ business.

Directors may also receive the same discounts as Sherwin-Williams’ employees on the purchase of products at Sherwin-Williams’ stores and are eligible to participate in Sherwin-Williams’ matching gifts and grants for volunteers program on the same basis as employees.

Deferral of Director Fees. In accordance with the Director Deferred Fee Plan, directors may elect to defer all or a part of their retainer and meeting fees. Deferred fees may be credited in a common stock account, a shadow stock account or an interest bearing cash account. Amounts deferred may be distributed either in annual installments over a period up to ten years or in a lump sum pursuant to a director’s payment election. Amounts credited to a shadow stock account are distributed in cash.



EXHIBIT 10(b)

SUMMARY OF BASE SALARY AND ANNUAL INCENTIVE
COMPENSATION PAYABLE TO NAMED EXECUTIVE OFFICERS
2015 Base Salary. On February 17, 2015, the Compensation and Management Development Committee (the “Compensation Committee”) of the Board of Directors of The Sherwin-Williams Company (“Sherwin-Williams”) set the 2015 base salaries of the executive officers who are expected to be named in the Summary Compensation Table of Sherwin-Williams’ 2015 Proxy Statement (the “Named Executive Officers”). The base salaries of the Named Executive Officers for 2015 are as follows: Christopher M. Connor, Chairman and Chief Executive Officer ($1,221,987); John G. Morikis, President and Chief Operating Officer ($881,322); Sean P. Hennessy, Senior Vice President – Finance and Chief Financial Officer ($664,716); Steven J. Oberfeld, Senior Vice President – Corporate Planning and Development ($600,808); and Robert J. Davisson, President, The Americas Group ($596,778).
Annual Incentive Compensation to Be Earned in 2015. The Compensation Committee also approved the following minimum, target and maximum cash bonus award levels, as a percent of salary, for the Named Executive Officers for 2015 under The Sherwin-Williams Company 2007 Executive Performance Bonus Plan.
    
 
 
Incentive Award as a Percentage of Base Salary
Named Executive Officer
 
Minimum
 
Target
 
Maximum
Christopher M. Connor
 
0
 
135

 
270

John G. Morikis
 
0
 
80

 
160

Sean P. Hennessy
 
0
 
80

 
160

Steven J. Oberfeld
 
0
 
60

 
120

Robert J. Davisson
 
0
 
70

 
140








EXHIBIT 10(w)

FIRST AMENDMENT TO
THE SHERWIN-WILLIAMS COMPANY 2006 EQUITY AND PERFORMANCE INCENTIVE PLAN
(AMENDED AND RESTATED AS OF APRIL 21, 2010)

This First Amendment to The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) (this “Amendment”) is made as of October 22, 2014 (the “Amendment Effective Date”) by the Board of Directors (the “Board”) of The Sherwin-Williams Company, an Ohio corporation (the “Company”). This Amendment will be effective for all awards granted under the Amended and Restated 2006 Plan only after the effective date of this Amendment as described herein.

WHEREAS, on February 22, 2006, the Board approved and adopted, subject to the approval of the Company’s shareholders at the Company’s 2006 annual meeting of shareholders, The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (the “2006 Plan”), and on February 17, 2010, the Board approved and adopted, subject to the approval of the Company’s shareholders at the Company’s 2010 Annual Meeting of Shareholders, an amendment and restatement of the 2006 Plan in the form of The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) (the “Amended and Restated 2006 Plan”);

WHEREAS, on April 19, 2006, the Company’s shareholders approved the 2006 Plan, and on April 20, 2010, the Company’s shareholders approved the Amended and Restated 2006 Plan;

WHEREAS, it is the desire of the Company to amend the Amended and Restated 2006 Plan, effective as of the Amendment Effective Date, to (1) permit “real time” pricing for tax withholding purposes for awards granted under the Amended and Restated 2006 Plan, as amended by the Amendment (the “Amended Plan”), and (2) allow the Company to obtain Common Stock price information from Fidelity Stock Plan Service LLC (or its successor or other appropriate third-party equity plan administrator) for purposes of determining the “Market Value Per Share” (as defined in the Amended Plan) for awards granted under the Amended Plan; and

WHEREAS, the Board may amend the Amended and Restated 2006 Plan for these purposes under Section 20(a) of the Amended and Restated 2006 Plan.

NOW, THEREFORE, effective as of the Amendment Effective Date, the Board hereby amends the Amended and Restated 2006 Plan as follows:

1.    Amendment and Restatement of Section 2(t) of the Amended and Restated 2006 Plan. The following provision is added to the end of Section 2(t) as follows:

“Notwithstanding any other provision of this Section 2(t) or any other provision of this Plan, the ‘Market Value Per Share’ will be such price per share of Common Stock, rounded to two decimal points, as shall be provided to the Company by the Company’s third-party equity plan administrator, as applicable.”

2.    Amendment and Restatement of Fourth and Fifth Sentences of Section 16 of the Amended and Restated 2006 Plan. The fourth and fifth sentences of Section 16 of the Amended and Restated 2006 Plan are hereby amended and restated in their entirety as follows:

“The shares used for tax withholding will be valued at an amount equal to the real-time fair market value per share of such Common Stock at the time of exercise or vesting or when the benefit is to be included in Participant’s income. In no event shall the fair market value of the shares of Common Stock to be withheld and/or delivered pursuant to this Section to satisfy applicable withholding taxes in connection with the benefit exceed the minimum amount of taxes required to be withheld.”

3.    Miscellaneous.

(a)    Except as amended by this Amendment, the Amended and Restated 2006 Plan shall remain in full force and effect.

(b)    Capitalized terms used but not defined in this Amendment have the respective meanings ascribed thereto in the Amended and Restated 2006 Plan.




EXHIBIT 10(z)

THE SHERWIN-WILLIAMS COMPANY
2006 EQUITY AND PERFORMANCE INCENTIVE PLAN
(AMENDED AND RESTATED AS OF APRIL 21, 2010), AS AMENDED
Nonqualified Stock Option Award - Additional Terms and Conditions
1.Grant of Option. The Board of Directors (the “Board”) of The Sherwin-Williams Company (the “Company”) has granted an option to you pursuant to a Notice of Award that has been delivered to you. Each option entitles you to purchase from the Company one share of Common Stock of the Company at the Option Price per share in accordance with the terms of The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010), as amended (the “Plan”), the related Prospectus, the Notice of Award, these Additional Terms and Conditions, and such other rules and procedures as may be adopted by the Company. Capitalized terms used herein without definition shall have the meanings assigned to them in the Plan.

2.Vesting of Option. (A) The option (unless terminated as hereinafter provided) shall be exercisable only to the extent of one-third of the shares after you shall have been in the continuous employ of the Company or any Subsidiary for one full year from the Date of Grant and to the extent of an additional one-third of such shares after each of the next two successive full years thereafter during which you shall have been in the continuous employ of the Company or any Subsidiary.
(B)     Notwithstanding Section 2(A) above, the option shall become immediately exercisable in full if you should die while in the employ of the Company or any Subsidiary.

(C)    Notwithstanding Section 2(A) above, in the event of a “Change of Control” of the Company, as defined in Section 2(f) of the Plan, any unvested number of options shall vest and become exercisable in accordance with Section 12 of the Plan.
3.Termination of Option. (A) Except as otherwise provided in Section 3(B) below, the option shall terminate on the earliest of the following dates:

(i)The date on which you cease to be an employee of the Company or a Subsidiary, unless you cease to be such employee by reason of (a) death, (b) disability or (c) Retirement. “Retirement” shall be defined as: (1) the attainment of age 65; (2) the attainment of age 55-59 with at least twenty (20) years of service with the Company or any Subsidiary; or (3) the attainment of age 60 or older and your combination of age and service with the Company or any Subsidiary equals at least 75;

(ii)Three years after the date of your death if (a) you die while an employee of the Company or a Subsidiary or (b) you die following your Retirement;

(iii)Three years after the date you are terminated by the Company or a Subsidiary as a result of expiration of available disability leave of absence pursuant to applicable Company policy due to sickness or bodily injury;

(iv)Ten years from the Date of Grant; or

(v)The date on which you knowingly or willfully engage in misconduct, which is materially harmful to the interests of the Company or a Subsidiary as determined by the Board.

(B)     Notwithstanding anything in these Additional Terms to the contrary, but subject to applicable law, if and only if, at 4:15 p.m. ET on the date on which the option would otherwise terminate pursuant to Section 3(A)(iv) above (the “Option Expiration Date”), (i) the closing sales price of one share of Common Stock on the principal stock exchange on which the Common Stock is then listed as of the Option Expiration Date (or, if there are no sales of Common Stock on such Option Expiration Date, on the next preceding trading day during which a sale of Common Stock occurred) exceeds the Option Price per share, (ii) to the extent the option is exercisable and you have not exercised the option, and (iii) to the extent the option has not otherwise expired, terminated, or been cancelled or




forfeited, then the Company will deem such remaining exercisable portion of the option to have been exercised by you on the Option Expiration Date (and prior to the option’s termination) at such time (“Automatic Exercise”). Further to such Automatic Exercise, payment of the aggregate Option Price for such Automatic Exercise and any applicable withholding taxes in connection with such Automatic Exercise will be deemed to have been made by the Company withholding a number of shares of Common Stock otherwise issuable in connection with such Automatic Exercise that are equal in value to the amount necessary to satisfy such aggregate Option Price payment and minimum required withholding taxes. To clarify, upon Automatic Exercise, the Company will deliver to you the number of whole shares of Common Stock resulting from such Automatic Exercise less a number of shares of Common Stock equal in value to (x) the aggregate Option Price plus (y) any minimum required withholding taxes; provided, however, that any fractional share otherwise deliverable to you will be settled in cash.

4.Exercise and Payment of Option. To the extent exercisable, the option may be exercised in whole or in part from time to time. The Option Price shall be payable (i) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company by you of nonforfeitable, unrestricted shares of Common Stock of the Company owned by you and having an aggregate fair market value at the time of exercise of the option equal to the total Option Price of the shares of Common Stock which are the subject of such exercise, (iii) by a combination of such methods of payment, or (iv) by such other methods as may be approved by the Board.

5.Transferability, Binding Effect. The option is not transferable by you otherwise than by will or the laws of descent and distribution, and in no event shall this award be transferred for value. Except as otherwise determined by the Board, this option is exercisable, during your lifetime, only by you or, in the case of your legal incapacity, only by your guardian or legal representative. These Additional Terms and Conditions bind you and your guardians, legal representatives and heirs.

6.Compliance with Law. The option shall not be exercisable if such exercise would involve a violation of any law.

7.Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with exercise of the option, it shall be a condition to such exercise that you pay or make provision satisfactory to the Company for payment of all such taxes.

8.No Right to Future Awards or Employment. The option award is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a commitment to make any future awards. The option award and any related payments made to you will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing contained herein will confer upon you any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate your employment or other service at any time.

9.Severability. If any provision of these Additional Terms and Conditions or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of these Additional Terms and Conditions and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.

10.Governing Law. These Additional Terms and Conditions shall be governed by and construed with the internal substantive laws of the State of Ohio, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.

11.    Application of The Sherwin-Williams Company Executive Compensation Adjustment and Recapture Policy. You acknowledge and agree that the terms and conditions set forth in The Sherwin-Williams Company Executive Compensation Adjustment and Recapture Policy (“Policy”) are incorporated in these Additional Terms and Conditions by reference. To the extent the Policy is applicable to you, it creates additional rights for the Company with respect to your option award.







THE SHERWIN-WILLIAMS COMPANY
2006 EQUITY AND PERFORMANCE INCENTIVE PLAN
(AMENDED AND RESTATED AS OF APRIL 21, 2010), AS AMENDED

Incentive Stock Option Award - Additional Terms and Conditions
1.    Grant and Nature of Option. The Board of Directors (the “Board”) of The Sherwin-Williams Company (the “Company”) has granted an option to you pursuant to a Notice of Award that has been delivered to you. The option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Each option entitles you to purchase from the Company one share of Common Stock of the Company at the Option Price per share in accordance with the terms of The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010), as amended (the “Plan”), the related Prospectus, the Notice of Award, these Additional Terms and Conditions, and such other rules and procedures as may be adopted by the Company. Capitalized terms used herein without definition shall have the meanings assigned to them in the Plan.
2.    Vesting of Option. (A) The option (unless terminated as hereinafter provided) shall be exercisable only to the extent of one-third of the shares after you shall have been in the continuous employ of the Company or any Subsidiary for one full year from the Date of Grant and to the extent of an additional one-third of such shares after each of the next two successive full years thereafter during which you shall have been in the continuous employ of the Company or any Subsidiary.
(B)    Notwithstanding Section 2(A) above, the option shall become immediately exercisable in full if you should die while in the employ of the Company or any Subsidiary.
(C)    Notwithstanding Section 2(A) above, in the event of a “Change of Control” of the Company, as defined in Section 2(f) of the Plan, any unvested number of options shall vest and become exercisable in accordance with Section 12 of the Plan.
3.    Termination of Option. (A) Except as otherwise provided in Section 3(B) below, the option shall terminate on the earliest of the following dates:
(i)    The date on which you cease to be an employee of the Company or a Subsidiary, unless you cease to be such employee by reason of (a) death, (b) disability or (c) Retirement. “Retirement” shall be defined as: (1) the attainment of age 65; (2) the attainment of age 55-59 with at least twenty (20) years of service with the Company or any Subsidiary; or (3) the attainment of age 60 or older and your combination of age and service with the Company or any Subsidiary equals at least 75;
(ii)    Three years after the date of your death if (a) you die while an employee of the Company or a Subsidiary or (b) you die following your Retirement;
(iii)    Three years after the date you are terminated by the Company or a Subsidiary as a result of expiration of available disability leave of absence pursuant to applicable Company policy due to sickness or bodily injury;
(iv)    Ten years from the Date of Grant; or
(v)    The date on which you knowingly or willfully engage in misconduct, which is materially harmful to the interests of the Company or a Subsidiary as determined by the Board.
(B)    Notwithstanding anything in these Additional Terms to the contrary, but subject to applicable law, if and only if, at 4:15 p.m. ET on the date on which the option would otherwise terminate pursuant to Section 3(A)(iv) above (the “Option Expiration Date”), (i) the closing sales price of one share of Common Stock on the principal stock exchange on which the Common Stock is then listed as of the Option Expiration Date (or, if there are no sales of Common Stock on such Option Expiration Date, on the next preceding trading day during which a sale of Common Stock occurred) exceeds the Option Price per share, (ii) to the extent the option is exercisable and you have not exercised the option, and (iii) to the extent the option has not otherwise expired, terminated, or been cancelled or forfeited, then the Company will deem such remaining exercisable portion of the option to have been exercised by you




on the Option Expiration Date (and prior to the option’s termination) at such time (“Automatic Exercise”). Further to such Automatic Exercise, payment of the aggregate Option Price for such Automatic Exercise and any applicable withholding taxes in connection with such Automatic Exercise will be deemed to have been made by the Company withholding a number of shares of Common Stock otherwise issuable in connection with such Automatic Exercise that are equal in value to the amount necessary to satisfy such aggregate Option Price payment and minimum required withholding taxes. To clarify, upon Automatic Exercise, the Company will deliver to you the number of whole shares of Common Stock resulting from such Automatic Exercise less a number of shares of Common Stock equal in value to (x) the aggregate Option Price plus (y) any minimum required withholding taxes; provided, however, that any fractional share otherwise deliverable to you will be settled in cash.
4.    Exercise and Payment of Option. To the extent exercisable, the option may be exercised in whole or in part from time to time. The Option Price shall be payable (i) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company by you of nonforfeitable, unrestricted shares of Common Stock of the Company owned by you and having an aggregate fair market value at the time of exercise of the option equal to the total Option Price of the shares of Common Stock which are the subject of such exercise, (iii) by a combination of such methods of payment, or (iv) by such other methods as may be approved by the Board.
5.    Transferability, Binding Effect. The option is not transferable by you otherwise than by will or the laws of descent and distribution, and in no event shall this award be transferred for value. Except as otherwise determined by the Board this option is exercisable, during your lifetime, only by you, or, in the case of your legal incapacity, only by your guardian or legal representative. These Additional Terms and Conditions bind you and your guardians, legal representatives and heirs.
6.    Compliance with Law. The option shall not be exercisable if such exercise would involve a violation of any law.
7.    Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with exercise of the option, it shall be a condition to such exercise that you pay or make provision satisfactory to the Company for payment of all such taxes.
8.    No Right to Future Awards or Employment. The option award is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a commitment to make any future awards. The option award and any related payments made to you will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing contained herein will confer upon you any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate your employment or other service at any time.
9.    Severability. If any provision of these Additional Terms and Conditions or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of these Additional Terms and Conditions and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.
10.    Governing Law. These Additional Terms and Conditions shall be governed by and construed with the internal substantive laws of the State of Ohio, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.
11.    Application of The Sherwin-Williams Company Executive Compensation Adjustment and Recapture Policy. You acknowledge and agree that the terms and conditions set forth in The Sherwin-Williams Company Executive Compensation Adjustment and Recapture Policy (“Policy”) are incorporated in these Additional Terms and Conditions by reference. To the extent the Policy is applicable to you, it creates additional rights for the Company with respect to your option award.




EXHIBIT 10(dd)
THE SHERWIN-WILLIAMS COMPANY
2006 Equity and Performance Incentive Plan
(Amended and Restated as of February 17, 2015)

1.Purpose. The purpose of this 2006 Equity and Performance Incentive Plan (Amended and Restated as of February 17, 2015) is to attract and retain officers and other employees of The Sherwin-Williams Company and its Subsidiaries and to provide to such persons incentives and rewards for performance.

2.Definitions. As used in this Plan,

(a)“Appreciation Right” means a right granted pursuant to Section 5 of this Plan, and will include both Free-Standing Appreciation Rights and Tandem Appreciation Rights.

(b)“Assumed” has the meaning provided in Section 12 of this Plan.

(c)“Base Price” means the price to be used as the basis for determining the Spread upon the exercise of a Free-Standing Appreciation Right or a Tandem Appreciation Right.

(d)“Board” means the Board of Directors of the Company and, to the extent of any delegation by the Board to a committee (or subcommittee thereof) pursuant to Section 10 of this Plan, such committee (or subcommittee).

(e)“Cause” has the meaning provided in Section 12 of this Plan.

(f)“Change of Control” means, except as may be otherwise prescribed by the Board in any Evidence of Award, the occurrence of any of the following events:

(i)
any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the combined voting power of the then-outstanding Voting Stock of the Company; provided, however, that:

(A)
for purposes of this Section 2(f)(i), the following acquisitions will not constitute a Change of Control: (1) any acquisition of Voting Stock directly from the Company that is approved by a majority of the Incumbent Directors, (2) any acquisition of Voting Stock by the Company or any Subsidiary, (3) any acquisition of Voting Stock by the trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, and (4) any acquisition of Voting Stock by any Person pursuant to a Business Transaction that complies with clauses (A), (B) and (C) of Section 2(f)(iii) below;

(B)
if any Person is or becomes the beneficial owner of 30% or more of combined voting power of the then-outstanding Voting Stock as a result of a transaction described in clause (1) of Section 2(f)(i)(A) above and such Person thereafter becomes the beneficial owner of any additional shares of Voting Stock representing 1% or more of the then-outstanding Voting Stock, other than in an acquisition directly from the Company that is approved by a majority of the Incumbent Directors or other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Voting Stock are treated equally, such subsequent acquisition shall be treated as a Change of Control;

(C)
a Change of Control will not be deemed to have occurred if a Person is or becomes the beneficial owner of 30% or more of the Voting Stock as a result of a reduction in the number of shares of Voting Stock outstanding pursuant to a transaction or series of transactions that is approved by a majority of the Incumbent Directors unless and until such Person thereafter becomes the beneficial owner of any additional shares of Voting Stock representing 1% or more of the then-outstanding Voting Stock, other than as a result of a




stock dividend, stock split or similar transaction effected by the Company in which all holders of Voting Stock are treated equally; and

(D)
if at least a majority of the Incumbent Directors determine in good faith that a Person has acquired beneficial ownership of 30% or more of the Voting Stock inadvertently, and such Person divests as promptly as practicable but no later than the date, if any, set by the Incumbent Directors a sufficient number of shares so that such Person beneficially owns less than 30% of the Voting Stock, then no Change of Control shall have occurred as a result of such Person’s acquisition; or

(ii)
a majority of the Board ceases to be comprised of Incumbent Directors; or

(iii)
the consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of the stock or assets of another corporation, or other transaction (each, a “Business Transaction”), unless, in each case, immediately following such Business Transaction (A) the Voting Stock outstanding immediately prior to such Business Transaction continues to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity or any parent thereof), more than 50% of the combined voting power of the then outstanding shares of voting stock of the entity resulting from such Business Transaction (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (B) no Person (other than the Company, such entity resulting from such Business Transaction, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Transaction) beneficially owns, directly or indirectly, 30% or more of the combined voting power of the then outstanding shares of voting stock of the entity resulting from such Business Transaction, and (C) at least a majority of the members of the board of directors of the entity resulting from such Business Transaction were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Transaction; or

(iv)
approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Transaction that complies with clauses (A), (B) and (C) of Section 2(f)(iii).

(v)
For purposes of this Section 2(f), the term “Incumbent Directors” shall mean, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new director (other than a director initially elected or nominated as a director as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies by or on behalf of such director) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved.

(g)“Code” means the Internal Revenue Code of 1986, as amended from time to time.

(h)“Common Stock” means Common Stock, par value $1.00 each, of the Company or any security into which such shares of Common Stock may be changed by reason of any transaction or event of the type referred to in Section 11 of this Plan.

(i)“Company” means The Sherwin-Williams Company, an Ohio corporation, and its successors.

(j)“Covered Employee” means a Participant who is, or is determined by the Board to be likely to become, a “covered employee” within the meaning of Section 162(m) of the Code (or any successor provision).

(k)“Date of Grant” means the date specified by the Board on which a grant of Option Rights, Appreciation Rights, Performance Shares, Performance Units or Other Awards, or a grant or sale of Restricted Stock, Restricted Stock Units or Other Awards, will become effective (which date will not be earlier than the date on which the Board takes action with respect thereto).





(l)“Director” means a member of the Board of Directors of the Company.

(m)“Effective Date” means February 17, 2015.

(n)“Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Board that sets forth the terms and conditions of Option Rights, Appreciation Rights, Performance Shares, Performance Units or Other Awards granted, or a grant or sale of Restricted Stock, Restricted Stock Units or Other Awards. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless otherwise determined by the Board, need not be signed by a representative of the Company or a Participant.

(o)“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.

(p)“Free-Standing Appreciation Right” means an Appreciation Right granted pursuant to Section 5 of this Plan that is not granted in tandem with an Option Right.

(q)“Good Reason” has the meaning provided in Section 12 of this Plan.

(r)“Incentive Stock Options” means Option Rights that are intended to qualify as “incentive stock options” under Section 422 of the Code or any successor provision.

(s)“Management Objectives” means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or Performance Units or, when so determined by the Board, Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Awards or dividend credits pursuant to this Plan. Management Objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or of the Subsidiary, division, department, region or function within the Company or Subsidiary in which the Participant is employed. The Management Objectives may be made relative to the performance of one or more other companies or subsidiaries, divisions, departments, regions or functions within such other companies, and may be made relative to an index or one or more of the performance criteria themselves. The Board may grant awards subject to Management Objectives that are either Qualified Performance-Based Awards or are not Qualified Performance-Based Awards. The Management Objectives applicable to any Qualified Performance-Based Award to a Covered Employee will be based on one or more, or a combination, of the following criteria:

(i)
Appreciation in value of shares;

(ii)
Total shareholder return;

(iii)
Earnings per share;

(iv)
Operating income;

(v)
Net income;

(vi)
Pretax earnings;

(vii)
Earnings before interest, taxes, depreciation and amortization;

(viii)
Pro forma net income;

(ix)
Return on equity;

(x)
Return on designated assets;

(xi)
Return on capital;

(xii)
Economic value added;

(xiii)
Revenues;





(xiv)
Expenses;

(xv)
Operating profit margin;

(xvi)
Operating cash flow;

(xvii)
Free cash flow;

(xviii)
Cash flow return on investment;

(xix)
Operating margin or net profit margin; or

(xx)
Any of the above criteria as compared to the performance of a published or a special index deemed applicable by the Board, including, but not limited to, the Standard & Poor’s 500 Stock Index.

If the Board determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the Board may in its discretion modify such Management Objectives or the related level or levels of achievement, in whole or in part, as the Board deems appropriate and equitable, except in the case of a Qualified Performance-Based Award (other than in connection with a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such case, the Board will not make any modification of the Management Objectives or the level or levels of achievement with respect to such Covered Employee.
(t)“Market Value Per Share” means, as of any particular date, the average of the highest and lowest reported sales prices of the Common Stock during normal trading hours on the New York Stock Exchange Composite Tape or, if not listed on such exchange, on any other national securities exchange on which the Common Stock is listed. If there is no regular public trading market for such Common Stock, the Market Value Per Share of the Common Stock shall be determined by the Board. The Board is authorized to adopt another fair market value pricing method, provided such method is stated in the Evidence of Award, and is in compliance with the fair market value pricing rules set forth in Section 409A of the Code. Notwithstanding any other provision of this Section 2(t) or any other provision of this Plan, the “Market Value Per Share” will be such price per share of Common Stock, rounded to two decimal points, as shall be provided to the Company by the Company’s third-party equity plan administrator, as applicable.

(u)“Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option Right.

(v)“Option Price” means the purchase price payable on exercise of an Option Right.

(w)“Option Right” means the right to purchase shares of Common Stock upon exercise of an option granted pursuant to Section 4 of this Plan.

(x)“Other Award” means an award granted pursuant to Section 9 of this Plan.

(y)“Participant” means a person who is selected by the Board to receive benefits under this Plan and who is at the time an officer or other employee of the Company or any one or more of its Subsidiaries, or who has agreed to commence serving in any of such capacities within 90 days of the Date of Grant. The term “Participant” shall also include any person who provides services to the Company or a Subsidiary that are substantially equivalent to those typically provided by an employee.

(z)“Performance Period” means, in respect of a Performance Share or Performance Unit, a period of time established pursuant to Section 8 of this Plan within which the Management Objectives relating to such Performance Share or Performance Unit are to be achieved.

(aa)“Performance Share” means a bookkeeping entry that records the equivalent of one share of Common Stock awarded pursuant to Section 8 of this Plan.

(bb)    "Performance Unit” means a bookkeeping entry awarded pursuant to Section 8 of this Plan that records a unit equivalent to $1.00 or such other value as is determined by the Board.





(cc)    “Plan” means The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan, as may be amended or amended and restated from time to time.

(dd)    “Post-CIC Period” has the meaning provided in Section 12 of this Plan.

(ee)    “Qualified Performance-Based Award” means any award of Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units or Other Awards, or portion of such award, to a Covered Employee that is intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Code.

(ff)    “Restricted Stock” means shares of Common Stock granted or sold pursuant to Section 6 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfer has expired.

(gg)    “Restriction Period” means the period of time during which Restricted Stock Units are subject to restrictions, as provided in Section 7 of this Plan.

(hh)    “Restricted Stock Unit” means an award made pursuant to Section 7 of this Plan of the right to receive shares of Common Stock or cash at the end of a specified period.

(ii)    “Spread” means the excess of the Market Value Per Share on the date when an Appreciation Right is exercised over the Option Price or Base Price provided for in the related Option Right or Free-Standing Appreciation Right, respectively.

(jj)    “Subsidiary” means a corporation, company or other entity (i) at least 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but at least 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company except that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any corporation in which at the time the Company owns or controls, directly or indirectly, at least 50 percent of the total combined voting power represented by all classes of stock issued by such corporation.

(kk)    “Tandem Appreciation Right” means an Appreciation Right granted pursuant to Section 5 of this Plan that is granted in tandem with an Option Right.

3.Shares Subject to this Plan.

(a)Maximum Shares Available Under Plan.

(i)
Subject to adjustment as provided in Section 11 of this Plan, the number of shares of Common Stock that may be issued or transferred (A) upon the exercise of Option Rights or Appreciation Rights; (B) as Restricted Stock and released from substantial risks of forfeiture thereof; (C) in payment of Restricted Stock Units; (D) in payment of Performance Shares or Performance Units that have been earned; (E) as Other Awards or in payment of Other Awards, or (F) in payment of dividend equivalents paid with respect to awards made under this Plan will not exceed in the aggregate 19,200,000 shares of Common Stock (10,000,000 of which were approved by shareholders in 2006 and 9,200,000 of which were added upon approval by shareholders in 2010), plus any shares of Common Stock relating to awards that expire or are forfeited or are cancelled under this Plan. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing.

(ii)
Each share of Common Stock issued or transferred pursuant to an award of Option Rights or Appreciation Rights will reduce the aggregate plan limit described above in Section 3(a)(i) by one share of Common Stock. Each share of Common Stock issued or transferred (and in the case of Restricted Shares, released from all substantial risk of forfeiture) pursuant to an award other than Option Rights or Appreciation Rights shall reduce the aggregate plan limit described above in Section 3(a)(i) by (A) one share of Common Stock if issued or transferred pursuant to an award granted prior to April 21, 2010 and (B) 2 shares of Common Stock if issued or transferred pursuant to an award granted on or after April 21, 2010. Any shares of Common Stock that again become available for issuance pursuant to this Section 3 shall be added back to the aggregate plan limit in




the same manner such shares were originally deducted from the aggregate plan limit pursuant to this Section 3(a)(ii).

(iii)
Shares of Common Stock covered by an award granted under this Plan shall not be counted as used unless and until they are actually issued and delivered to a Participant and, therefore, the total number of shares available under this Plan as of a given date shall not be reduced by any shares relating to prior awards that have expired or have been forfeited or cancelled. Upon payment in cash of the benefit provided by any award granted under this Plan, any shares of Common Stock that were covered by that award will be available for issue or transfer hereunder. Notwithstanding anything to the contrary contained herein: (A) if shares of Common Stock are tendered or otherwise used in payment of the Option Price of an Option Right, the total number of shares covered by the Option Right being exercised shall count against the aggregate plan limit described above; (B) shares of Common Stock tendered or withheld by the Company to satisfy the tax withholding obligation shall count against the aggregate plan limit described above; (C) the number of shares of Common Stock that are repurchased by the Company with Option Right proceeds shall not increase the aggregate plan limit described above; and (D) the number of shares of Common Stock covered by an Appreciation Right, to the extent that it is exercised and settled in shares of Common Stock, whether or not all shares of Common Stock covered by the award are actually issued to the Participant upon exercise of the Appreciation Right, shall be considered issued or transferred pursuant to this Plan. If, under this Plan, a Participant has elected to give up the right to receive compensation in exchange for shares of Common Stock based on fair market value, such shares of Common Stock shall not count against the aggregate plan limit described above.

(b)Incentive Stock Option Limit. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 11 of this Plan, the aggregate number of shares of Common Stock actually issued or transferred by the Company upon the exercise of Incentive Stock Options shall not exceed 19,200,000.

(c)Individual Participant Limits. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 11 of this Plan:

(i)
No Participant shall be granted Option Rights or Appreciation Rights, in the aggregate, for more than 500,000 shares of Common Stock during any calendar year.

(ii)
No Participant will be granted Qualified Performance-Based Awards of Restricted Stock, Restricted Stock Units or Performance Shares or in the form of Other Awards payable in Common Stock, in the aggregate, for more than 200,000 shares of Common Stock during any calendar year.

(iii)
No Participant will receive in any calendar year a Qualified Performance-Based Award of Performance Units having an aggregate maximum value as of their respective Dates of Grant in excess of $5,000,000.

(iv)
No Participant will receive in any calendar year a Qualified Performance-Based Award in the form of Other Awards payable in cash under Section 9(b) having an aggregate maximum value in excess of $5,000,000.

(d)Exclusion from Certain Restrictions. Notwithstanding anything in this Plan to the contrary, up to 5% of the maximum number of shares of Common Stock provided for in Section 3(a)(i) above may be used for awards granted under Sections 6 through 9 of this Plan that do not comply with the three-year requirements set forth in Sections 6(c), 7(c) and 9(d) of this Plan and the one-year requirements of Sections 6(e), 7(a), 8(b) and 9(d) of this Plan.
  
4.Option Rights. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of options to purchase shares of Common Stock. Each such grant will be subject to all of the requirements contained in the following provisions:

(a)Each grant will specify the number of shares of Common Stock to which it pertains subject to the limitations set forth in Section 3 of this Plan.

(b)Each grant will specify an Option Price per share, which may not be less than the Market Value Per Share on the Date of Grant.





(c)Each grant will specify whether the Option Price will be payable (i) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company of shares of Common Stock owned by the Optionee having a value at the time of exercise equal to the total Option Price, (iii) by a combination of such methods of payment, or (iv) by such other methods as may be approved by the Board.

(d)To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the shares to which such exercise relates.

(e)Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised.

(f)Each grant will specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary that is necessary before the Option Rights or installments thereof will become exercisable. A grant of Option Rights may provide for the earlier exercise of such Option Rights in the event of the retirement, death or disability of the Participant or a Change of Control.

(g)Any grant of Option Rights may specify Management Objectives that must be achieved as a condition to the exercise of such rights. The grant of such Option Rights will specify that, before the exercise of such rights, the Board must determine that the Management Objectives have been satisfied.

(h)Option Rights granted under this Plan may be (i) options, including, without limitation, Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii) options that are not intended so to qualify, or (iii) combinations of the foregoing. Incentive Stock Options may only be granted to Participants who meet the definition of “employees” under Section 3401(c) of the Code.

(i)The exercise of an Option Right will result in the cancellation on a share- for-share basis of any Tandem Appreciation Right authorized under Section 5 of this Plan.

(j)No Option Right will be exercisable more than 10 years from the Date of Grant.

(k)Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award shall be subject to this Plan and shall contain such terms and provisions, consistent with this Plan, as the Board may approve.

5.Appreciation Rights.

(a)The Board may also, from time to time and upon such terms and conditions as it may determine, authorize the granting (i) to any Optionee, of Tandem Appreciation Rights in respect of Option Rights granted hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A Tandem Appreciation Right will be a right of the Optionee, exercisable by surrender of the related Option Right, to receive from the Company an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights may be granted at any time prior to the exercise or termination of the related Option Rights; provided, however, that a Tandem Appreciation Right awarded in relation to an Incentive Stock Option must be granted concurrently with such Incentive Stock Option. A Free-Standing Appreciation Right will be a right of the Participant to receive from the Company an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise.

(b)Each grant of Appreciation Rights may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:

(i)
Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by the Company in cash, in shares of Common Stock or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives.

(ii)
Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Board at the Date of Grant.

(iii)
Any grant may specify waiting periods before exercise and permissible exercise dates or periods.





(iv)
Any grant may specify that such Appreciation Right may be exercised only in the event of, or earlier in the event of, the retirement, death or disability of the Participant or a Change of Control.

(v)
Any grant of Appreciation Rights may specify Management Objectives that must be achieved as a condition of the exercise of such Appreciation Rights. The grant of such Appreciation Rights will specify that, before the exercise of such Appreciation Rights, the Board must determine that the Management Objectives have been satisfied.

(vi)
Each grant of Appreciation Rights will be evidenced by an Evidence of Award, which Evidence of Award will describe such Appreciation Rights, identify the related Option Rights (if applicable), and contain such other terms and provisions, consistent with this Plan, as the Board may approve.

(c)Any grant of Tandem Appreciation Rights will provide that such Tandem Appreciation Rights may be exercised only at a time when the related Option Right is also exercisable and at a time when the Spread is positive, and by surrender of the related Option Right for cancellation. Successive grants of Tandem Appreciation Rights may be made to the same Participant regardless of whether any Tandem Appreciation Rights previously granted to the Participant remain unexercised.

(d)Regarding Free-Standing Appreciation Rights only:

(i)
Each grant will specify in respect of each Free-Standing Appreciation Right a Base Price, which may not be less than the Market Value Per Share on the Date of Grant;

(ii)
Successive grants may be made to the same Participant regardless of whether any Free-Standing Appreciation Rights previously granted to the Participant remain unexercised; and

(iii)
No Free-Standing Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant.

6.Restricted Stock. The Board may also, from time to time and upon such terms and conditions as it may determine, authorize the grant or sale of Restricted Stock to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:

(a)Each such grant or sale will constitute an immediate transfer of the ownership of shares of Common Stock to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to.

(b)Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value Per Share at the Date of Grant.

(c)Each such grant or sale will provide that the Restricted Stock covered by such grant or sale that vests upon the passage of time will be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Board at the Date of Grant or upon achievement of Management Objectives referred to in Section 6(e) below. If the elimination of restrictions is based only on the passage of time rather than the achievement of Management Objectives, the period of time will be no shorter than three years, except that the restrictions may be removed no sooner than ratably on an annual basis during the three-year period as determined by the Board at the Date of Grant.

(d)Each such grant or sale will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Stock will be prohibited or restricted in the manner and to the extent prescribed by the Board at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee).

(e)Any grant of Restricted Stock may specify Management Objectives that, if achieved, will result in termination or early termination of the restrictions applicable to such Restricted Stock; provided, however, that restrictions relating to Restricted Stock that vests upon the achievement of Management Objectives may not terminate sooner than after one year. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of shares of Restricted Stock on which restrictions will terminate if




performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives. The grant of Restricted Stock will specify that, before the termination or early termination of the restrictions applicable to such Restricted Stock, the Board must determine that the Management Objectives have been satisfied.

(f)Notwithstanding anything to the contrary contained in this Plan, any grant or sale of Restricted Stock may provide for the earlier lapse of the substantial risk of forfeiture for such Restricted Stock in the event of the retirement, death or disability of the Participant or a Change of Control.

(g)Any such grant or sale of Restricted Stock may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional shares of Restricted Stock, which may be subject to the same restrictions as the underlying award; provided, however, that dividends or other distributions on Restricted Stock subject to restrictions that lapse as a result of the achievement of Management Objectives shall be deferred until and paid contingent upon the achievement of the applicable Management Objectives.

(h)Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Board may approve. Unless otherwise directed by the Board, (i) all certificates representing shares of Restricted Stock will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such Shares, or (ii) all shares of Restricted Stock shall be held at the Company’s transfer agent in book entry form with appropriate restrictions relating to the transfer of such shares of Restricted Stock.

7.Restricted Stock Units. The Board may also, from time to time and upon such terms and conditions as it may determine, authorize the granting or sale of Restricted Stock Units to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:

(a)Each such grant or sale will constitute the agreement by the Company to deliver shares of Common Stock or cash to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include the achievement of Management Objectives) during the Restriction Period as the Board may specify. If a grant of Restricted Stock Units specifies that the Restriction Period will terminate upon the achievement of Management Objectives, such Restriction Period may not terminate sooner than after one year. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of Restricted Stock Units on which restrictions will terminate if performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives. The grant of such Restricted Stock Units will specify that, before the termination or early termination of the restrictions applicable to such Restricted Stock Units, the Board must determine that the Management Objectives have been satisfied.

(b)Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value Per Share at the Date of Grant.

(c)If the Restriction Period lapses only by the passage of time rather than the achievement of Management Objectives, each such grant or sale will be subject to a Restriction Period of not less than three years, except that a grant or sale may provide that the Restriction Period shall expire not sooner than ratably on an annual basis during the three-year period as determined by the Board at the Date of Grant.

(d)Notwithstanding anything to the contrary contained in this Plan, any grant or sale of Restricted Stock Units may provide for the earlier lapse or other modification of the Restriction Period in the event of the retirement, death or disability of the Participant or a Change of Control.

(e)During the Restriction Period, the Participant will have no right to transfer any rights under his or her award and will have no rights of ownership in the shares of Common Stock deliverable upon payment of the Restricted Stock Units and shall have no right to vote them, but the Board may at the Date of Grant, authorize the payment of dividend equivalents on such Restricted Stock Units on either a current, deferred or contingent basis, either in cash or in additional shares of Common Stock; provided, however, that dividend equivalents on Restricted Stock Units subject to a Restriction Period that lapses as a result of the achievement of Management Objectives shall be deferred until and paid contingent upon the achievement of the applicable Management Objectives.

(f)Each grant or sale will specify the time and manner of payment of Restricted Stock Units that have been earned. Any grant or sale may specify that the amount payable with respect thereto may be paid by the Company in cash,




in shares of Common Stock or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives.

(g)Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Board may approve.

8.Performance Shares and Performance Units. The Board may also, from time to time and upon such terms and conditions as it may determine, authorize the granting of Performance Shares and Performance Units that will become payable to a Participant upon achievement of specified Management Objectives during the Performance Period. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:

(a)Each grant will specify the number of Performance Shares or Performance Units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors; provided, however, that no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the Participant or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.

(b)The Performance Period with respect to each Performance Share or Performance Unit will be such period of time (not less than one year) as will be determined by the Board at the time of grant which may be subject to earlier lapse or other modification in the event of the retirement, death or disability of the Participant or a Change of Control.

(c)Any grant of Performance Shares or Performance Units will specify Management Objectives which, if achieved, will result in payment or early payment of the award, and each grant may specify in respect of such specified Management Objectives a minimum acceptable level or levels of achievement and will set forth a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is at or above the level(s), but falls short of full achievement of the specified Management Objectives. The grant of Performance Shares or Performance Units will specify that, before the Performance Shares or Performance Units will be earned and paid, the Board must determine that the Management Objectives have been satisfied.

(d)Each grant will specify the time and manner of payment of Performance Shares or Performance Units that have been earned. Any grant may specify that the amount payable with respect thereto may be paid by the Company in cash, in shares of Common Stock or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives.

(e)Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Board at the Date of Grant. Any grant of Performance Units may specify that the amount payable or the number of shares of Common Stock issued with respect thereto may not exceed maximums specified by the Board at the Date of Grant.

(f)The Board may at the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof, either in cash or in additional shares of Common Stock, on a deferred basis contingent upon the achievement of the applicable Management Objectives.

(g)Each grant of Performance Shares or Performance Units will be evidenced by an Evidence of Award and will contain such other terms and provisions, consistent with this Plan, as the Board may approve.

9.Other Awards.

(a)The Board may, subject to limitations under applicable law, grant to any Participant such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock or factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Common Stock, purchase rights for shares of Common Stock, awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated by the Board, and awards valued by reference to the book value of shares of Common Stock or the value of securities of, or the performance of specified Subsidiaries or affiliates or other business units of the Company. The Board shall determine the terms and conditions of such awards. Shares of Common Stock delivered pursuant to an award in the nature of a purchase right granted under this Section 9 shall be purchased for such




consideration, paid for at such time, by such methods, and in such forms, including, without limitation, cash, shares of Common Stock, other awards, notes or other property, as the Board shall determine.

(b)Cash awards, as an element of or supplement to any other award granted under this Plan, may also be granted pursuant to this Section 9 of this Plan.

(c)The Board may grant shares of Common Stock as a bonus, or may grant other awards in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Board in a manner that complies with Section 409A of the Code.

(d)If the earning or vesting of, or elimination of restrictions applicable to, Other Awards is based only on the passage of time rather than the achievement of Management Objectives, the period of time shall be no shorter than three years, except that the restrictions may be removed no sooner than ratably on an annual basis during the three-year period as determined by the Board at the Date of Grant. If the earning or vesting of, or elimination of restrictions applicable to, Other Awards is based on the achievement of Management Objectives, the earning, vesting or restriction period may not terminate sooner than after one year.

10.Administration of this Plan.

(a)This Plan will be administered by the Board, which may from time to time delegate all or any part of its authority under this Plan to the Compensation and Management Development Committee or any other committee of the Board (or a subcommittee thereof), as constituted from time to time. To the extent of any such delegation, references in this Plan to the Board will be deemed to be references to such committee or subcommittee.

(b)The interpretation and construction by the Board of any provision of this Plan or of any agreement, notification or document evidencing the grant of Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or Other Awards and any determination by the Board pursuant to any provision of this Plan or of any such agreement, notification or document will be final and conclusive.

(c)To the extent permitted by Ohio law, the Board may, from time to time, delegate to one or more officers of the Company the authority of the Board to grant and determine the terms and conditions of awards granted under this Plan. In no event shall any such delegation of authority be permitted with respect to awards to any executive officer or any person subject to Section 162(m) of the Code or who is an officer, director or more than 10% beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act.

11.Adjustments. The Board shall make or provide for such adjustments in the numbers of shares of Common Stock covered by outstanding Option Rights, Appreciation Rights, Restricted Stock Units, Performance Shares, Performance Units and, if applicable, in the number of shares of Common Stock covered by outstanding Other Awards granted hereunder, in the Option Price and Base Price provided in outstanding Option Rights and Appreciation Rights, and in the kind of shares covered thereby, as the Board, in its sole discretion, shall determine is equitably required to prevent dilution or enlargement of the rights of Participants or Optionees that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Board, in its discretion, shall provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including cash), if any, as it shall determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each Option Right or Appreciation Right with an Option Price or Base Price greater than the consideration offered in connection with any such transaction or event or change of control, the Board may in its sole discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding such Option Right or Appreciation Right. The Board shall also make or provide for such adjustments in the numbers of shares specified in Section 3 of this Plan as the Board in its sole discretion shall determine is appropriate to reflect any transaction or event described in this Section 11; provided, however, that any such adjustment to the number specified in Section 3(b)(i) will be made only if and to the extent that such adjustment would not cause any option intended to qualify as an Incentive Stock Option to fail to so qualify.





12.Change of Control. Notwithstanding anything to the contrary in this Plan, the following provisions shall apply in connection with a Change of Control:

(a)Awards Assumed by Successor

(i)
Upon the occurrence of a Change of Control, any awards made under this Plan that are Assumed (as defined in Section 12(a)(v) below) by the entity effecting the Change of Control shall continue to vest and become exercisable in accordance with the terms of the original grant unless, during the three-year period commencing on the date of the Change of Control (“Post-CIC Period”):

(A)
the Participant is involuntarily terminated for reasons other than for Cause (as defined in Section 12(a)(iii) below); or

(B)
the Participant terminates his or her employment for Good Reason (as defined in Section 12(a)(iv) below).

(ii)
If a Participant’s employment is terminated as described in Section 12(a)(i) above, any outstanding Option Rights and Appreciation Rights shall become fully vested and exercisable, any restrictions that apply to awards made pursuant to this Plan shall lapse, and awards made pursuant to this Plan that are subject to Management Objectives shall immediately be earned or vest and shall become immediately payable in accordance with their terms as if 100% of the Management Objectives have been achieved, on the date of termination; provided, that any Participant who terminates his or her employment for Good Reason must:

(A)
provide the Company with a written notice of his or her intent to terminate employment for Good Reason within 60 days after the Participant becomes aware of the circumstances giving rise to Good Reason; and

(B)
allow the Company thirty days to remedy such circumstances to the extent curable.

(iii)
Solely for purposes of this Section 12(a), “Cause” shall mean that the Participant shall have:

(A)
been convicted of a criminal violation involving, in each case, fraud, embezzlement or theft in connection with Participant’s duties or in the course of Participant’s employment with the Company or any subsidiary;

(B)
committed intentional wrongful damage to property of the Company or any Subsidiary; or

(C)
committed intentional wrongful disclosure of secret processes or confidential information of the Company or any Subsidiary;

and any such act shall have been demonstrably and materially harmful to the Company. For purposes of this Plan, no act or failure to act on the part of Participant will be deemed “intentional” if it was due primarily to an error in judgment or negligence, but will be deemed “intentional” only if done or omitted to be done by Participant not in good faith and without reasonable belief that Participant’s action or omission was in the best interest of the Company.
(iv)
Solely for purposes of this Section 12(a), “Good Reason” shall mean the occurrence, during the Post-CIC Period, of any of the following events without the Participant’s written consent:

(A)
failure to elect or reelect or otherwise to maintain Participant in the office or the position, or a substantially equivalent or better office or position, of or with the Company and/or a Subsidiary (or any successor thereto by operation of law or otherwise), as the case may be, which Participant held immediately prior to a Change of Control, or the removal of Participant as a Director of the Company and/or a Subsidiary (or any successor thereto) if Participant shall have been a Director of the Company and/or a Subsidiary immediately prior to the Change of Control;

(B)
failure of the Company to remedy any of the following within 10 calendar days after receipt by the Company of written notice thereof from Participant: 1) a significant adverse change




in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company and any Subsidiary which Participant held immediately prior to the Change of Control, 2) a reduction in Participant’s Base Pay received from the Company and any Subsidiary; 3) a reduction in Participant’s Incentive Pay opportunity as compared with the Incentive Pay opportunity most recently paid prior to the Change of Control, or 4) the termination or denial of Participant’s rights to Employee Benefits or a reduction in the scope or value thereof;

(C)
the liquidation, dissolution, merger, consolidation or reorganization of the Company or the transfer of all or substantially all of its business and/or assets, unless the successor (by liquidation, merger, consolidation, reorganization, transfer or otherwise) to which all or substantially all of its business and/or assets have been transferred (by operation of law or otherwise) assumed all duties and obligations of the Company hereunder; or

(D)
the Company requires Participant to have Participant’s principal location of work changed to any location that is in excess of 30 miles from the location thereof immediately prior to the Change of Control, or requires Participant to travel away from Participant’s office in the course of discharging Participant’s responsibilities or duties hereunder at least 20% more (in terms of aggregate days in any calendar year or in any calendar quarter when annualized for purposes of comparison to any prior year) than was required of Participant in any of the three full years immediately prior to the Change of Control.

(E)
Definitions. As used in this Section 12(a),

1)
“Base Pay” means Participant’s annual base salary rate as in effect from time to time.

2)
“Incentive Pay” means an annual bonus, incentive or other payment of compensation, in addition to Base Pay, made or to be made in regard to services rendered in any year pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar agreement, policy, plan, program or arrangement (whether or not funded) of the Company or a Subsidiary, or any successor thereto. “Incentive Pay” does not include any stock option, stock appreciation, stock purchase, restricted stock, private equity, long-term incentive or similar plan, program, arrangement or grant, whether or not provided under a plan, program or arrangement described in the preceding sentence.

3)
“Employee Benefits” means the perquisites, benefits and service credit for benefits as provided under any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which the Participant is entitled to participate, including without limitation any stock option, performance share, performance unit, stock purchase, stock appreciation, savings, pension, supplemental executive retirement, or other retirement income or welfare benefit, deferred compensation, incentive compensation, group or other life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company or a Subsidiary), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs or arrangements that may be adopted hereafter by the Company or a Subsidiary, providing benefits and service credit for benefits at least as great in the aggregate as are payable thereunder immediately prior to a Change of Control.

(v)
For purposes of this Section 12(a), an award shall be considered assumed (“Assumed”) if each of the following conditions are met:

(A)
Option Rights, Appreciation Rights and Other Awards (to the extent such Other Awards are payable in cash and not subject to Management Objectives) are converted into replacement awards in a manner that complies with Section 409A of the Code;





(B)
Restricted Stock Unit and Restricted Stock awards that are not subject to Management Objectives are converted into replacement awards covering a number of shares of the entity effecting the Change of Control (or a successor or parent corporation), as determined in a manner substantially similar to the treatment of an equal number of shares of Common Stock covered by the awards; provided, that to the extent that any portion of the consideration received by holders of shares of Common Stock in the Change Control transaction is not in the form of the common stock of such entity (or a successor or parent corporation), the number of shares covered by the replacement awards shall be based on the average of the high and low selling prices of the common stock of such entity (or a successor or parent corporation) on the established stock exchange on the trading day immediately preceding the date of the Change of Control;

(C)
Performance Shares, Performance Units and all other awards subject to Management Objectives are converted into replacement awards that preserve the value of such awards at the time of the Change of Control;

(D)
the replacement awards contain provisions for scheduled vesting and treatment on termination of employment (including the definition of Cause and Good Reason) that are no less favorable to the Participant than the underlying awards being replaced, and all other terms of the replacement awards (other than the security and number of shares represented by the replacement awards) are substantially similar to, or more favorable to the Participant than, the terms of the underlying awards; and

(E)
the security represented by the replacement awards, if any, is of a class that is publicly held and widely traded on an established stock exchange.

(b)Awards Not Assumed by Successor

(i)
Upon the occurrence of a Change of Control, any awards made under this Plan that are not Assumed by the entity effecting the Change of Control shall become fully vested and exercisable on the date of the Change of Control or shall immediately vest and become immediately payable in accordance with their terms as if 100% of the applicable Management Objectives have been achieved, and any restrictions that apply to such awards shall lapse.

(ii)
For each Option Right and Appreciation Right, the Participant shall receive a payment equal to the difference between the consideration (consisting of cash or other property (including securities of a successor or parent corporation)) received by holders of Common Stock in the Change of Control transaction and the exercise price of the applicable Option Right or Appreciation Right, if such difference is positive. Such payment shall be made in the same form as the consideration received by holders of Common Stock. Any Option Rights or Appreciation Rights with an exercise price that is higher than the per share consideration received by holders of Common Stock in connection with the Change of Control shall be cancelled for no additional consideration.

(iii)
The Participant shall receive the consideration (consisting of cash or other property (including securities of a successor or parent corporation)) that such Participant would have received in the Change of Control transaction had he or she been, immediately prior to such transaction, a holder of the number of shares of Common Stock equal to the number of Restricted Stock Units and/or shares of Restricted Stock covered by the award and the number of shares of Common Stock payable under Section 12(b)(i) for awards subject to Management Objectives.

(iv)
The payments contemplated by Sections 12(b)(ii) and 12(b)(iii) shall be made at the same time as consideration is paid to the holders of the Common Stock in connection with the Change of Control.

(v)
Notwithstanding anything to the contrary in this Plan, if the Change of Control does not constitute a 409A Change of Control and the payment or benefit constitutes a deferral of compensation under Section 409A of the Code, then to the extent necessary to comply with Section 409A of the Code payment or delivery shall be made on the date of payment or delivery originally provided for such payment or benefit.





13.Recapture Provisions. Any Evidence of Award may provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Board in accordance with the Company’s Executive Adjustment and Recapture Policy, as may be amended from time to time, any successor policy or otherwise.

14.Non U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Board may provide for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America or who provide services to the Company under an agreement with a foreign nation or agency, as the Board may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Board may approve such supplements to or amendments, restatements or alternative versions of this Plan (including, without limitation, sub-plans) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of the Company.

15.Transferability.

(a)No Option Right or Appreciation Right granted under this Plan shall be transferable by the Participant except by will or the laws of descent and distribution, and in no event shall any award granted under this Plan be transferred for value. Except as otherwise determined by the Board, Option Rights and Appreciation Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law and/or court supervision.

(b)The Board may specify at the Date of Grant that part or all of the shares of Common Stock that are (i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights, upon the termination of the Restriction Period applicable to Restricted Stock Units or upon payment under any grant of Performance Shares, Performance Units or Other Awards or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 6 of this Plan, will be subject to further restrictions on transfer.

16.Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. If a Participant’s benefit is to be received in the form of Common Stock, and such Participant fails to make arrangements for the payment of tax, the Company shall withhold such shares of Common Stock having a value equal to the amount required to be withheld. Notwithstanding the foregoing, unless otherwise provided by the Board, when a Participant is required to pay the Company an amount required to be withheld under applicable income and employment tax laws, the Participant may elect to satisfy the obligation, in whole or in part, by electing to have withheld, from the shares required to be delivered to the Participant, shares of Common Stock having a value equal to the amount required to be withheld (except in the case of Restricted Stock where an election under Section 83(b) of the Code has been made), or by delivering to the Company other shares of Common Stock held by such Participant. The shares used for tax withholding will be valued at an amount equal to the real-time fair market value per share of such Common Stock at the time of exercise or vesting or when the benefit is to be included in Participant’s income. In no event shall the fair market value of the shares of Common Stock to be withheld and/or delivered pursuant to this Section to satisfy applicable withholding taxes in connection with the benefit exceed the minimum amount of taxes required to be withheld. Participants shall also make such arrangements as the Company may require for the payment of any withholding tax obligation that may arise in connection with the disposition of shares of Common Stock acquired upon the exercise of Option Rights.

17.Compliance with Section 409A of the Code.

(a)To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder shall be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.





(b)Neither a Participant nor any of a Participant’s creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants of deferred compensation hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants of deferred compensation hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its affiliates.

(c)If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the tenth business day of the month after such six-month period.

(d)For purposes of the Plan and its underlying agreements, a “409A Change in Control” means the date on which any one of the following occurs: (i) any one person, or more than one person acting as a group (as determined under Code Section 409A and the regulations promulgated thereunder), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company; or (ii) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of such appointment or election; or (iii) any one person, or more than one person acting as a group (as determined under Code Section 409A and the regulations promulgated thereunder), acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company; or (iv) any one person, or more than one person acting as a group (as determined under Code Section 409A and the regulations thereunder), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(e)Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.

18.Additional Restrictions with Respect to Qualified Performance-Based Awards.

(a)Qualified Performance-Based Awards shall be granted by a committee, which may be the Compensation and Management Development Committee or any other committee of the Board (or a subcommittee thereof), provided that such committee consists solely of two or more “outside directors” within the meaning of Section 162(m) of the Code.

(b)To the extent that a Qualified Performance-Based Award shall be based on achievement of Management Objectives, the committee shall establish and approve the Management Objectives in writing prior to the latest possible date, but in no event more than 90 days after the commencement of services to which the Management Objectives relate, that will not jeopardize the award as qualifying as “qualified performance-based compensation” under Section 162(m) of the Code.

(c)Other than in connection with the Participant’s death or disability, or a Change of Control, the terms of a Qualified Performance-Based Award may not be amended where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.





(d)In no event shall a Participant’s Qualified Performance-Based Awards exceed the Individual Participant Limits described in Section 3(c).

(e)Qualified Performance-Based Awards are intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Code and the terms relating to such awards are to be interpreted and operated accordingly.

19.Effective Date. The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan first became effective on April 20, 2006, the date immediately following the date it was approved by shareholders. The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of April 21, 2010) became effective on April 21, 2010, the date immediately following the date it was approved by shareholders. The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of February 17, 2015) shall be effective on the Effective Date. No grants have been or are permitted under The Sherwin-Williams Company 2003 Stock Plan on or after April 20, 2006.

20.Amendments.

(a)The Board may at any time and from time to time amend this Plan in whole or in part; provided, however, that if an amendment to this Plan (i) would materially increase the benefits accruing to Participants under this Plan, (ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan or (iv) must otherwise be approved by the shareholders of the Company in order to comply with applicable law or the rules of the New York Stock Exchange or, if the shares of Common Stock are not traded on the New York Stock Exchange, the principal national securities exchange upon which the shares of Common Stock are traded or quoted, then, such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained.

(b)Except in connection with a corporate transaction or event described in Section 11 of this Plan, the terms of outstanding awards may not be amended to reduce the Option Price of outstanding Option Rights or the Base Price of outstanding Appreciation Rights, or cancel outstanding Option Rights or Appreciation Rights in exchange for cash, other awards or Option Rights or Appreciation Rights with an Option Price or Base Price, as applicable, that is less than the Option Price of the original Option Rights or Base Price of the original Appreciation Rights, as applicable, without shareholder approval. This Section 20(b) is intended to prohibit the repricing of “underwater” Option Rights and Appreciation Rights and will not be construed to prohibit the adjustments provided for in Section 11 of this Plan. Notwithstanding any provision of this Plan to the contrary, this Section 20(b) may not be amended without shareholder approval.

(c)If permitted by Section 409A of the Code, but subject to the paragraph that follows, in case of termination of employment by reason of death, disability or normal or early retirement of a Participant who holds an Option Right or Appreciation Right not immediately exercisable in full, or any shares of Restricted Stock as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the Restriction Period has not been completed, or any Performance Shares or Performance Units which have not been fully earned, or any Other Awards that have not been fully earned or that are subject to any vesting schedule or transfer restriction, or who holds shares of Common Stock subject to any transfer restriction imposed pursuant to Section 15 of this Plan, or in the case of a Change of Control, the Board may, in its sole discretion, accelerate the time at which such Option Right, Appreciation Right or other award may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time at which such Performance Shares or Performance Units will be deemed to have been fully earned or the time when such Other Awards shall be deemed to have been fully earned or vested or that such transfer restriction will terminate or may waive any other limitation or requirement under any such award.

Subject to Section 20(b) hereof, the Board may amend the terms of any award theretofore granted under this Plan prospectively or retroactively, except in the case of a Qualified Performance-Based Award (other than in connection with the Participant’s death or disability, or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such case, the Board will not make any modification of the Management Objectives or the level or levels of achievement with respect to such Qualified Performance-Based Award. Subject to Section 11 above, no such amendment shall impair the rights of any Participant without his or her consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.
21.Termination. No grant will be made under this Plan after April 20, 2020 (more than 10 years after the date on which this Plan was first approved by the shareholders of the Company), but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.





22.Governing Law. This Plan and all grants and awards and actions taken thereunder shall be governed by and construed in accordance with the internal substantive laws of the State of Ohio.

23.Miscellaneous Provisions.

(a)The Company will not be required to issue any fractional shares of Common Stock pursuant to this Plan. The Board may provide for the elimination of fractions or for the settlement of fractions in cash.

(b)This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.

(c)To the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of this Plan.

(d)No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or stock thereunder, would be, in the opinion of counsel selected by the Board, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan.

(e)Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries shall not be considered interruption or termination of service of any employee for any purposes of this Plan or awards granted hereunder; however, in no event will an award be granted to a Participant whom is on a long-term leave of absence.

(f)No Participant shall have any rights as a stockholder with respect to any shares subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such shares upon the stock records of the Company.

(g)The Board may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant.

(h)Participants shall provide the Company with a written election form setting forth the name and contact information of the person who will have beneficial ownership rights upon the death of the Participant.

(i)If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Board, such provision shall be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Board, it shall be stricken and the remainder of this Plan shall remain in full force and effect.




EXHIBIT 10(ee)


THE SHERWIN-WILLIAMS COMPANY
2006 EQUITY AND PERFORMANCE INCENTIVE PLAN
(AMENDED AND RESTATED AS OF FEBRUARY 17, 2015)

Restricted Stock Units Award Agreement

Grantee: ________________________________________        Date of Grant: __________________________        
Date of Vesting: ________________________    

Number of Time-Based Restricted Stock Units (“Time-Based RSUs”): _______________________________________
Target number of Performance-Based RSUs (“Target PRSUs”): _______________________________________        
Total number of Restricted Stock Units (“Total RSUs”):      _______________________________________        

1.Grant of Restricted Stock Units. The Board of Directors (the “Board”) of The Sherwin-Williams Company (the “Company”) or its delegate has granted to you (“Grantee”) the Restricted Stock Units awards (the “RSUs”) set forth above in accordance with the terms of this Restricted Stock Units Award Agreement (this “Agreement”) and the terms of The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (Amended and Restated as of February 17, 2015) (the “Plan”), the related Prospectus and any Prospectus Supplement, and such other rules and procedures as may be adopted by the Company. The Total RSUs consist of the Time-Based RSUs and Target PRSUs, as set forth above. Capitalized terms used herein without definition or other identification shall have the meanings assigned to them in the Plan.

2.Vesting of PRSUs and Time-Based RSUs.

(A)    Vesting of Performance-Based RSUs. Subject to Sections 3 and 5 hereof, provided Grantee is continuously employed with the Company or a Subsidiary from the Date of Grant through the Date of Vesting, inclusive (the “Restriction Period”), in Grantee’s present position or in such other position, as the Board may determine entitles, Grantee to retain the rights under this grant (each such position being hereinafter referred to as a “Participating Position”), a percentage ranging from 0% to 200% of the Target PRSUs shall become nonforfeitable (“Vested,” “Vested PRSUs” or similar terms) in accordance with the relative level of achievement of the Management Objective set forth below (the “Vesting Percentage”) and shall be settled in accordance with the terms of Section 4 hereof. The determination of the Vesting Percentage shall be made after such time as the Board has obtained the information, made the decisions, and completed the calculations necessary to make such determination. The Vesting Percentage is based upon the Company’s Earnings Per Share (“Cumulative EPS”) during the three-year period ending on December 31 of the most recently completed fiscal year prior to the Date of Vesting (the “Measurement Period”), as determined in accordance with the following table:
Cumulative EPS
Vesting Percentage
Equal to or greater than $
200%
$
100%
Less than $
0%
When the Cumulative EPS results during the Measurement Period fall between the table values, straight-line mathematical interpolation will be used to determine the Vesting Percentage calculated to the nearest hundredth of a percentage. The manner in which the Board will determine Cumulative EPS during the Measurement Period is set forth on Exhibit A attached hereto.
(B)    Vesting of Time-Based RSUs. Subject to Sections 3 and 5 hereof, provided Grantee is continuously employed with the Company or a Subsidiary in Grantee’s present position or in a different Participating Position during the Restriction Period, the Time-Based RSUs shall immediately Vest in full on the Date of Vesting.
3.Change of Control. Notwithstanding Section 2 above, in the event of a Change of Control, the Total RSUs shall Vest on fulfillment of the conditions specified in Section 12 of the Plan.









4.Settlement of RSUs.

(A)    General. Subject to Sections 4(B) and 4(C), and as soon as administratively practicable following (but no later than thirty (30) days following) the Date of Vesting, the Company shall issue Grantee one share of Common Stock free and clear of any restrictions for each Vested PRSU and each Vested Time-Based RSU.
(B)    Other Payment Events for Vested PRSUs. Notwithstanding Section 4(A), the Vested PRSUs shall be settled prior to the date set forth under Section 4(A) as follows:
(i)    Death. To the extent that there are Vested PRSUs, the Company shall issue Grantee one share of Common Stock free and clear of any restrictions for each Vested PRSU within thirty (30) days of the date of Grantee’s death.
(ii)    Disability. To the extent that there are Vested PRSUs, the Company shall issue Grantee one share of Common Stock free and clear of any restrictions for each Vested PRSU within thirty (30) days of the date on which Grantee becomes Disabled.
(iii)    Change of Control. In the event of a Change of Control, Vested PRSUs shall be settled in accordance with Section 12 of the Plan. Notwithstanding any provision of this Agreement or the Plan to the contrary, if Section 409A of the Code applies to the payment and Grantee experiences a termination of employment after the Change of Control resulting in Vested PRSUs under Section 12 of the Plan, Grantee is entitled to receive settlement of any Vested PRSUs under Section 12 of the Plan on the date that would have otherwise applied pursuant to Sections 4(A), 4(B)(i) or 4(B)(ii) as though such Change of Control had not occurred. Notwithstanding any provision of this Agreement or the Plan to the contrary and to the extent required to comply with Section 409A, if any Target PRSU is Assumed, any outstanding Target PRSUs which at the time of the Change of Control are not subject to a “substantial risk of forfeiture” (within the meaning of Section 409A of the Code) will be deemed to be not Assumed and will be payable in accordance with Section 12(b) of the Plan.
(C)    Other Payment Events for Time-Based RSUs. Notwithstanding Section 4(A), the Time-Based RSUs shall be settled prior to the date set forth under Section 4(A) as follows:
(i)    Death. To the extent that the Time-Based RSUs are Vested, the Company shall issue Grantee one share of Common Stock free and clear of any restrictions for each Vested Time-Based RSU within thirty (30) days of the date of Grantee’s death.
(ii)    Disability. To the extent that the Time-Based RSUs are Vested, the Company shall issue Grantee one share of Common Stock free and clear of any restrictions for each Vested Time-Based RSU within thirty (30) days of the date on which Grantee becomes Disabled (as hereinafter defined).
(iii)    Change of Control. In the event of a Change of Control, Vested Time-Based RSUs shall be settled in accordance with Section 12 of the Plan. Notwithstanding any provision of this Agreement or the Plan to the contrary, if Section 409A of the Code applies to the payment and Grantee experiences a termination of employment after the Change of Control resulting in Time-Based RSUs becoming Vested under Section 12 of the Plan, Grantee is entitled to receive settlement of any Vested Time-Based RSUs under Section 12 of the Plan on the date that would have otherwise applied pursuant to Sections 4(A), 4(C)(i), or 4(C)(ii) as though such Change of Control had not occurred. Notwithstanding any provision of this Agreement or the Plan to the contrary and to the extent required to comply with Section 409A, if any Time-Based RSU is Assumed, any outstanding Time-Based RSUs which at the time of the Change of Control are not subject to a “substantial risk of forfeiture” (within the meaning of Section 409A of the Code) will be deemed to be not Assumed and will be payable in accordance with Section 12(b) of the Plan.
5.Termination of Rights to Total RSUs. Notwithstanding anything herein to the contrary:

(A)    On the date Grantee ceases to be continuously employed in any Participating Position(s) at any time during the Restriction Period, the Total RSUs shall be forfeited and Grantee shall forfeit and lose all rights to the Total RSUs that are not Vested as of such date, except as otherwise provided below:




(i)     In the event of the death of Grantee during the Restriction Period, (a) 100% of the Time-Based RSUs shall immediately Vest, and (b) the greater of (I) 100% of the Target PRSUs or (II) the Vesting Percentage of the Target PRSUs based on the actual Cumulative EPS measured as of the end of the last completed fiscal quarter preceding the date of Grantee’s death and the projected forecast of Cumulative EPS over the remaining Restriction Period, shall immediately be Vested.
(ii)    In the event Grantee becomes Disabled, (a) 100% of the Time-Based RSUs shall immediately Vest, and (b) the greater of (I) 100% of the Target PRSUs or (II) the Vesting Percentage of the Target PRSUs based on the actual Cumulative EPS measured as of the end of the last completed fiscal quarter preceding the date on which Grantee becomes Disabled and the projected forecast of Cumulative EPS over the remaining Restriction Period, shall immediately be Vested. “Disabled” shall mean that Grantee (x) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (y) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.
(iii)    In the event Grantee’s employment terminates as a result of Retirement, all rights of Grantee under this grant with respect to the Time-Based RSUs and the Target PRSUs shall continue as if Grantee had continued employment in a Participating Position, and the Vesting Percentage of the Target PRSUs will be determined as if Grantee had remained employed in a Participating Position throughout the Restriction Period. “Retirement” shall be defined as: (x) the attainment of age 65; (y) the attainment of age 55-59 with at least twenty (20) years of service with the Company or a Subsidiary; or (z) the attainment of age 60 or older and the Grantee’s combination of age and service with the Company or any Subsidiary equals at least 75.
(B)    With respect to a Grantee that is a corporate officer and operating management, in the event Grantee is transferred from a Participating Position, the Board shall have the right to cancel Grantee’s rights hereunder, continue Grantee’s rights hereunder in full, or prorate the number of Total RSUs evidenced hereby for the portion of the Restriction Period completed as of the date of such transfer or as the Board may otherwise deem appropriate. In the event Grantee’s rights hereunder continue in full or the number of Total RSUs is prorated, the other requirements for Vesting will continue to apply, including that Grantee remain continuously employed by the Company or a Subsidiary through the Date of Vesting, subject to earlier Vesting pursuant to Sections 3 and 5(A). Any such Award will be settled in accordance with Section 4.
(C)    In the event that Grantee knowingly or willfully engages in misconduct during the Restriction Period, which is materially harmful to the interests of the Company or a Subsidiary as determined by the Board, all rights of Grantee to the RSUs shall terminate.
6.Dividend Equivalents; Other Rights. From and after the Date of Grant and until the earlier of (A) the time when the RSUs Vest and are settled in accordance with Section 4 hereof or (B) the time when Grantee’s rights to the RSUs are forfeited in accordance with Section 5 hereof, on the date that the Company pays a cash dividend (if any) to holders of Common Stock generally, Grantee shall be entitled to a deferred cash payment equal to the value of the product of (x) the dollar amount of the cash dividend paid per share of Common Stock on such date and (y) the sum of (I) the full number of Time-Based RSUs and (II) 200% of the Target PRSUs; however, such dividend equivalents (if any) shall be paid in cash, and shall be subject to such other applicable terms and conditions (including payment or forfeitability) as the RSUs based on which the dividend equivalents were credited. The obligations of the Company hereunder will be merely that of an unfunded and unsecured promise of the Company to deliver shares of Common Stock in the future, and the rights of Grantee will be no greater than that of an unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company hereunder.

7.No Shareholder/Voting Rights. Grantee will not be a shareholder of record and shall have no voting rights with respect to shares of Common Stock underlying an RSU prior to the Company’s issuance of such shares following the Date of Vesting or the otherwise applicable settlement date.

8.Transferability. During the Restriction Period, Grantee shall not be permitted to sell, transfer, pledge, encumber, assign or dispose of the RSUs.





9.Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with the RSUs or the underlying shares of Common Stock, Grantee shall pay or make provision satisfactory to the Company for payment of all such taxes. Notwithstanding any other provision of this Agreement or the Plan, the Company shall not be obligated to guarantee any particular tax result for Grantee with respect to any payment provided to Grantee hereunder, and Grantee shall be responsible for any taxes imposed on Grantee with respect to any such payment.

10.No Right to Future Awards or Employment. The grant is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a commitment to make any future awards. The grant and any related payments made to Grantee will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing contained herein will confer upon Grantee any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate Grantee’s employment or other service at any time.

11.Nature of Grant. Grantee acknowledges that (A) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty and (B) in consideration of the grant of the RSUs, no claim or entitlement to compensation or damages shall arise from termination of the RSUs or diminution in value of the shares received upon settlement including (without limitation) any claim or entitlement resulting from termination of Grantee’s active employment by the Company or a Subsidiary (for any reason whatsoever and whether or not in breach of local labor laws) and Grantee hereby releases the Company and its Subsidiaries from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the RSUs and this Agreement, Grantee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.

12.Severability. If any provision of this grant or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this grant and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.

13.Governing Law. This grant shall be governed by and construed with the internal substantive laws of the State of Ohio, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.

14.Application of The Sherwin-Williams Company Executive Compensation Adjustment and Recapture Policy. Grantee acknowledges and agrees that the terms and conditions set forth in The Sherwin-Williams Company Executive Compensation Adjustment and Recapture Policy (“Policy”) are incorporated in this Agreement by reference. To the extent the Policy is applicable to Grantee, it creates additional rights for the Company with respect to Grantee’s RSUs.

15.Data Privacy. Grantee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Grantee’s personal data as described in this document by and among, as applicable, Grantee’s employer (“Employer”) and the Company and its Subsidiaries, for the exclusive purpose of implementing, administering and managing Grantee’s participation in the Plan. Grantee understands that Employer and the Company and its Subsidiaries hold (but only process or transfer to the extent required or permitted by local law) the following personal information about Grantee: Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Common Stock or directorships held in the Company, details of all RSUs or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in Grantee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). Grantee understands that Data may be transferred to third parties assisting in the implementation, administration and management of the Plan, including Fidelity Stock Plan Service LLC, that these recipients may be located in Grantee’s country or elsewhere (including countries outside of the European Union or the European Economic Area, such as the United States of America), and that the recipient’s country may have different data privacy laws and protections than those that apply in Grantee’s country. Grantee understands that Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting Grantee’s local human resources representative. Grantee authorizes these recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Grantee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom Grantee may elect to deposit any shares acquired upon vesting or earning of the RSUs. Grantee understands that Data will be held only as long as is necessary to implement, administer and manage Grantee’s participation in the Plan and in accordance with local law. Grantee understands that Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Grantee’s local human resources representative. Grantee understands, however, that refusing or withdrawing Grantee’s consent may affect Grantee’s ability to participate in the Plan. For more information on the consequences of Grantee’s refusal to




consent or withdrawal of consent, Grantee hereby understands that Grantee may contact his or her local human resources representative.

16.Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the RSUs and Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

17.Compliance with Section 409A of the Code. To the extent applicable, it is intended that this Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) do not apply to Grantee. This Agreement and the Plan shall be administered in a manner consistent with this intent. Reference to Section 409A of the Code is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. If, at the time of Grantee’s separation from service (within the meaning of Section 409A of the Code), (A) Grantee shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (B) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the settlement of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not settle such amount on the otherwise scheduled settlement date but shall instead settle it, without interest, on the first business day of the month after such six-month period.









































Exhibit A



Cumulative Earnings Per Share shall be equal to the sum of the Earnings Per Share (“EPS”) (less those items relating to extraordinary events or which result in a distortion of comparative results) for each fiscal year of the Company during the Measurement Period.

Example:

Year 1 EPS
$4.00
Year 2 EPS
$4.20
Year 3 EPS
$4.40
Cumulative EPS
$12.60


Cumulative EPS = $12.60









EXHIBIT 10(hh)

THE SHERWIN-WILLIAMS COMPANY

2006 Stock Plan For Nonemployee Directors
(Amended and Restated as of February 17, 2015)

1.    Purpose. The purpose of this 2006 Stock Plan for Nonemployee Directors (Amended and Restated as of February 17, 2015) is to attract and retain Nonemployee Directors of The Sherwin-Williams Company.

2.    Definitions. As used in this Plan,

(a)    “Appreciation Right” means a right granted pursuant to Section 5 of this Plan.

(b)    “Base Price” means the price to be used as the basis for determining the Spread upon the exercise of an Appreciation Right.

(c)    “Board” means the Board of Directors of the Company and, to the extent of any delegation by the Board to a committee (or subcommittee thereof) pursuant to Section 8 of this Plan, such committee (or subcommittee).

(d)    “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(e)    “Common Stock” means Common Stock, par value $1.00 each, of the Company or any security into which such shares of Common Stock may be changed by reason of any transaction or event of the type referred to in Section 9 of this Plan.

(f)    “Company” means The Sherwin-Williams Company, an Ohio corporation, and its successors.

(g)    “Date of Grant” means the date specified by the Board on which a grant of Option Rights or Appreciation Rights, or a grant or sale of Restricted Stock or Restricted Stock Units, will become effective (which date will not be earlier than the date on which the Board takes action with respect thereto).

(h)    “Effective Date” means February 17, 2015.

(i)    “Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or other evidence that sets forth the terms and conditions of Option Rights, Appreciation Rights, or a grant or sale of Restricted Stock or Restricted Stock Units. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and records of the Company and need not be signed by a representative of the Company or a Participant.

(j)    “Market Value Per Share” means, as of any particular date, the average of the highest and lowest reported sales prices of the Common Stock during normal trading hours on the New York Stock Exchange Composite Tape or, if not listed on such exchange, on any other national securities exchange on which the Common Stock is listed. If there is no regular public trading market for such Common Stock, the Market Value Per Share of the Common Stock shall be determined by the Board.

(k)    “Nonemployee Director” means a member of the Board of Directors of the Company, who is not an employee of the Company.

(l)    “Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option Right.

(m)    “Option Price” means the purchase price payable on exercise of an Option Right.

(n)    “Option Right” means the right to purchase shares of Common Stock upon exercise of an option granted pursuant to Section 4 of this Plan.

(o)    “Participant” means a person who is selected by the Board to receive benefits under this Plan and who is at the time a Nonemployee Director.





(p)    “Plan” means The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors, as may be amended or amended and restated from time to time.

(q)    “Restricted Stock” means shares of Common Stock granted or sold pursuant to Section 6 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfer has expired.

(r)    “Restriction Period” means the period of time during which Restricted Stock Units are subject to restrictions, as provided in Section 7 of this Plan.

(s)    “Restricted Stock Unit” means an award made pursuant to Section 7 of this Plan of the right to receive shares of Common Stock or cash at the end of a specified period.

(t)    “Spread” means the excess of the Market Value Per Share on the date when an Appreciation Right is exercised over the Base Price provided for in the Appreciation Right.

(u)    “Subsidiary” means a corporation, company or other entity (i) at least 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but at least 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company.

3.    Shares Subject to this Plan.

(a)    Maximum Shares Available Under Plan.

(i)    Subject to adjustment as provided in Section 9 of this Plan, the number of shares of Common Stock that may be issued or transferred (A) upon the exercise of Option Rights or Appreciation Rights; (B) as Restricted Stock and released from substantial risks of forfeiture thereof; (C) in payment of Restricted Stock Units; or (D) in payment of dividend equivalents paid with respect to Restricted Stock Units will not exceed in the aggregate 200,000 shares of Common Stock, plus any shares of Common Stock relating to awards that expire or are forfeited or are cancelled under this Plan. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing.

(ii)    Shares of Common Stock covered by an award granted under this Plan shall not be counted as used unless and until they are actually issued and delivered to a Participant. Without limiting the generality of the foregoing, upon payment in cash of the benefit provided by any award granted under this Plan, any shares of Common Stock that were covered by that award will be available for issue or transfer hereunder. Notwithstanding anything to the contrary contained herein: (A) shares of Common Stock tendered in payment of the Option Price of a Option Right shall not be added to the aggregate plan limit described above; (B) shares of Common Stock that are repurchased by the Company with Option Right proceeds shall not be added to the aggregate plan limit described above; and (C) all shares of Common Stock covered by an Appreciation Right, to the extent that it is exercised and settled in shares of Common Stock, and whether or not shares of Common Stock are actually issued to the Participant upon exercise of the right, shall be considered issued or transferred pursuant to this Plan.

(b)    Restricted Stock and Restricted Stock Units Limit. Notwithstanding anything in this Section 3, or elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 9 of this Plan, the aggregate number of shares of Common Stock issued as Restricted Stock (and released from substantial risks of forfeiture) or Restricted Stock Units shall not exceed 200,000.

4.    Option Rights. The Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of options to purchase shares of Common Stock. Each such grant will be subject to all of the requirements contained in the following provisions:

(a)    Each grant will specify the number of shares of Common Stock to which it pertains subject to the limitations set forth in Section 3 of this Plan.





(b)    Each grant will specify an Option Price per share, which may not be less than the Market Value Per Share on the Date of Grant.

(c)    Each grant will specify whether the Option Price will be payable (i) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company of shares of Common Stock owned by the Optionee having a value at the time of exercise equal to the total Option Price, (iii) by a combination of such methods of payment, or (iv) by such other methods as may be approved by the Board.

(d)    To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the shares to which such exercise relates.

(e)    Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised.

(f)    Each grant will specify the period or periods of continuous service by the Optionee with the Company that is necessary before the Option Rights or installments thereof will become exercisable. A grant of Option Rights may provide for the earlier exercise of such Option Rights in the event of death or disability of the Participant.

(g)    No Option Right will be exercisable more than 10 years from the Date of Grant.

(h)    Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award shall be subject to this Plan and shall contain such terms and provisions, consistent with this Plan, as the Board may approve.

5.    Appreciation Rights. The Board may also authorize the granting Appreciation Rights to any Participant. An Appreciation Right will be a right of the Participant to receive from the Company an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise. Each grant of Appreciation Rights will be subject to all of the requirements contained in the following provisions:

(a)    Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by the Company in cash, in shares of Common Stock or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives.

(b)    Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Board at the Date of Grant.

(c)    Any grant may specify waiting periods before exercise and permissible exercise dates or periods.

(d)    Any grant may specify that such Appreciation Right may be exercised only in the event of, or earlier in the event of, death or disability of the Participant.

(e)    Each grant of Appreciation Rights will specify a Base Price, which may not be less than the Market Value Per Share on the Date of Grant.

(f)    Successive grants may be made to the same Participant regardless of whether any Appreciation Rights previously granted to the Participant remain unexercised.

(g)    No Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant.

(h)    Each grant of Appreciation Rights will be evidenced by an Evidence of Award, which Evidence of Award will describe such Appreciation Rights, and contain such other terms and provisions, consistent with this Plan, as the Board may approve.

6.    Restricted Stock. The Board may also authorize the grant or sale of Restricted Stock to Participants. Each such grant or sale will be subject to all of the requirements contained in the following provisions:





(a)    Each such grant or sale will constitute an immediate transfer of the ownership of shares of Common Stock to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to.

(b)    Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value Per Share at the Date of Grant.

(c)    Each such grant or sale will provide that the Restricted Stock covered by such grant or sale will be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Board at the Date of Grant and may provide for the earlier lapse of such substantial risk of forfeiture as provided in Section 6(e) below or in the event of death or disability of the Participant.

(d)    Each such grant or sale will provide that during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Stock will be prohibited or restricted in the manner and to the extent prescribed by the Board at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee).

(e)    Any such grant or sale of Restricted Stock may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional shares of Restricted Stock, which may be subject to the same restrictions as the underlying award.

(f)    Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Board may approve. Unless otherwise directed by the Board, all certificates representing shares of Restricted Stock will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such Shares.

7.    Restricted Stock Units. The Board may also authorize the granting or sale of Restricted Stock Units to Participants. Each such grant or sale will be subject to all of the requirements contained in the following provisions:

(a)    Each such grant or sale will constitute the agreement by the Company to deliver shares of Common Stock or cash to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the Restriction Period as the Board may specify.

(b)    Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value Per Share at the Date of Grant.

(c)    Each such grant or sale will be subject to a Restriction Period, as determined by the Board at the Date of Grant, and may provide for the earlier lapse or other modification of such Restriction Period in the event of death or disability of the Participant.

(d)    During the Restriction Period, the Participant will have no right to transfer any rights under his or her award and will have no rights of ownership in the Restricted Stock Units and will have no right to vote them, but the Board may at the Date of Grant, authorize the payment of dividend equivalents on such Restricted Stock Units on either a current, deferred or contingent basis, either in cash or in additional shares of Common Stock.

(e)    Each grant or sale will specify the time and manner of payment of Restricted Stock Units that have been earned. Any grant or sale may specify that the amount payable with respect thereto may be paid by the Company in cash, in shares of Common Stock or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives.

(f)    Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Board may approve.








8.    Administration of this Plan.

(a)    This Plan will be administered by the Board, which may from time to time delegate all or any part of its authority under this Plan to the Compensation and Management Development Committee or any other committee of the Board (or a subcommittee thereof), as constituted from time to time. To the extent of any such delegation, references in this Plan to the Board will be deemed to be references to such committee or subcommittee.

(b)    The interpretation and construction by the Board of any provision of this Plan or of any agreement, notification or document evidencing the grant of Option Rights, Appreciation Rights, Restricted Stock or Restricted Stock Units and any determination by the Board pursuant to any provision of this Plan or of any such agreement, notification or document will be final and conclusive.

9.    Adjustments. The Board shall make or provide for such adjustments in the numbers of shares of Common Stock covered by outstanding Option Rights, Appreciation Rights and Restricted Stock Units granted hereunder, in the Option Price and Base Price provided in outstanding Appreciation Rights, and in the kind of shares covered thereby, as the Board, in its sole discretion, shall determine is equitably required to prevent dilution or enlargement of the rights of Participants or Optionees that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (b) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Board, in its discretion, shall provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including cash), if any, as it shall determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each Option Right or Appreciation Right with an Option Price or Base Price greater than the consideration offered in connection with any such transaction or event or change of control, the Board may in its sole discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding such Option Right or Appreciation Right. The Board shall also make or provide for such adjustments in the numbers of shares specified in Section 3 of this Plan as the Board in its sole discretion shall determine is appropriate to reflect any transaction or event described in this Section 9.

10.    Non U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Board may provide for such special terms for awards to Participants who are foreign nationals or who reside outside of the United States of America as the Board may consider necessary or appropriate to accommodate differences in local law, tax policy or custom.

11.    Transferability.

(a)    No Option Right or Appreciation Right granted under this Plan shall be transferable by the Participant except by will or the laws of descent and distribution. Except as otherwise determined by the Board, Option Rights and Appreciation Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law and/or court supervision.

(b)    The Board may specify at the Date of Grant that part or all of the shares of Common Stock that are (i) to be issued or transferred by the Company upon the exercise of Option Rights or Appreciation Rights or upon the termination of the Restriction Period applicable to Restricted Stock Units or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to in Section 6 of this Plan, will be subject to further restrictions on transfer.

12.    Compliance with Section 409A of the Code.

(a)    To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder shall be administrated in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.





(b)    Neither a Participant nor any of a Participant’s creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants of deferred compensation hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants of deferred compensation hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its affiliates.

(c)    Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.

13.    Effective Date. The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors first became effective on April 20, 2006, the date immediately following the date it was approved by shareholders. The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors (Amended and Restated as of February 17, 2015) shall be effective on the Effective Date. No grants have been or will be made under The Sherwin-Williams Company 1997 Stock Plan for Nonemployee Directors on or after April 20, 2006.

14.    Amendments.

(a)    The Board may at any time and from time to time amend this Plan in whole or in part; provided, however, that if an amendment to this Plan (i) would materially increase the benefits accruing to Participants under this Plan, (ii) would materially increase the number of securities which may be issued under this Plan, (iii) would materially modify the requirements for participation in this Plan or (iv) must otherwise be approved by the shareholders of the Company in order to comply with applicable law or the rules of the New York Stock Exchange or, if the shares of Common Stock are not traded on the New York Stock Exchange, the principal national securities exchange upon which the shares of Common Stock are traded or quoted, then, such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained.

(b)    The Board will not, without the further approval of the shareholders of the Company, authorize the amendment of any outstanding Option Right to reduce the Option Price. Furthermore, no Option Right will be cancelled and replaced with awards having a lower Option Price without further approval of the shareholders of the Company. This Section 14(b) is intended to prohibit the repricing of “underwater” Option Rights and will not be construed to prohibit the adjustments provided for in Section 9 of this Plan.

(c)    Subject to Section 15(b) hereof, the Board may amend the terms of any award theretofore granted under this Plan prospectively or retroactively. Subject to Section 9 above, no such amendment shall impair the rights of any Participant without his or her consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.

15.    Termination. No grant will be made under this Plan more than 10 years after the date on which this Plan was first approved by the shareholders of the Company, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.

16.    Governing Law. This Plan and all grants and awards and actions taken thereunder shall be governed by and construed in accordance with the internal substantive laws of the State of Ohio.

17.    Miscellaneous Provisions.

(a)    The Company will not be required to issue any fractional shares of Common Stock pursuant to this Plan. The Board may provide for the elimination of fractions or for the settlement of fractions in cash.





(b)    This Plan will not confer upon any Participant any right with respect to continuance of service as Director with the Company, nor will it interfere in any way with any right the Company would otherwise have to terminate such Participant’s service at any time.

(c)    Unless otherwise determined by the Board, if a Nonemployee Director subsequently becomes an employee of the Company or Subsidiary while remaining a member of the Board, any Option Rights, Appreciation Rights, Restricted Stock or Restricted Stock Units held under the Plan by such individual at the time of such commencement of employment will not be effected hereby.

(d)    No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or stock thereunder, would be, in the opinion of counsel selected by the Board, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan.

(e)    No Participant shall have any rights as a stockholder with respect to any shares subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such shares upon the stock records of the Company.

(f)    The Board may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive compensation otherwise payable by the Company to the Participant.

(g)    Participants shall provide the Company with a written election form setting forth the name and contact information of the person who will have beneficial ownership rights upon the death of the Participant.

(h)    If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Board, such provision shall be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Board, it shall be stricken and the remainder of this Plan shall remain in full force and effect.




EXHIBIT 10(ii)

THE SHERWIN-WILLIAMS COMPANY
2006 STOCK PLAN FOR NONEMPLOYEE DIRECTORS
(AMENDED AND RESTATED AS OF FEBRUARY 17, 2015)

Restricted Stock Units Award Agreement

Grantee: ____________________________                Date of Grant: ________________________        
Aggregate Number of RSUs: ____________        

RSUs Vesting: _______________________                Date of Vesting: _______________________        
RSUs Vesting: _______________________                Date of Vesting: _______________________        
RSUs Vesting: _______________________                Date of Vesting: _______________________        

1.Grant of Restricted Stock Units. The Board of Directors (the “Board”) of The Sherwin-Williams Company (the “Company”) grants to you (“Grantee”) the aggregate number of Restricted Stock Units (the “RSUs”) set forth above in accordance with the terms hereof (this “Agreement”) and the terms of The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors (Amended and Restated as of February 17, 2015) (the “Plan”). Capitalized terms used herein without definition shall have the meanings assigned to them in the Plan.

2.Vesting of RSUs. (A) The RSUs shall become nonforfeitable (“Vest” or similar terms) to the extent of one-third of the RSUs after Grantee has continuously served as a member of the Board for one full year from the Date of Grant and additional one-third of the RSUs after each of the next two successive full years thereafter during which Grantee shall have continuously served as a member of the Board (the “Restriction Period”). Each one-year anniversary of the Date of Grant shall be the “Date of Vesting” for the portion of RSUs that become Vested on such date in accordance with the foregoing.

(B)    Notwithstanding Section 2(A) above, in the event of a “Change of Control” of the Company, as defined below, during the Restriction Period the full number of the RSUs shall immediately Vest.
3.Change of Control. A “Change of Control” shall mean the occurrence of any of the following events:

(A)    any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) is or become the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the combined voting power of the then-outstanding voting stock of the Company; provider, however, that:
(i)    for purposes of this Section 3, the following acquisitions will not constitute a Change in Control: (1) any acquisition of voting stock directly from Company that is approved by a majority of the Incumbent Directors, (2) any acquisition of voting stock by Company or any Subsidiary, (3) any acquisition of voting stock by the trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by Company or any Subsidiary, and (4) any acquisition of voting stock by any Person pursuant to a Business Transaction that complies with clauses (1), (2) and (3) of Section 3(A)(iii) below;
(ii)    if any Person is or becomes the beneficial owner of 30% or more of combined voting power of the then-outstanding voting stock as a result of a transaction described in clause (1) of Section 3(A)(i) above and such Person thereafter becomes the beneficial owner of any additional shares of voting stock representing 1% or more of the then-outstanding voting stock, other than in an acquisition directly from Company that is approved by a majority of the Incumbent Directors or other than as a result of a stock dividend, stock split or similar transaction effected by Company in which all holders of voting stock are treated equally, such subsequent acquisition shall be treated as a Change in Control; or
(iii)    a Change in Control will not be deemed to have occurred if a Person is or becomes the beneficial owner of 30% or more of the voting stock as a result of a reduction in the number of shares of voting stock outstanding pursuant to a transaction or series of transactions that is approved by a majority of the Incumbent Directors unless and until such Person thereafter becomes the beneficial owner of any additional shares of voting stock representing 1% or more of the then-outstanding voting stock, other than as a result of a stock dividend, stock split or similar transaction effected by Company in which all holders of voting stock are treated equally; and




(iv)    if at least a majority of the Incumbent Directors determine in good faith that a Person has acquired beneficial ownership of 30% or more of the voting stock inadvertently, and such Person divests as promptly as practicable but no later than the date, if any, set by the Incumbent Board a sufficient number of shares so that such Person beneficially owns less than 30% of the voting stock, then no Change in Control shall have occurred as a result of such Person’s acquisition; or
(B)    a majority of the Board ceases to be comprised of Incumbent Directors; or
(C)     the consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of Company or the acquisition of the stock or assets of another corporation, or other transaction (each, a “Business Transaction”), unless, in each case, immediately following such Business Transaction (1) the voting stock outstanding immediately prior to such Business Transaction continues to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity or any parent thereof), more than 50% of the combined voting power of the then outstanding shares of voting stock of the entity resulting from such Business Transaction (including, without limitation, an entity which as a result of such transaction owns Company or all or substantially all of Company’s assets either directly or through one or more subsidiaries), (2) no Person (other than Company, such entity resulting from such Business Transaction, or any employee benefit plan (or related trust) sponsored or maintained by Company, any Subsidiary or such entity resulting from such Business Transaction) beneficially owns, directly or indirectly, 30% or more of the combined voting power of the then outstanding shares of voting stock of the entity resulting from such Business Transaction, and (3) at least a majority of the members of the board of directors of the entity resulting from such Business Transaction were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Transaction; or
(D)    approval by the shareholders of Company of a complete liquidation or dissolution of Company, except pursuant to a Business Transaction that complies with clauses (1), (2) and (3) of Section 3(C).
For purposes of this Section 3, the term “Incumbent Directors” shall mean, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new director (other than a director initially elected or nominated as a director as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies by or on behalf of such director) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved.
4.Settlement of RSUs. Upon satisfaction of the Vesting requirements set forth in Section 2 or 5(A) hereof, and as soon as administratively practicable following (but no later than thirty (30) days following) the respective Date of Vesting or, if earlier, the otherwise applicable Vesting date, the Company shall issue Grantee one share of Common Stock free and clear of any restrictions for each Vested RSU. Notwithstanding any provision to the contrary in this Agreement, if a Change of Control occurs and such Change of Control would not qualify as a permissible date of distribution under Section 409A(a)(2)(A) of the Code, and the regulations thereunder, and where Section 409A of the Code applies to the settlement of the Vested RSUs, Grantee is entitled to receive the corresponding payment in settlement of the Vested RSUs on the date that would have otherwise applied as though such Change of Control had not occurred

5.Termination of Rights to RSUs. Notwithstanding anything herein to the contrary:

(A)    On the date Grantee ceases to be a member of the Board at any time during the Restriction Period, any portion of the RSUs that are not Vested as of such date shall be forfeited and Grantee shall forfeit and lose all rights to any portion of the RSUs that are not Vested as of such date, except as otherwise provided below:
(i)    In the event of the death of Grantee during the Restriction Period, the full number of RSUs shall immediately Vest.
(ii)    In the event Grantee becomes “Disabled” due to sickness or bodily injury during the Restriction Period, the full number of RSUs shall immediately Vest. The term “Disabled” as used herein means permanent and total disability within the meaning of Treasury Regulations section 1.409A-3(i)(4)(i)(A), as the same has been or may be amended from time to time.
(iii)    In the event Grantee ceases to be a member of the Board by reason of Retirement, all rights of Grantee hereunder shall continue as if Grantee had continued as a member of the Board, and the settlement of the Vested RSUs will occur at the same time they would have otherwise occurred pursuant to Sections 2 and 4 had the




Grantee continued as a member of the Board through the applicable Date of Vesting or other Vesting date. The term “Retirement” as used herein means termination of Grantee’s status as a member of the Board at or after attaining the age of sixty-five (65) or completing either five (5) years of service or five (5) one-year terms as a member of the Board by reason of resignation from the Board or by reason of not standing for reelection as a member of the Board.
(B)    In the event that Grantee knowingly or willfully engages in misconduct during the Restriction Period, which is materially harmful to the interests of the Company or a Subsidiary as determined by the Board, all rights of Grantee to the RSUs shall terminate.
6.Dividend Equivalents; Other Rights. From and after the Date of Grant and until the earlier of (A) the time when any portion of the RSUs Vest and are settled in accordance with Section 4 hereof or (B) the time when Grantee’s rights to the RSUs are forfeited in accordance with Section 5 hereof, on the date that the Company pays a cash dividend (if any) to holders of Common Stock generally, Grantee shall be entitled to a deferred cash payment equal to the value of the product of (x) the dollar amount of the cash dividend paid per share of Common Stock on such date and (y) the total number of RSUs covered hereby that have not been settled in shares by such date. Such dividend equivalents (if any) shall be paid in cash, and shall be subject to such other applicable terms and conditions (including payment or forfeitability) as the RSUs based on which the dividend equivalents were credited. The obligations of the Company hereunder will be merely that of an unfunded and unsecured promise of the Company to deliver shares of Common Stock in the future, and the rights of Grantee will be no greater than that of an unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company hereunder.
7.No Shareholder/Voting Rights. Grantee will not be a shareholder of record and shall have no voting rights with respect to shares of Common Stock underlying an RSU prior to the Company’s issuance of such shares following the Date of Vesting or the otherwise applicable Vesting date.

8.Transferability. During the Restriction Period, Grantee shall not be permitted to sell, transfer, pledge, encumber, assign or dispose of the RSUs.
 
9.Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with the RSUs or the underlying shares of Common Stock, Grantee shall pay or make provision satisfactory to the Company for payment of all such taxes. Notwithstanding any other provision of this Agreement or the Plan, the Company shall not be obligated to guarantee any particular tax result for Grantee with respect to any payment provided to Grantee hereunder, and Grantee shall be responsible for any taxes imposed on Grantee with respect to any such payment.

10.No Right to Future Awards or Service. The grant is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a commitment to make any future awards. The grant and any related settlement or payments made to Grantee will not confer upon Grantee any right with respect to continuance of service as a member of the Board, nor will it interfere in any way with any right the Company would otherwise have to terminate Grantee’s service at any time.

11.Nature of Grant. Grantee acknowledges that (A) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty and (B) in consideration of the grant of the RSUs, no claim or entitlement to compensation or damages shall arise from termination of the RSUs or diminution in value of the shares received upon settlement including (without limitation) any claim or entitlement resulting from termination of Grantee’s service as a member of the Board, and Grantee hereby releases the Company from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the RSUs and this Agreement, Grantee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.

12.Severability. If any provision of this grant or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this grant and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.

13.Adjustments. The Board shall make or provide for such adjustments in the numbers of shares of Common Stock covered by the RSUs and in the kind of shares covered thereby as the Board, in its sole discretion, may determine is equitably required to prevent dilution or enlargement of the rights of Grantee that otherwise would result from (A) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (B) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (C) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Board, in its discretion, shall




provide in substitution for outstanding RSUs such alternative consideration (including cash), if any, as it may determine to be equitable in the circumstances and may require in connection therewith the surrender of all outstanding RSUs so replaced.

14.Governing Law. This grant shall be governed by and construed with the internal substantive laws of the State of Ohio, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.

15.Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the RSUs and Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third-party designated by the Company.

16.Compliance with Section 409A of the Code. To the extent applicable, it is intended that this Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) do not apply to Grantee. This Agreement and the Plan shall be administered in a manner consistent with this intent. Reference to Section 409A of the Code is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. If, at the time of Grantee’s separation from service (within the meaning of Section 409A of the Code), (A) Grantee shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (B) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the settlement of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not settle such amount on the otherwise scheduled settlement date but shall instead settle it, without interest, on the first business day of the month after such six-month period.



Exhibit 13 2
























































































FINANCIAL PERFORMANCE

 
FINANCIAL TABLE OF CONTENTS
 
Financial Summary
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Reports of Management and the Independent Registered Public Accounting Firm
 
 
Consolidated Financial Statements and Notes
 
 
Cautionary Statement Regarding Forward-Looking Information
 
 
Shareholder Information
 
 
Corporate Officers and Operating Management

17

FINANCIAL SUMMARY
(millions of dollars except as noted and per share data)


 
2014
 
2013
 
2012
 
2011
 
2010
Operations
 
 
 
 
 
 
 
 
 
Net sales
$
11,130

 
$
10,186

 
$
9,534

 
$
8,766

 
$
7,776

Cost of goods sold
5,965

 
5,569

 
5,328

 
5,021

 
4,295

Selling, general and administrative expenses
3,823

 
3,468

 
3,260

 
2,961

 
2,728

Impairments and dissolution
 
 
 
 
4

 
5

 
4

Interest expense
64

 
63

 
43

 
42

 
71

Income before income taxes
1,258

 
1,086

 
907

 
742

 
678

Net income
866

 
753

 
631

 
442

 
462

Financial Position
 
 
 
 
 
 
 
 
 
Accounts receivable - net
$
1,131

 
$
1,098

 
$
1,033

 
$
990

 
$
917

Inventories
1,034

 
971

 
920

 
927

 
918

Working capital - net
(114
)
 
630

 
1,273

 
99

 
150

Property, plant and equipment - net
1,021

 
1,021

 
966

 
957

 
952

Total assets
5,706

 
6,383

 
6,235

 
5,229

 
5,169

Long-term debt
1,123

 
1,122

 
1,632

 
639

 
648

Total debt
1,805

 
1,722

 
1,705

 
993

 
1,045

Shareholders’ equity
996

 
1,775

 
1,792

 
1,517

 
1,609

Per Common Share Information
 
 
 
 
 
 
 
 
 
Average shares outstanding (thousands)
96,190

 
100,898

 
101,715

 
103,471

 
107,022

Book value
$
10.52

 
$
17.72

 
$
17.35

 
$
14.61

 
$
15.04

Net income - diluted (1) 
8.78

 
7.26

 
6.02

 
4.14

 
4.21

Net income - basic (1) 
8.95

 
7.41

 
6.15

 
4.22

 
4.28

Cash dividends
2.20

 
2.00

 
1.56

 
1.46

 
1.44

Financial Ratios
 
 
 
 
 
 
 
 
 
Return on sales
7.8
 %
 
7.4
%
 
6.6
%
 
5.0
%
 
5.9
%
Asset turnover
2.0
x
 
1.6
x
 
1.5
x
 
1.7
x
 
1.5
x
Return on assets
15.2
 %
 
11.8
%
 
10.1
%
 
8.4
%
 
8.9
%
Return on equity (2) 
48.8
 %
 
42.0
%
 
41.6
%
 
27.5
%
 
31.0
%
Dividend payout ratio (3)
30.3
 %
 
33.2
%
 
37.7
%
 
34.7
%
 
38.1
%
Total debt to capitalization
64.4
 %
 
49.2
%
 
48.8
%
 
39.6
%
 
39.4
%
Current ratio
1.0

 
1.2

 
1.7

 
1.0

 
1.1

Interest coverage (4) 
20.6
x
 
18.3
x
 
22.2
x
 
18.4
x
 
10.6
x
Net working capital to sales
(1.0
)%
 
6.2
%
 
13.3
%
 
1.1
%
 
1.9
%
Effective income tax rate (5)
31.2
 %
 
30.7
%
 
30.4
%
 
40.4
%
 
31.8
%
General
 
 
 
 
 
 
 
 
 
Capital expenditures
$
201

 
$
167

 
$
157

 
$
154

 
$
125

Total technical expenditures (6) 
155

 
144

 
140

 
130

 
103

Advertising expenditures
299

 
263

 
247

 
227

 
218

Repairs and maintenance
96

 
87

 
83

 
78

 
76

Depreciation
169

 
159

 
152

 
151

 
140

Amortization of intangible assets
30

 
29

 
27

 
30

 
35

Shareholders of record (total count)
7,250

 
7,555

 
7,954

 
8,360

 
8,706

Number of employees (total count)
39,674

 
37,633

 
34,154

 
32,988

 
32,228

Sales per employee (thousands of dollars)
$
281

 
$
271

 
$
279

 
$
266

 
$
241

Sales per dollar of assets
1.95

 
1.60

 
1.53

 
1.68

 
1.50

(1)
All earnings per share amounts are presented using the two-class method. See Note 15.
(2)
Based on net income and shareholders’ equity at beginning of year.
(3)
Based on cash dividends per common share and prior year’s diluted net income per common share.
(4)
Ratio of income before income taxes and interest expense to interest expense.
(5)
Based on income before income taxes.
(6)
See Note 1, page 47 of this report, for a description of technical expenditures.

18 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY
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, Europe and Asia. The Company is structured into four reportable segments – Paint Stores Group, Consumer Group, Global Finishes Group and Latin America 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 pages 6 through 15 of this report and Note 18, on pages 71 through 73 of this report, for more information concerning the Reportable Segments.
The Company’s financial condition and liquidity remained strong in 2014 as net operating cash topped $1.000 billion for the second straight year primarily due to improved operating results in our Paint Stores, Consumer and Global Finishes Groups. Net working capital decreased $744.0 million at December 31, 2014 compared to 2013 due primarily to a significant decrease in cash and cash equivalents while increases in the remaining current assets were partially offset by increases in current liabilities. Cash and cash equivalents along with cash flow from operations were used primarily to purchase $1.489 billion in treasury stock. Current portion of long-term debt decreased $499.7 million resulting primarily from the 3.125% Senior Notes coming due and paid in 2014 while Short-term borrowings increased $582.9 million. The Company has been able to arrange sufficient short-term borrowing capacity at reasonable rates, and the Company has sufficient total available borrowing capacity to fund its current operating needs. Net operating cash decreased $2.2 million to $1.082 billion in 2014 from $1.084 billion in 2013, which included a first quarter payment of $80.0 million to the Company's employee stock ownership plan (ESOP) relating to a settlement reached with the U.S. Department of Labor that was recorded in 2012 (the "DOL Settlement"). See "DOL leveraged ESOP settlement" on page 29 and Note 9 on page 63. Strong net operating cash provided the funds necessary to invest in new stores, manufacturing and distribution facilities, renovate and convert acquired stores, pay down debt and return cash to shareholders through dividends and treasury stock purchases.
Results of operations for the Company were strong and improved in many areas in 2014, primarily due to an improving domestic architectural paint market. Consolidated net sales increased 9.3 percent in 2014 to $11.130 billion from $10.186 billion in 2013 due primarily to higher paint sales volume in the
 
Paint Stores Group and acquisitions. Acquisitions increased consolidated net sales 3.1 percent in 2014. Gross profit as a percent of consolidated net sales increased to 46.4 percent in 2014 from 45.3 percent in 2013 due primarily to increased paint sales volume, improved operating efficiency and selling price increases partially offset by dilution from acquisitions. Further improving the gross profit comparable results were the titanium dioxide suppliers antitrust class action lawsuit settlement of $21.4 million received by the Company in the fourth quarter of 2014 (the "TiO2 settlement") and charges relating to the Brazil government tax assessments in 2013. Selling, general and administrative expenses (SG&A) increased $355.3 million in 2014 compared to 2013 due primarily to new stores, increased service expenses to support higher sales levels and maintain customer service and acquisitions partially offset by foreign currency translation rate fluctuations. SG&A increased as a percent of consolidated net sales to 34.3 percent in 2014 as compared to 34.0 percent in 2013 due primarily to acquisitions partially offset by higher sales levels. Higher debt levels throughout 2014 partially offset by a one-time interest expense charge of $3.4 million from early retirement of debt during the fourth quarter of 2013 resulted in increased interest expense of $1.5 million in 2014. The effective income tax rate was 31.2 percent for 2014 and 30.7 percent for 2013. Diluted net income per common share increased 20.9 percent to $8.78 per share for 2014, which included charges of $.22 per share related to environmental provisions and an $.18 per share loss from acquisitions partially offset by an increase of $.13 per share related to the TiO2 settlement, from $7.26 per share a year ago, which included charges of $.21 per share relating to Brazil government tax assessments.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation and fair presentation of the consolidated financial statements, accompanying notes and related financial information included in this report are the responsibility of management. The consolidated financial statements, accompanying notes and related financial information included in this report have been prepared in accordance with U.S. generally accepted accounting principles. The consolidated financial statements contain certain amounts that were based upon management’s best estimates, judgments and assumptions. Management utilized certain outside economic sources of information when developing the bases for their estimates and assumptions. Management used assumptions based on historical results, considering the current economic trends, and other assumptions to form the basis for determining appropriate carrying values of assets and liabilities that were not readily available from other sources. Actual results could differ


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from those estimates. Also, materially different amounts may result under materially different conditions, materially different economic trends or from using materially different assumptions. However, management believes that any materially different amounts resulting from materially different conditions or material changes in facts or circumstances are unlikely to significantly impact the current valuation of assets and liabilities that were not readily available from other sources.
All of the significant accounting policies that were followed in the preparation of the consolidated financial statements are disclosed in Note 1, on pages 44 through 47, of this report. The following procedures and assumptions utilized by management directly impacted many of the reported amounts in the consolidated financial statements.
Non-Traded Investments
The Company has invested in the U. S. affordable housing and historic renovation real estate markets. These investments have been identified as variable interest entities. However, the Company is not the primary beneficiary and did not consolidate the operations of the investments. The carrying amounts of these non-traded investments, which approximate market value, were determined based on cost less related income tax credits determined by the effective yield method. The Company’s risk of loss from these non-traded investments is limited to the amount of its contributed capital. The Company has no ongoing capital commitments, loan requirements or guarantees with the general partners that would require any future cash contributions other than the contractually committed capital contributions that are disclosed in the contractual obligations table on page 28 of this report. See Note 1, on page 44 of this report, for more information on non-traded investments.
Accounts Receivable
Accounts receivable were recorded at the time of credit sales net of provisions for sales returns and allowances. All provisions for allowances for doubtful collection of accounts are included in Selling, general and administrative expenses and were based on management’s best judgment and assessment, including an analysis of historical bad debts, a review of the aging of Accounts receivable and a review of the current creditworthiness of customers. Management recorded allowances for such accounts which were believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices, customer satisfaction claims and pricing discrepancies. However, depending on how such potential issues are resolved, or if the financial condition of any of the Company’s customers were to deteriorate and their ability to make required payments became impaired, increases in these allowances may be required. At December 31, 2014, no individual customer constituted more than 5 percent of Accounts receivable.
Inventories
Inventories were stated at the lower of cost or market 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, 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. Where management estimated that the reasonable market value was below cost or determined 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 was made. See Note 3, on page 48 of this report, for more information regarding the impact of the LIFO inventory valuation.
Purchase Accounting, Goodwill and Intangible Assets
In accordance with the Business Combinations Topic of the ASC, the Company used the purchase method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as Goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company used a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities. The business and technical judgment of management was used in determining which intangible assets have indefinite lives and in determining the useful lives of finite-lived intangible assets in accordance with the Goodwill and Other Intangibles Topic of the ASC.


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As required by 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. The optional qualitative assessment, which allows companies to skip the annual two-step quantitative test if it is not more likely than not that impairment has occurred, 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, impairment of the reporting unit may exist. 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 performed the optional qualitative assessment for its 2014, 2013 and 2012 goodwill impairment test for each of its reporting units. The 2011 goodwill impairment test, in which the fair values of each of the reporting units exceeded their respective carrying values by more than ten percent, served as the starting point. Management identified future projected net income, return on average net assets employed and discount rate as the most relevant drivers affecting the fair value calculations. A budget-to-actual analysis was performed in which each reporting unit's key metrics were compared against budgeted amounts in order to assess the validity of future projected net income used in prior year analyses. Management evaluated whether there were any capital
 
investment or working capital deviations from budget that would significantly affect return on average net assets employed. Management considered how the discount rates used in the fair value calculation would have changed since the 2011 goodwill impairment test and performed a sensitivity analysis, noting that it would require a discount rate significantly higher than what would be expected in order for any reporting unit to have a fair value not more than 10% in excess of its carrying value. Management also analyzed macroeconomic conditions, industry and market considerations, cost factors, overall financial performance of the Company, entity-specific events and reporting unit-specific events. Based on the results of the qualitative assessment, management determined that it was not more likely than not that any of the reporting units were impaired and did not need to perform a quantitative test for any of the reporting units.
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 and terminal value 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 2014 impairment testing are consistent with prior years.


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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 Notes 2 and 4, on pages 47 through 49 of this report, for a discussion of businesses acquired, the estimated fair values of goodwill and identifiable intangible assets recorded at acquisition date and reductions in carrying value of goodwill and indefinite-lived intangible assets recorded as a result of impairment tests in accordance with the Goodwill and Other Intangibles Topic of the ASC.
Property, Plant and Equipment and Impairment of Long-Lived Assets
Property, plant and equipment was stated on the basis of cost and depreciated principally on a straight-line basis using industry standards and historical experience to estimate useful lives. 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 may not be recoverable or the useful life had changed, impairment tests were performed or the useful life was adjusted. Undiscounted future cash flows were used to calculate the recoverable value of long-lived assets to determine if such assets were impaired. Where impairment was identified, management determined fair values for assets using a discounted cash flow valuation model, incorporating discount rates commensurate with the risks involved for each group of assets. Growth models were developed using both industry and company historical results and forecasts. If the usefulness of an asset was determined to be impaired, management estimated a new useful life based on the period of time for projected uses of the asset. Such models 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, except as noted in Note 4. See Notes 4 and 5, on pages 48 through 51 of this report, 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.
Exit or Disposal Activities
Management is continually re-evaluating the Company’s operating facilities against its long-term strategic goals. Liabilities associated with exit or disposal activities are recognized as incurred in accordance with the Exit or Disposal Cost Obligations Topic of the ASC and property, plant and equipment is tested for impairment in accordance with the Property, Plant and Equipment Topic of the ASC. Provisions for qualified exit costs are made at the time a facility is no longer operational, include amounts estimated by management and primarily include post-closure rent expenses or costs to
 
terminate the contract before the end of its term and costs of employee terminations. Adjustments may be made to liabilities accrued for qualified exit costs if information becomes available upon which more accurate amounts can be reasonably estimated. If impairment of property, plant and equipment exists, the carrying value is reduced to fair value estimated by management. Additional impairment may be recorded for subsequent revisions in estimated fair value. See Note 5, on pages 49 through 51 of this report, for information concerning impairment of property, plant and equipment and accrued qualified exit costs.
Other Liabilities
The Company is self-insured for certain liabilities, primarily worker’s compensation claims, employee medical benefits, and automobile, property, general and product liability claims. Estimated amounts were accrued for certain worker’s compensation, employee medical and disability benefits, automobile and property claims filed but unsettled and estimated claims incurred but not reported based upon management’s estimated aggregate liability for claims incurred using historical experience, actuarial assumptions followed in the insurance industry and actuarially-developed models for estimating certain liabilities. Certain estimated general and product liability claims filed but unsettled were accrued based on management’s best estimate of ultimate settlement or actuarial calculations of potential liability using industry experience and actuarial assumptions developed for similar types of claims.
Defined Benefit Pension and Other Postretirement Benefit Plans
To determine the Company’s ultimate obligation under its defined benefit pension plans and postretirement benefit plans other than pensions, 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,


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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 Cumulative other comprehensive loss, a component of Shareholders’ equity. The amounts recorded in Cumulative other comprehensive loss 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.
Effective July 1, 2009, the domestic salaried defined benefit pension plan was revised. Prior to July 1, 2009, the contribution was based on six percent of compensation for certain covered employees. Under the revised plan, such participants are credited with certain contribution credits that range from two percent to seven percent of compensation based on an age and service formula.
A reduction in the over-funded status of the Company’s defined benefit pension plans at December 31, 2008 due to the decrease in market value of equity securities held by the plans increased the future amortization of actuarial losses recognized in Cumulative comprehensive loss. This amortization increased net pension costs in 2012, 2013 and 2014. An increase in market value of equity securities held by the plans during 2012, 2013 and 2014 will decrease the future amortization of actuarial losses recognized in Cumulative comprehensive loss. The excess in market value of equity securities held by the plans versus the expected returns in 2014 will decrease the future amortization of actuarial losses. The amortization of actuarial losses on plan assets and an increase in discount rates on projected benefit obligations will decrease net pension costs in 2015. See Note 6, on pages 52 through 57 of this report, for information concerning the Company’s defined benefit pension plans and postretirement benefit plans other than pensions.
Debt
The fair values of the Company’s publicly traded long-term debt were based on quoted market prices. The fair values of the Company’s non-traded long-term debt were estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. See Note 1, on page 44 of this report, for the carrying amounts and fair values of the Company’s long-term debt, and Note 7, on page 58 of this report, for a description of the Company’s long-term debt arrangements.
Environmental Matters
The Company is involved with environmental investigation and remediation activities at some of its currently
 
and formerly owned sites and at a number of third-party sites. The Company accrues for environmental-related activities for which commitments or clean-up plans have been developed and for which costs can be reasonably estimated based on industry standards and professional judgment. All accrued amounts were recorded on an undiscounted basis. 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, actuarial, consulting and law firms. Due to uncertainties surrounding environmental investigations and remediation activities, the Company’s ultimate liability may result in costs that are significantly higher than currently accrued. See page 27 and Note 8, on pages 58 through 60 of this report, 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 all present U.S. generally accepted accounting principles. 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 9 on pages 60 through 63 of this report for information concerning litigation.


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Income Taxes
The Company estimated income taxes in each jurisdiction that it operated. 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.
See Note 14, on pages 68 and 69 of this report, for information concerning the Company’s unrecognized tax benefits, interest and penalties and current and deferred tax expense.
Stock-Based Compensation
The cost of the Company’s stock-based compensation is recorded in accordance with the Stock Compensation Topic of the ASC. The Company follows the “modified prospective” method as described in the Topic whereby compensation cost is recognized for all share-based payments granted after December 31, 2005.
The Company estimates the fair value of option rights using a Black-Scholes-Merton option pricing model which requires management to make estimates for certain assumptions. Management and a consultant continuously review the following significant assumptions: risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock. 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. See Note 12, on pages 65 through 67 of this report, for more information on stock-based compensation.
Revenue Recognition
The Company’s revenue was primarily generated from the sale of products. All sales of products were recognized when shipped and title had passed to unaffiliated customers. Collectibility of amounts recorded as revenue is reasonably assured at time of sale. Discounts were recorded as a reduction to sales in the same period as the sale resulting in an appropriate net sales amount for the period. Standard sales terms are final and returns or exchanges are not permitted unless expressly stated. Estimated provisions for returns or exchanges, recorded as a reduction resulting in net sales, were established in cases where the right of return existed. The Company offered a variety of programs, primarily to its retail customers, designed to promote sales of its products. Such programs required periodic payments and allowances based on estimated results of specific programs and were recorded as a reduction resulting in net sales. The Company accrued the estimated total payments and allowances associated with each transaction at the time of sale. Additionally, the Company offered programs directly to consumers to promote the sale of its products. Promotions that reduced the ultimate consumer sale prices were recorded as a reduction resulting in net sales at the time the promotional offer was made, generally using estimated redemption and participation levels. The Company continually assesses the
 
adequacy of accruals for customer and consumer promotional program costs earned but not yet paid. To the extent total program payments differ from estimates, adjustments may be necessary. Historically, these total program payments and adjustments have not been material.
FINANCIAL CONDITION, LIQUIDITY AND CASH FLOW
Overview
The Company’s financial condition and liquidity remained strong in 2014 as net operating cash topped $1.000 billion for the second straight year primarily due to improved operating results in our Paint Stores, Consumer and Global Finishes Groups. Net working capital decreased $744.0 million at December 31, 2014 compared to 2013 due primarily to a significant decrease in cash and cash equivalents while increases in the remaining current assets were partially offset by increases in current liabilities. Cash and cash equivalents along with cash flow from operations were used primarily to purchase $1.489 billion in treasury stock. Current portion of long-term debt decreased $499.7 million resulting primarily from the 3.125% Senior Notes coming due and paid in 2014 while Short-term borrowings increased $582.9 million. See the section that follows for more information regarding Net Working Capital. Total debt at December 31, 2014 increased $83.5 million to $1.805 billion from $1.722 billion at December 31, 2013. Total debt increased as a percentage of total capitalization to 64.4 percent from 49.2 percent at the end of 2013. At December 31, 2014, the Company had remaining borrowing ability of $1.638 billion.
Net operating cash decreased $2.2 million to $1.082 billion in 2014 from $1.084 billion in 2013 due primarily to an increase in working capital of $147.7 million to support anticipated increased sales levels partially offset by an increase in net income of $113.3 million and favorable year over year changes in total adjustments to reconcile net income to net operating cash of $22.9 million. Net operating cash decreased as a percent to sales to 9.7 percent in 2014 compared to 10.6 percent in 2013. Strong Net operating cash provided the funds necessary to invest in new stores, manufacturing and distribution facilities, renovate and convert acquired stores, pay down debt and return cash to shareholders through dividends and treasury stock purchases. In 2014, the Company used Net operating cash and


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Cash and cash equivalents on hand to purchase $1.489 billion in treasury stock, spend $200.5 million in capital additions and improvements and pay $215.3 million in cash dividends to its shareholders of common stock.
Net Working Capital
Total current assets less Total current liabilities (net working capital) decreased $744.0 million to a deficit of $113.9 million at December 31, 2014 from a surplus of $630.2 million at December 31, 2013. The net working capital decrease is due primarily to a significant decrease in cash and cash equivalents while increases in the remaining current assets were partially offset by increases in current liabilities. Cash and cash equivalents along with cash flow from operations were used primarily to purchase $1.489 billion in treasury stock. Current portion of long-term debt decreased $499.7 million resulting primarily from the 3.125% Senior Notes coming due and paid in 2014 while Short-term borrowings increased $582.9 million. Accounts payable increased $43.7 million and Accrued taxes increased $7.2 million, while all other current liabilities, excluding current portion of long-term debt, increased $18.0 million. Accounts receivable were up $32.8 million, Inventories were up $62.7 million and Deferred tax net assets were up $4.6 million while the remaining current assets increased $12.1 million. The Company has sufficient total available borrowing capacity to fund its current operating needs. The significant decrease in Cash and cash equivalents caused the Company’s current ratio to decrease to 0.96 at December 31, 2014 from 1.25 at December 31, 2013. Accounts receivable as a percent of Net sales decreased to 10.2 percent in 2014 from 10.8 percent in 2013. Accounts receivable days outstanding increased to 55 days in 2014 from 54 days in 2013. In 2014, provisions for allowance for doubtful collection of accounts decreased $0.7 million, or 1.3 percent. Inventories decreased slightly as a percent of Net sales to 9.3 percent in 2014 from 9.5 percent in 2013 due primarily to tighter inventory management. Inventory days outstanding was flat at 86 days in 2014 versus 2013. Accounts payable increased in 2014 to $1.042 billion compared to $998.5 million last year due primarily to increased purchases to service higher sales levels and timing of payments.
Goodwill and Intangible Assets
Goodwill, which represents the excess of cost over the fair value of net assets acquired in purchase business combinations, decreased $20.3 million in 2014 due primarily to foreign currency translation rate fluctuations.
Intangible assets decreased $24.2 million in 2014. Decreases from amortization of finite-lived intangible assets of $29.9 million and foreign currency translation rate fluctuations of $26.3 million were partially offset by $13.5 million of capitalized software costs. Acquired finite-lived intangible assets included assets such as covenants not to compete, customer lists and product formulations. Costs related to designing, developing, obtaining and implementing internal use software are capitalized and amortized in accordance with the Goodwill and Other Intangibles Topic of the ASC. See Notes 2 and 4, on pages 47 through 49 of this report, for a description of acquired goodwill, identifiable intangible assets and asset impairments
 
recorded 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 $250.1 million at December 31, 2014 represent the excess of the fair value of assets over the actuarially determined projected benefit obligations, primarily of the domestic salaried defined benefit pension plan. The decrease in Deferred pension assets during 2014 of $52.3 million, from $302.4 million last year, was due primarily to increased projected benefit obligations resulting from changes in actuarial assumptions partially offset by an increase in the fair value of equity securities held by the salaried defined benefit pension plan. In accordance with the accounting prescribed by the Retirement Benefits Topic of the ASC, the decrease in the value of the Deferred pension assets is offset in Cumulative other comprehensive loss and is amortized as a component of Net pension costs over a defined period of pension service. See Note 6, on pages 52 through 57 of this report, for more information concerning the excess fair value of assets over projected benefit obligations of the salaried defined benefit pension plan and the amortization of actuarial gains or losses relating to changes in the excess assets and other actuarial assumptions.
Other assets increased $12.7 million to $420.6 million at December 31, 2014 due primarily to increases in other investments. 
Property, Plant and Equipment
Net property, plant and equipment decreased $0.4 million to $1.021 billion at December 31, 2014 due primarily to capital expenditures of $200.5 million partially offset by depreciation expense of $169.1 million, sale or disposition of assets with remaining net book value of $4.8 million and currency translation adjustments of $26.9 million. Capital expenditures during 2014 in the Paint Stores Group were primarily attributable to the opening of new paint stores, renovation and conversion of acquired stores and improvements in existing stores. In the Consumer Group, capital expenditures during 2014 were primarily related to efficiency improvements and maintenance


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items in existing production and distribution facilities. Capital expenditures in the Global Finishes Group were primarily attributable to improvements in existing manufacturing and distribution facilities. Capital expenditures in the Latin America Coatings Group were primarily attributable to the opening of new specialty stores and improvements in existing manufacturing and distribution facilities. The Administrative segment incurred capital expenditures primarily for replacement or upgraded aviation equipment and information systems hardware. In 2015, the Company expects to spend more than 2014 for capital expenditures. The predominant share of the capital expenditures in 2015 is expected to be for various productivity improvement and maintenance projects at existing manufacturing and distribution facilities, new store openings, renovation and conversion of acquired stores and new or upgraded information systems hardware. The Company does not anticipate the need for any specific long-term external financing to support these capital expenditures.
Debt
There were $625.9 million in borrowings outstanding under the domestic commercial paper program at December 31, 2014 with a weighted-average interest rate of 0.3 percent. There were no borrowings outstanding under this program at December 31, 2013 and 2012. Borrowings outstanding under various foreign programs at December 31, 2014 were $53.6 million with a weighted-average interest rate of 6.0 percent. At December 31, 2013 and December 31, 2012, foreign borrowings were $96.6 million and $69.0 million with weighted-average interest rates of 7.8 percent and 2.8 percent, respectively. Long-term debt, including the current portion, decreased $499.3 million during 2014 resulting primarily from the 3.125% Senior Notes coming due and paid in 2014. On December 4, 2012, Senior Notes were issued totaling $1.000 billion. These Senior Notes are covered under a shelf registration filed with the Securities and Exchange Commission (SEC) on December 16, 2009. The proceeds from the issuance of the Senior Notes were used for general corporate purposes, including repayment of short-term borrowings and financing acquisitions.
On September 19, 2012, Sherwin-Williams Luxembourg S.à r.l., a wholly-owned subsidiary of the Company, entered into a €95.0 million (Euro) five-year revolving credit facility. This facility replaced the existing €97.0 million (Euro) credit facility. On June 29, 2012, Sherwin-Williams Canada Inc., a wholly-owned subsidiary of the Company, entered into a new CAD 75.0 million five-year credit facility which replaced the existing credit facility. On March 18, 2013, the aggregate amount of this credit facility was increased to CAD 150.0 million. These credit facilities are being used for general corporate purposes, including refinancing indebtedness and for acquisitions.
On January 30, 2012, the Company entered into a five-year credit agreement, subsequently amended on multiple dates, which gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit of up to an aggregate availability of $500.0 million. On April 23, 2012, the Company entered into a five-year credit agreement, subsequently amended on multiple dates, which gives the Company the right to borrow and to obtain the issuance,
 
renewal, extension and increase of a letter of credit up to an aggregate availability of $250.0 million. On November 14, 2012, the Company entered into a three-year credit agreement, subsequently amended on multiple dates, which gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit up to an aggregate availability of $250.0 million. The three credit agreements entered into in 2012 replace prior credit facilities that matured in 2012 and 2011. At December 31, 2014, 2013 and 2012, there were no borrowings outstanding under any of these credit agreements.
The Company uses a revolving credit agreement primarily to satisfy its commercial paper program’s dollar for dollar liquidity requirement. On July 8, 2011, the Company entered into a five-year $1.050 billion revolving credit agreement, which replaced the existing three-year $500.0 million credit agreement. The credit agreement allows the Company to extend the maturity of the facility with two one-year extension options and to increase the aggregate amount of the facility to $1.300 billion, both of which are subject to the discretion of each lender.
See Note 7, on page 58 of this report, for a detailed description of the Company’s debt outstanding and other available financing programs.
Defined Benefit Pension and Other Postretirement Benefit Plans
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 $2.1 million to $54.2 million primarily due to changes in the actuarial assumptions of the Company's foreign plans. Postretirement benefits other than pensions increased $8.5 million to $295.1 million at December 31, 2014 due primarily to changes in the actuarial assumptions.
Effective July 1, 2009, the domestic salaried defined benefit pension plan was revised. Prior to July 1, 2009, the contribution was based on six percent of compensation for covered employees. Under the revised plan, such participants are credited with certain contribution credits that range from two percent to seven percent of compensation based on an age and service


26 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

formula. Amounts previously recorded in Cumulative other comprehensive loss in accordance with the provisions of the Retirement Benefits Topic of the ASC were modified in 2009 resulting in a decrease in comprehensive loss due primarily to the change in the domestic salaried defined benefit pension plan and an increase in the excess plan assets over the actuarially calculated projected benefit obligation in the domestic defined benefit pension plans. Partially offsetting this decreased loss were modifications to actuarial assumptions used to calculate projected benefit obligations.
Effective October 1, 2011, the domestic salaried defined benefit pension plan was frozen for new hires, and all newly hired U.S. non-collectively bargained employees are eligible to participate in the Company’s domestic defined contribution plan.
The assumed discount rate used to determine the actuarial present value of projected defined benefit pension and other postretirement benefit obligations for domestic plans was decreased from 4.65 percent to 3.95 percent at December 31, 2014 due to decreased rates of high-quality, long-term investments and foreign defined benefit pension plans had similar discount rate declines for the same reasons. The rate of compensation increases used to determine the projected benefit obligations remained at 4.0 percent for domestic pension plans and was slightly lower on most foreign plans. 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 at 6.0 percent for 2014 for domestic pension plans and was slightly lower for most foreign plans. In establishing the expected long-term rate of return on plan assets for 2014, 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 postretirement benefits other than pensions for 2014 were 6.5 percent for medical and prescription drug cost increases, both decreasing gradually to 5.0 percent in 2022. The assumed health care cost trend rates used to determine the benefit obligation at December 31, 2014 were between 6.5 percent and 7.0 percent for medical and prescription drug cost increases. In developing the assumed health care cost trend rates, management considered industry data, historical Company experience and expectations for future health care costs.
For 2015 Net pension cost and Net periodic benefit cost recognition for domestic plans, the Company will use a discount rate of 3.95 percent, an expected long-term rate of return on assets of 6.0 percent, a rate of compensation increase of 4.0 percent and cost trend rates between 6.5 percent and 7.0 percent for health care and prescription drug cost increases. Slightly lower discount rates, rates of compensation increases and expected long-term rates of return on plan assets will be used for most foreign plans. Use of these assumptions and amortization of actuarial gains will result in a domestic Net pension cost in 2015 that is expected to be approximately $2.4 million higher than in 2014 and a Net periodic benefit cost for postretirement benefits other than pensions that is expected to decrease $4.6 million in 2015 compared to 2014. See Note 6, on pages 52 through 57 of this report, for more information on the
 
Company’s obligations and funded status of its defined benefit pension plans and postretirement benefits other than pensions.
Other Long-Term Liabilities
Other long-term liabilities decreased $59.9 million during 2014 due primarily to a decrease in non-current deferred tax liabilities of $52.9 million and a decrease in long-term commitments related to the affordable housing and historic renovation real estate properties of $21.3 million, partially offset by an increase in accruals for extended environmental-related liabilities of $27.6 million, an increase in deferred compensation liabilities of $4.1 million and an increase in long-term pension liabilities of $2.5 million.
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 related to ongoing environmental compliance measures were not material to the Company’s financial condition, liquidity, cash flow or results of operations during 2014. 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 2015. See Note 8, on pages 58 and 60 of this report, for further information on environmental-related long-term liabilities.


27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

Contractual Obligations and Commercial Commitments

The Company has certain obligations and commitments to make future payments under contractual obligations and commercial commitments. The following table summarizes such obligations and commitments as of December 31, 2014:
(thousands of dollars)
 
Payments Due by Period
Contractual Obligations
 
Total
 
Less than
1 Year
 
1–3 Years
 
3–5 Years
 
More than
5 Years
Long-term debt
 
$
1,127,961

 
$
3,265

 
$
700,828

 
$
309

 
$
423,559

Operating leases
 
1,314,773

 
296,875

 
459,506

 
270,463

 
287,929

Short-term borrowings
 
679,436

 
679,436

 
 
 
 
 
 
Interest on Long-term debt
 
494,395

 
30,744

 
61,078

 
42,166

 
360,407

Purchase obligations (a)
 
151,535

 
151,535

 
 
 
 
 
 
Other contractual obligations (b)
 
303,392

 
104,992

 
100,146

 
53,137

 
45,117

Total contractual cash obligations
 
$
4,071,492

 
$
1,266,847

 
$
1,321,558

 
$
366,075

 
$
1,117,012

(a) 
Relate to open purchase orders for raw materials at December 31, 2014.
(b) 
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.
 
 
Amount of Commitment Expiration Per Period
Commercial Commitments
 
Total
 
Less than
1 Year
 
1–3 Years
 
3–5 Years
 
More than
5 Years
Standby letters of credit
 
$
23,442

 
$
23,442

 
 
 
 
 
 
Surety bonds
 
43,323

 
43,323

 
 
 
 
 
 
Other commercial commitments
 
33,969

 
33,969

 
 
 
 
 
 
Total commercial commitments
 
$
100,734

 
$
100,734

 
$
—

 
$
—

 
$
—

Warranties
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. 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 2014, 2013 and 2012, including customer satisfaction settlements during the year, were as follows:
(thousands of dollars)
2014
 
2013
 
2012
Balance at January 1
$
26,755

 
$
22,710

 
$
22,071

Charges to expense
37,879

 
33,265

 
28,590

Settlements
(36,911
)
 
(29,220
)
 
(27,951
)
Balance at December 31
$
27,723

 
$
26,755

 
$
22,710

Shareholders’ Equity
Shareholders’ equity decreased $778.1 million to $996.5 million at December 31, 2014 from $1.775 billion last year. The decrease in Shareholders’ equity resulted primarily from the purchase of treasury stock for $1.489 billion, treasury stock received from stock option exercises of $22.6 million and an increase in Cumulative other comprehensive loss of $150.9
 
million partially offset by an increase in retained earnings of $650.6 million and an increase in Other capital of $231.8 million, due primarily to stock options exercised. The Company purchased 6.93 million shares of its common stock during 2014 for treasury. The Company acquires its common stock for general corporate purposes and, depending on its cash position and market conditions, it may acquire additional shares in the future. The Company had remaining authorization from its Board of Directors at December 31, 2014 to purchase 5.23 million shares of its common stock. The increase of $150.9 million in Cumulative other comprehensive loss was due primarily to unfavorable foreign currency translation effects of $103.4 million attributable to the weakening of most foreign operations’ functional currencies against the U.S. dollar and $47.6 million in net actuarial losses and prior service costs of defined benefit pension and other postretirement benefit plans net of amortization.
The increase in Other capital of $231.8 million was due primarily to the recognition of stock-based compensation expense, stock option exercises and related income tax effect. In 2014, final redemptions of Preferred stock and Unearned ESOP compensation of $40.4 million occurred and reduced these balances to zero. Retained earnings increased $650.6 million during 2014 due to net income of $865.9 million partially offset by $215.3 million in cash dividends paid. The Company’s cash


28 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

dividend per common share payout target is 30.0 percent of the prior year’s diluted net income per common share. The 2014 annual cash dividend of $2.20 per common share represented 30.3 percent of 2013 diluted net income per common share. The 2014 annual dividend represented the thirty-fifth consecutive year of dividend payments since the dividend was suspended in 1978. At a meeting held on February 18, 2015, the Board of Directors increased the quarterly cash dividend to $.67 per common share. This quarterly dividend, if approved in each of the remaining quarters of 2015, would result in an annual dividend for 2015 of $2.68 per common share or a 30.5 percent payout of 2014 diluted net income per common share. See the Statements of Consolidated Shareholders’ Equity, on page 43 of this report, and Notes 10, 11 and 12, on pages 63 through 67 of this report, for more information concerning Shareholders’ equity.
Cash Flow
Net operating cash decreased $2.2 million to $1.082 billion in 2014 from $1.084 billion in 2013 due primarily to an increase in working capital of $147.7 million to support anticipated increased sales levels partially offset by an increase in net income of $113.3 million and favorable year over year changes in total adjustments to reconcile net income to net operating cash of $22.9 million, which included an increase in provisions for environmental-related matters of $38.8 million. A payment to the ESOP for the DOL Settlement of $80.0 million in the first quarter of 2013 impacted working capital and reduced cash flow from operations for the year ended 2013. Strong Net operating cash provided the funds necessary to invest in new stores, manufacturing and distribution facilities, renovate and convert acquired stores, pay down debt and return cash to shareholders through dividends and treasury stock purchases. Net investing cash improved $28.3 million to a usage of $310.1 million in 2014 from a usage of $338.3 million in 2013 due primarily to decreased cash usage to acquire businesses of $79.9 million partially offset by increased capital expenditures of $33.9 million and other investments of $16.3 million. Net financing cash decreased $613.8 million to a usage of $1.467 billion in 2014 from a usage of $853.3 million in 2013 due primarily to increased treasury stock purchases of $719.4 million, increased net payment of long-term debt of $489.7 million and increased payments of cash dividends of $10.3 million partially offset by net increases in short-term borrowings of $559.8 million, increased proceeds from stock option exercises and income tax effect of stock-based compensation exercises and vesting totaling $51.4 million. In 2014, the Company used Net operating cash and Cash and cash equivalents on hand to purchase $1.489 billion in treasury stock, spend $200.5 million in capital additions and improvements and pay $215.3 million in cash dividends to its shareholders of common stock.
Management considers a measurement of cash flow that is not in accordance with U.S. generally accepted accounting principles to be a useful tool in its determination of appropriate uses of the Company’s Net operating cash. Management reduces Net operating cash, as shown in the Statements of Consolidated Cash Flows, by the amount reinvested in the business for Capital expenditures and the return of investment to its shareholders by the payments of cash dividends. The resulting value is referred
 
to by management as “Free Cash Flow” which may not be comparable to values considered by other entities using the same terminology. The reader is cautioned that the Free Cash Flow measure should not be compared to other entities unknowingly, 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 U.S. generally accepted accounting principles disclosed in the Statements of Consolidated Cash Flows, on page 42 of this report. Free Cash Flow as defined and used by management is determined as follows: 
 
Year Ended December 31,
(thousands of dollars)
2014
 
2013
 
2012
Net operating cash
$
1,081,528

 
$
1,083,766

 
$
887,886

Capital expenditures
(200,545
)
 
(166,680
)
 
(157,112
)
Cash dividends
(215,263
)
 
(204,978
)
 
(160,939
)
Free cash flow
$
665,720

 
$
712,108

 
$
569,835


Litigation

DOL leveraged ESOP settlement. On February 20, 2013, the Company reached a settlement with the DOL of the DOL's investigation of transactions related to the Company's ESOP that were implemented on August 1, 2006 and August 27, 2003. The DOL had notified the Company, among others, of potential enforcement claims asserting breaches of fiduciary obligations and sought compensatory and equitable remedies. The Company resolved all ESOP related claims with the DOL by agreeing, in part, to make a one-time payment of $80.0 million to the ESOP, resulting in a $49.2 million after tax charge to earnings in the fourth quarter of 2012. The Company made this required $80.0 million payment to the ESOP during the first quarter of 2013.

Government tax assessment settlements related to Brazilian operations. Charges totaling $28.7 million and $2.9 million were recorded to Cost of goods sold and SG&A, respectively, during the second and third quarters of 2013. The


29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

charges were primarily related to import duty taxes paid to the Brazilian government related to the handling of import duties on products brought into the country for the years 2006 through 2012. The Company elected to pay the taxes through an existing voluntary amnesty program offered by the government to resolve these issues rather than contest them in court. The after-tax charges were $21.9 million for the full year 2013. The Company's import duty process in Brazil was changed to reach a final resolution of this matter with the Brazilian government.
Titanium dioxide suppliers antitrust class action lawsuit. The Company is a member of the plaintiff class related to Titanium Dioxide Antitrust Litigation that was initiated in 2010 against certain suppliers alleging various theories of relief arising from purchases of titanium dioxide made from 2003 through 2012. The Court approved a settlement less attorney fees and expense, and the Company timely submitted claims to recover its pro-rata portion of the settlement. There was no specified deadline for the claims administrator to complete the review of all claims submitted. In October 2014, the Company was notified that it would receive a disbursement of settlement funds, and the Company received a pro-rata disbursement net of all fees of approximately $21.4 million. The Company recorded this settlement gain in the fourth quarter of 2014.
See page 23 of this report and Note 9 on pages 60 through 63 for more 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. The Company entered into foreign currency option and forward currency exchange contracts with maturity dates of less than twelve months in 2014, 2013 and 2012, primarily to hedge against value changes in foreign currency. There were no material derivative contracts outstanding at December 31, 2014, 2013 and 2012. 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. See Notes 1 and 13 on pages 44 and 67 of this report.
Financial Covenant
Certain borrowings contain a consolidated leverage covenant. The covenant states the Company’s leverage ratio is not to exceed 3.25 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 “Results of Operations” caption below for a reconciliation of EBITDA to Net income. At December 31, 2014, 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 7 on page 58 of this report.
Employee Stock Ownership Plan (ESOP)
Participants in the Company’s ESOP are allowed to contribute up to the lesser of twenty percent of their annual compensation or the maximum dollar amount allowed under the Internal Revenue Code. Prior to July 1, 2009, the Company matched one hundred percent of all contributions up to six percent of eligible employee contributions. Effective July 1, 2009, the ESOP was amended to change the Company match to one hundred percent on the first three percent of eligible employee contributions and fifty percent on the next two percent of eligible contributions. Effective July 1, 2011, the ESOP was amended to reinstate the Company match to six percent of eligible employee contributions. The Company’s matching contributions to the ESOP charged to operations were $74.6 million in 2014 compared to $67.4 million in 2013. The Company can fund the ESOP by redeeming a portion of the Preferred stock held by the ESOP or with cash. At December 31, 2014, there were 12,456,468 shares of the Company’s common stock being held by the ESOP, representing 13.2 percent of the total number of voting shares outstanding. See Note 11, on pages 64 and 65 of this report, for more information concerning the Company’s ESOP and preferred stock.


30 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS - 2014 vs. 2013
Shown below are net sales and segment profit and the percentage change for the current period by segment for 2014 and 2013:
 
Year Ended December 31,
(thousands of dollars)
2014
 
2013
 
Change
Net Sales:
 
 
 
 
 
Paint Stores Group
$
6,851,581

 
$
6,002,143

 
14.2
 %
Consumer Group
1,420,757

 
1,341,689

 
5.9
 %
Global Finishes Group
2,080,854

 
2,004,530

 
3.8
 %
Latin America Coatings Group
771,378

 
832,450

 
-7.3
 %
Administrative
4,963

 
4,720

 
5.1
 %
Net sales
$
11,129,533

 
$
10,185,532

 
9.3
 %
 
 
 
 
 
 
 
Year Ended December 31,
(thousands of dollars)
2014
 
2013
 
Change
Income Before Income Taxes:
 
 
 
 
 
Paint Stores Group
$
1,201,420

 
$
990,523

 
21.3
 %
Consumer Group
252,859

 
242,061

 
4.5
 %
Global Finishes Group
201,129

 
170,591

 
17.9
 %
Latin America Coatings Group
40,469

 
38,645

 
4.7
 %
Administrative
(437,651
)
 
(355,862
)
 
-23.0
 %
Income before
income taxes
$
1,258,226

 
$
1,085,958

 
15.9
 %
Consolidated net sales for 2014 increased due primarily to higher paint sales volume in the Paint Stores Group and acquisitions. One acquisition completed in 2013 increased consolidated net sales 3.1 percent. Unfavorable currency translation rate changes decreased 2014 consolidated net sales 1.4 percent. Net sales of all consolidated foreign subsidiaries were up 3.5 percent to $2.204 billion for 2014 versus $2.130 billion for 2013 due primarily to acquisitions and selling price increases. Unfavorable foreign currency translation rates reduced net sales for all consolidated foreign subsidiaries during 2014 by 6.2 percent. Net sales of all operations other than consolidated foreign subsidiaries were up 10.8 percent to $8.926 billion for 2014 versus $8.056 billion for 2013.
Net sales in the Paint Stores Group in 2014 increased primarily due to higher architectural paint sales volume across all end market segments and acquisitions. Acquisitions increased net sales 4.5 percent for the year. Net sales from stores open for more than twelve calendar months increased 8.8 percent for the full year. During 2014, the Paint Stores Group opened 109 new stores and closed 14 redundant locations for a net increase of 95 stores, increasing the total number of stores in operation at December 31, 2014 to 4,003 in the United States, Canada and the Caribbean. The Paint Stores Group’s objective is to expand its store base an average of three percent each year, primarily through internal growth. Sales of products other than paint
 
increased approximately 13.7 percent for the year over 2013. 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 Group increased due primarily to acquisitions and higher volume sales to most of the Group's retail customers. Acquisitions increased net sales 3.4 percent compared to 2013. Sales of wood care coatings, brushes, rollers, caulk and other paint related products, excluding acquisitions, were all up at least mid to high-single digits as compared to 2013 while sales of aerosol products were down slightly. A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of paint-related merchandise sold. In December 2014, the Consumer Group announced a new agreement to sell architectural paint under the HGTV HOME® by Sherwin-Williams brand through a large U.S. national retailer's stores network. The Consumer Group plans to continue its promotions of new and existing products in 2015 and continue expanding its customer base and product assortment at existing customers.
The Global Finishes Group’s net sales in 2014, when stated in U.S. dollars, increased due primarily to selling price increases and higher paint sales volume partially offset by unfavorable currency translation rate changes. Paint sales volume percentage increased in the low-single digits as compared to 2013. Unfavorable currency translation rate changes in the year decreased net sales by 1.6 percent for 2014. In 2014, the Global Finishes Group opened 1 new branch and closed 1 location to remain flat at 300 branches open in the United States, Canada, Mexico, South America, Europe and Asia at year-end. In 2015, the Global Finishes Group expects to continue expanding its worldwide presence and improving its customer base.
The Latin America Coatings Group’s net sales in 2014, when stated in U.S. dollars, decreased due primarily to unfavorable currency translation rate changes partially offset by selling price increases. Paint sales volume percentage decreased in the low-single digits as compared to 2013. Unfavorable currency translation rate changes in the year decreased net sales by 12.3 percent for 2014. In 2014, the Latin America Coatings Group opened 3 new stores and closed 9 locations for a net decrease of 6 stores, decreasing the total to 276 stores open in North and South America at year-end. In 2015, the Latin America Coatings Group expects to continue expanding its regional presence and improving its customer base.


31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

Net sales in the Administrative segment, which primarily consist of external leasing revenue of excess headquarters space and leasing of facilities no longer used by the Company in its primary business, increased by an insignificant amount in 2014.
Consolidated gross profit increased $547.9 million in 2014 and improved as a percent to net sales to 46.4 percent from 45.3 percent in 2013 due primarily to higher paint sales volume partially offset by dilution from acquisitions and unfavorable currency translation rate changes. Further improving the gross profit comparable results were the TiO2 settlement of $21.4 million received by the Company in the fourth quarter of 2014, recorded primarily in the Paint Stores Group, and charges relating to the Brazil government tax assessments in 2013. The Paint Stores Group’s gross profit for 2014 increased $486.1 million compared to 2013 due primarily to higher paint sales volume and acquisitions and increased as a percent of sales due primarily to higher paint sales volume partially offset by acquisitions. Acquisitions increased Paint Stores Group's gross profits by $107.1 million, or 39.9 percent of acquisition net sales. The Consumer Group’s gross profit increased $32.7 million due primarily to increased production volume and improved operating efficiencies and was flat as a percent of sales for 2014 compared to 2013 due to dilution from acquisitions. Acquisitions increased Consumer Group's gross profits by $15.3 million, or 33.6 percent of acquisition net sales. The Global Finishes Group’s gross profit for 2014 increased $35.4 million due primarily to selling price increases and improved operating efficiencies partially offset by unfavorable currency translation rate changes. The Global Finishes Group’s gross profit increased as a percent of sales due primarily to selling price increases and improved operating efficiencies partially offset by unfavorable currency translation rate changes. Foreign currency translation rate fluctuations decreased Global Finishes Group’s gross profit by $11.8 million for 2014. The Latin America Coatings Group’s gross profit for 2014 increased $0.6 million and increased as a percent of sales. Charges of $28.7 million recorded during 2013 reduced gross profit related to the Brazil government tax assessments for 2013. Unfavorable currency translation rate changes and lower volume sales were only partially offset by selling price increases in 2014 compared to 2013. Foreign currency translation rate fluctuations decreased gross profit by $30.6 million for 2014. The Administrative segment’s gross profit decreased by $6.9 million.
SG&A increased by $355.3 million due primarily to increased expenses to support higher sales levels in nearly all Reportable Segments and acquisitions. Acquisitions added $156.8 million of SG&A in 2014, representing 49.6 percent of acquisition net sales. SG&A increased as a percent of sales to 34.3 percent in 2014 from 34.0 percent in 2013 primarily due to acquisitions. In the Paint Stores Group, SG&A increased $278.3 million for the year due primarily to increased spending due to the number of new store openings and increased expenses to maintain customer service and acquisitions SG&A, including integration costs, of $140.5 million, or 52.4 percent of acquisition net sales. The Consumer Group’s SG&A increased by $22.4 million for the year due to increased sales levels and acquisitions SG&A of $14.9 million, or 32.6 percent of acquisition net sales. The Global Finishes Group’s SG&A increased by $13.9 million for the year relating primarily to
 
increased sales levels partially offset by foreign currency translation rate fluctuations reducing SG&A by $9.9 million. The Latin America Coatings Group’s SG&A decreased by $4.5 million for the year relating primarily to foreign currency translation rate fluctuations of $18.7 million partially offset by increased expenses in local currencies due to high inflation and increased information systems costs. The Administrative segment’s SG&A increased $45.3 million primarily due to acquisition integration efforts, information systems costs and incentive compensation, including stock-based compensation expense.
Other general expense - net increased $35.0 million in 2014 compared to 2013. The increase was mainly caused by an increase of $35.5 million of expense in the Administrative segment, primarily due to a year-over-year increase in provisions for environmental matters of $38.8 million partially offset by decreased loss on sale or disposal of assets of $3.8 million. See Note 13, on page 67 of this report, for more information concerning Other general expense - net.
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, 2014. The impairment tests in 2014 and 2013 resulted in no impairment of goodwill and trademarks. See Note 4, on pages 48 and 49 of this report, for more information concerning the impairment of intangible assets.
Interest expense, included in the Administrative segment, increased $1.5 million in 2014 versus 2013 due primarily to higher average debt levels partially offset by a one-time interest expense charge of $3.4 million from early retirement of debt during the fourth quarter of 2013.
Other (income) expense - net increased to $15.4 million income from $0.9 million expense in 2013. This was primarily due to a $6.3 million gain on the early termination of a customer agreement recorded in the Global Finishes Group and a $6.2 million realized gain resulting from final asset valuations related to the acquisition of the U.S./Canada business of Comex recorded in the Administrative segment. Additionally, foreign currency related transaction losses of $3.6 million in 2014 versus foreign currency


32 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

related transaction losses of $7.7 million in 2013, primarily in the Global Finishes and Latin America Coatings Groups, were favorable comparisons. See Note 13, on page 67 of this report, for more information concerning Other (income) expense - net.
Consolidated Income before income taxes in 2014 increased $172.3 million due primarily to an increase of $547.9 million in gross profit partially offset by an increase of $355.3 million in SG&A and an increase of $20.4 million in interest expense, interest and net investment income and other expenses. Income before income taxes increased $210.9 million in the Paint Stores Group, $30.5 million in the Global Finishes Group,$10.8 million in the Consumer Group and $1.8 million in the Latin America Coatings Group when compared to 2013. The Administrative segment had an unfavorable impact on Income before income taxes of $81.8 million when compared to 2013. Segment profit of all consolidated foreign subsidiaries increased 8.9 percent to $115.6 million for 2014 versus $106.2 million for 2013 due primarily to increase in gross profit of $56.7 million, which included charges in 2013 to Cost of goods sold due to the Brazil government tax assessments, partially offset by an increase in SG&A of $41.3 million and increased Other expense - net of $5.3 million. Segment profit of all operations other than consolidated foreign subsidiaries increased 16.6 percent to $1.143 billion for 2014 versus $979.8 million for 2013.
Net income increased $113.3 million in 2014 due to the increase in Income before income taxes.
The effective income tax rate for 2014 was 31.2 percent. The effective income tax rate for 2013 was 30.7 percent. Diluted net income per common share increased 20.9 percent to $8.78 per share for 2014, which included charges of $.22 per share related to environmental provisions and an $.18 per share loss from acquisitions partially offset by an increase of $.13 per share related to the TiO2 settlement, from $7.26 per share a year ago, which included charges of $.21 per share relating to Brazil government tax assessments.
Management considers a measurement that is not in accordance with U.S. generally accepted accounting principles a useful measurement of the operational profitability of the Company. Some investment professionals also utilize such a measurement as an indicator of the value of profits and cash that are generated strictly from operating activities, putting aside working capital and certain other balance sheet changes. For this measurement, management increases Net income for significant non-operating and non-cash expense items to arrive at an amount known as EBITDA. The reader is cautioned that the following value for EBITDA should not be compared to other entities unknowingly. EBITDA should not be considered an alternative 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 U.S. generally accepted accounting principles disclosed in the Statements of Consolidated Income and Statements of Consolidated Cash Flows, on pages 40 and 42 of this report. EBITDA as used by management is calculated as follows:
 
 
Year Ended December 31,
(thousands of dollars)
2014
 
2013
 
2012
Net income
$
865,887

 
$
752,561

 
$
631,034

Interest expense
64,205

 
62,714

 
42,788

Income taxes
392,339

 
333,397

 
276,275

Depreciation
169,087

 
158,763

 
152,217

Amortization
29,858

 
29,031

 
26,985

EBITDA
$
1,521,376

 
$
1,336,466

 
$
1,129,299



RESULTS OF OPERATIONS - 2013 vs. 2012
Shown below are net sales and segment profit and the percentage change for the current period by segment for 2013 and 2012: 
  
Year Ended December 31,
(thousands of dollars)
2013
 
2012
 
Change
Net Sales:
 
 
 
 
 
Paint Stores Group
$
6,002,143

 
$
5,409,947

 
10.9
 %
Consumer Group
1,341,689

 
1,321,887

 
1.5
 %
Global Finishes Group
2,004,530

 
1,960,699

 
2.2
 %
Latin America Coatings Group
832,450

 
836,057

 
-0.4
 %
Administrative
4,720

 
5,872

 
-19.6
 %
Net sales
$
10,185,532

 
$
9,534,462

 
6.8
 %
 
 
 
 
 
 
  
Year Ended December 31,
(thousands of dollars)
2013
 
2012
 
Change
Income Before Income Taxes:
 
 
 
 
 
Paint Stores Group
$
990,523

 
$
861,763

 
14.9
 %
Consumer Group
242,061

 
216,422

 
11.8
 %
Global Finishes Group
170,591

 
147,231

 
15.9
 %
Latin America Coatings Group
38,645

 
81,238

 
-52.4
 %
Administrative
(355,862
)
 
(399,345
)
 
10.9
 %
Income before
income taxes
$
1,085,958

 
$
907,309

 
19.7
 %
Consolidated net sales for 2013 increased due primarily to higher paint sales volume in the Paint Stores Group and acquisitions. One acquisition completed in 2013 and two


33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 

acquisitions completed in 2012 increased consolidated net sales 1.8 percent. Unfavorable currency translation rate changes decreased 2013 consolidated net sales 0.8 percent. Net sales of all consolidated foreign subsidiaries were up 3.9 percent to $2.130 billion for 2013 versus $2.050 billion for 2012 due primarily to acquisitions and selling price increases. Unfavorable foreign currency translation rates reduced net sales for all consolidated foreign subsidiaries during 2013 by 3.4 percent. Net sales of all operations other than consolidated foreign subsidiaries were up 7.6 percent to $8.056 billion for 2013 versus $7.485 billion for 2012.
Net sales in the Paint Stores Group in 2013 increased primarily due to higher architectural paint sales volume across all end market segments and acquisitions. Acquisitions increased net sales 2.2 percent for the year. Net sales from stores open for more than twelve calendar months increased 7.8 percent for the full year. During 2013, the Paint Stores Group acquired 306 stores, opened 86 new stores and closed 4 redundant locations for a net increase of 388 stores, increasing the total number of stores in operation at December 31, 2013 to 3,908 in the United States, Canada and the Caribbean. The Paint Stores Group’s objective is to expand its store base an average of three percent each year, primarily through internal growth. Sales of products other than paint increased approximately 8.7 percent for the year over 2012. 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 Group increased due primarily to acquisitions partially offset by the previously disclosed elimination of a portion of a paint program with a large retail customer. Acquisitions increased net sales 2.4 percent compared to 2012. Sales of aerosols, brushes, rollers, caulk and other paint related products, excluding acquisitions, were all up low-single digits as compared to 2012. A discussion of changes in volume versus pricing for sales of products other than paint is not pertinent due to the wide assortment of paint-related merchandise sold.
The Global Finishes Group’s net sales in 2013, when stated in U.S. dollars, increased due primarily to selling price increases and acquisitions partially offset by unfavorable currency translation rate changes. Acquisitions increased this Group’s net sales in U.S. dollars by 1.2 percent. Paint sales volume percentage, excluding acquisitions, decreased in the low-single digits. Unfavorable currency translation rate changes in the year decreased net sales by 0.4 percent for 2013. In 2013, the Global Finishes Group opened 2 new branches and closed 4 locations for a net decrease of 2 branches, decreasing the total to 300 branches open in the United States, Canada, Mexico, South America, Europe and Asia at year-end.
The Latin America Coatings Group’s net sales in 2013, when stated in U.S. dollars, decreased due primarily to unfavorable currency translation rate changes partially offset by selling price increases. Paint sales volume in 2013 was nearly flat when compared to 2012. Unfavorable currency translation rate changes in the year decreased net sales by 7.1 percent for 2013. In 2013, the Latin America Coatings Group opened 14 new stores and closed 8 locations for a net increase of 6 stores,
 
increasing the total to 282 stores open in North and South America at year-end.
Net sales in the Administrative segment, which primarily consist 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 2013.
Consolidated gross profit increased $410.3 million in 2013 and improved as a percent to net sales to 45.3 percent from 44.1 percent in 2012 due primarily to higher paint sales volume partially offset by dilution from acquisitions and unfavorable currency translation rate changes. The Paint Stores Group’s gross profit for 2013 increased $330.9 million compared to 2012 due primarily to higher paint sales volume and acquisitions and increased as a percent of sales due primarily to higher paint sales volume partially offset by acquisitions. Acquisitions increased Paint Stores Group's gross profits by $18.0 million, or 15.5 percent of acquisition net sales. The Consumer Group’s gross profit increased $47.4 million and increased as a percent of sales for 2013 over 2012 due primarily to increased production volume and improved operating efficiencies. Acquisitions increased Consumer Group's gross profits by $8.0 million, or 24.7 percent of acquisition net sales. The Global Finishes Group’s gross profit for 2013 increased $43.6 million due primarily to selling price increases, improved operating efficiencies and acquisitions partially offset by unfavorable currency translation rate changes. The Global Finishes Group’s gross profit increased as a percent of sales due primarily to selling price increases and improved operating efficiencies partially offset by dilution from acquisitions and unfavorable currency translation rate changes. Acquisitions increased Global Finishes Group’s gross profit by $5.7 million, or 25.2 percent of acquisition net sales, and foreign currency translation rate fluctuations decreased gross profit by $3.9 million for 2013. The Latin America Coatings Group’s gross profit for 2013 decreased $28.8 million and decreased as a percent of sales. Charges of $28.7 million recorded during 2013 reduced gross profit related to the Brazil government tax assessments. Additionally, unfavorable currency translation rate changes were only partially offset by selling price increases. Foreign currency translation rate fluctuations decreased gross profit by $15.4 million for 2013. The Administrative segment’s gross profit increased by $17.1 million due primarily to the DOL Settlement recorded during 2012.


34 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SG&A increased by $208.0 million due primarily to increased expenses to support higher sales levels in nearly all Reportable Segments and acquisitions partially offset by the DOL Settlement recorded during 2012. Acquisitions added $75.6 million of SG&A in 2013, representing 44.1 percent of acquisition net sales. SG&A decreased as a percent of sales to 34.0 percent in 2013 from 34.2 percent in 2012. In the Paint Stores Group, SG&A increased $204.1 million for the year due primarily to increased spending due to the number of new store openings and increased expenses to maintain customer service and acquisitions SG&A, including transaction and integration costs, of $61.6 million, or 52.9 percent of acquisition net sales. The Consumer Group’s SG&A increased by $15.9 million for the year due to increased sales levels and acquisitions SG&A of $8.1 million, or 25.0 percent of acquisition net sales. The Global Finishes Group’s SG&A increased by $13.0 million for the year relating primarily to increased sales levels and acquisitions SG&A of $5.9 million, or 26.2 percent of acquisition net sales, partially offset by foreign currency translation rate fluctuations reducing SG&A by $3.0 million. The Latin America Coatings Group’s SG&A increased by $8.1 million for the year relating primarily to the Brazil government tax assessments and related expenses partially offset by foreign currency translation rate fluctuations of $10.3 million. The Administrative segment’s SG&A decreased $33.1 million primarily due to the DOL Settlement recorded during 2012 partially offset by increased information systems costs to integrate previous years acquisitions and acquisition transaction expenses.
Other general expense - net decreased $2.7 million in 2013 compared to 2012. The decrease was mainly caused by a decrease of $9.1 million of expense in the Administrative segment, primarily due to a year-over-year decrease in provisions for environmental matters of $9.5 million partially offset by increased loss on sale or disposal of assets of $1.8 million. In addition, Other general expense - net in the Consumer Group had lower income adjustments associated with prior exit or disposal activities of $5.0 million as compared to 2012, while insignificant changes occurred in Other general expense - net of the remaining Reportable Segments. See Note 13, on page 67 of this report, for more information concerning Other general expense - net.
Impairments of trademarks of $4.1 million were recorded in 2012. 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, 2013. The impairment test in 2013 resulted in no impairment of goodwill and trademarks. The impairment test in 2012 resulted in no impairment of goodwill and an impairment of $4.1 million of several indefinite-lived trademarks primarily in the Paint Stores Group as a result of planned conversion of various acquired brands. The remaining book values of these trademarks are now being amortized over their estimated future lives. The impairment charges are shown as a separate line in the Statements of Consolidated Income in accordance with the
 
Goodwill and Other Intangibles Topic of the ASC. See Note 4, on pages 48 and 49 of this report, for more information concerning the impairment of intangible assets.
Interest expense, included in the Administrative segment, increased $19.9 million in 2013 versus 2012 due primarily to higher average debt levels and a one-time interest expense charge of $3.2 million from early retirement of debt during the fourth quarter.
Other expense (income) - net decreased to $0.9 million expense from $9.9 million income in 2012. This was primarily due to foreign currency related transaction losses of $7.7 million in 2013 versus foreign currency related transaction gains of $3.1 million in 2012, primarily in the Global Finishes and Latin America Coatings Groups. See Note 13, on page 67 of this report, for more information concerning Other income - net.
Consolidated Income before income taxes in 2013 increased $178.6 million due primarily to an increase of $410.3 million in gross profit partially offset by an increase of $208.0 million in SG&A and an increase of $27.7 million in interest expense, interest and net investment income and other expenses. Income before income taxes increased $128.8 million in the Paint Stores Group, $23.4 million in the Global Finishes Group and $25.6 million in the Consumer Group, but declined $42.6 million in the Latin America Coatings Group when compared to 2012. The Administrative segment had a favorable impact on Income before income taxes of $43.5 million when compared to 2012. Segment profit of all consolidated foreign subsidiaries decreased 33.0 percent to $106.2 million for 2013 versus $158.4 million for 2012 due primarily to an increase in SG&A of $38.0 million, including the Brazil government tax assessments and related expenses, and reduced Other income - net of $24.1 million partially offset by an increase in gross profit of $13.4 million, which included charges to Cost of goods sold due to the Brazil government tax assessments. Segment profit of all operations other than consolidated foreign subsidiaries increased 30.8 percent to $979.8 million for 2013 versus $748.9 million for 2012.
Net income increased $121.5 million in 2013 due to the increase in Income before income taxes.
The effective income tax rate for 2013 was 30.7 percent. The effective income tax rate for 2012 was 30.4 percent. Diluted net income per common share increased 20.6 percent to $7.26 per share for 2013, which included charges relating to the Brazil government tax assessments ($.21 per share), from $6.02 per share a year ago, which included charges relating to the DOL Settlement ($.47 per share).





35

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, 2014, 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, 2014, 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, 2014 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 37 of this report.

C. M. Connor
Chairman and Chief Executive Officer

S. P. Hennessy
Senior Vice President - Finance and Chief Financial Officer


A. J. Mistysyn
Senior Vice President - Corporate Controller

36 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Shareholders of The Sherwin-Williams Company
We have audited The Sherwin-Williams Company’s internal control over financial reporting as of December 31, 2014, 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). The Sherwin-Williams 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
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.
In our opinion, The Sherwin-Williams Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Sherwin-Williams Company as of December 31, 2014, 2013 and 2012, and the related consolidated statements of income and comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2014 and our report dated February 25, 2015 expressed an unqualified opinion thereon.







Cleveland, Ohio
February 25, 2015

37

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, 2014, 2013 and 2012 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 36 of this report, we concluded that the Company’s internal control over financial reporting was effective as of December 31, 2014.
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.

C. M. Connor
Chairman and Chief Executive Officer

S. P. Hennessy
Senior Vice President - Finance and Chief Financial Officer

A. J. Mistysyn
Senior Vice President - Corporate Controller

38 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS


The Board of Directors and Shareholders of The Sherwin-Williams Company
We have audited the accompanying consolidated balance sheets of The Sherwin-Williams Company as of December 31, 2014, 2013 and 2012, and the related consolidated statements of income and comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Sherwin-Williams Company at December 31, 2014, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, 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), The Sherwin-Williams Company’s internal control over financial reporting as of December 31, 2014, 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 25, 2015 expressed an unqualified opinion thereon.




Cleveland, Ohio
February 25, 2015
 


39
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(thousands of dollars except per common share data)

 
Year Ended December 31,
 
2014
 
2013
 
2012
 
 
 
 
 
 
Net sales
$
11,129,533

 
$
10,185,532

 
$
9,534,462

Cost of goods sold
5,965,049

 
5,568,966

 
5,328,236

 
 
 
 
 
 
Gross profit (1)
5,164,484

 
4,616,566

 
4,206,226

Percent to net sales
46.4
%
 
45.3
%
 
44.1
%
 
 
 
 
 
 
Selling, general and administrative expenses (1)
3,822,966

 
3,467,681

 
3,259,648

Percent to net sales
34.3
%
 
34.0
%
 
34.2
%
 
 
 
 
 
 
Other general expense - net
37,482

 
2,519

 
5,248

Impairment of trademarks
 
 
 
 
4,086

Interest expense
64,205

 
62,714

 
42,788

Interest and net investment income
(2,995
)
 
(3,242
)
 
(2,913
)
Other (income) expense - net
(15,400
)
 
936

 
(9,940
)
 
 
 
 
 
 
Income before income taxes
1,258,226

 
1,085,958

 
907,309

Income taxes (1)
392,339

 
333,397

 
276,275

 
 
 
 
 
 
Net income
$
865,887

 
$
752,561

 
$
631,034

 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
Basic
$
8.95

 
$
7.41

 
$
6.15

Diluted
$
8.78

 
$
7.26

 
$
6.02

(1) Includes DOL Settlement of $49,163, net of tax (Cost of goods sold $16,000, Selling, general and administrative expenses $64,000 and tax benefit $30,837), or $.47 per share in the Year ended December 31, 2012.

 
Year Ended December 31,
 
2014
 
2013
 
2012
 
 
 
 
 
 
Net income
$
865,887

 
$
752,561

 
$
631,034

 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(103,441
)
 
(46,748
)
 
(7,403
)
 
 
 
 
 
 
Employee benefit plans:
 
 
 
 
 
Net actuarial (losses) gains and prior service costs
 
 
 
 
 
arising during period (2)
(56,536
)
 
85,051

 
(6,192
)
Less: amortization of net actuarial losses and
 
 
 
 
 
prior service costs included in Net pension costs (3)
8,980

 
10,933

 
10,973

 
(47,556
)
 
95,984

 
4,781

 
 
 
 
 
 
Unrealized net gains on available-for-sale securities:
 
 
 
 
 
Unrealized holding gains
 
 
 
 
 
arising during period (4)
366

 
134

 
123

Less: reclassification adjustments for gains
 
 
 
 
 
included in net income (5)
(283
)
 
(25
)
 
(12
)
 
83

 
109

 
111

 
 
 
 
 
 
Other comprehensive (loss) income
(150,914
)
 
49,345

 
(2,511
)
 
 
 
 
 
 
Comprehensive income
$
714,973

 
$
801,906

 
$
628,523

(2) Net of taxes of $24,954, $(63,343) and $2,846, in 2014, 2013 and 2012, respectively.
(3) Net of taxes of $(2,712), $(7,643) and $(13,350), in 2014, 2013 and 2012, respectively.
(4) Net of taxes of $(228), $(84) and $(77), in 2014, 2013 and 2012, respectively.
(5) Net of taxes of $178, $17 and $7 in 2014, 2013 and 2012, respectively.

See notes to consolidated financial statements.

40 
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)

 
December 31,
 
2014
 
2013
 
2012
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
40,732

 
$
744,889

 
$
862,590

Accounts receivable, less allowance
1,130,565

 
1,097,751

 
1,032,508

Inventories:
 
 
 
 
 
Finished goods
841,784

 
779,057

 
732,359

Work in process and raw materials
191,743

 
191,758

 
187,965

 
1,033,527

 
970,815

 
920,324

Deferred income taxes
109,087

 
104,496

 
126,730

Other current assets
252,869

 
240,766

 
207,086

Total current assets
2,566,780

 
3,158,717

 
3,149,238

 
 
 
 
 
 
Goodwill
1,158,346

 
1,178,687

 
1,156,005

Intangible assets
289,127

 
313,299

 
347,553

Deferred pension assets
250,144

 
302,446

 
249,911

Other assets
420,625

 
407,975

 
366,134

Property, plant and equipment:
 
 
 
 
 
Land
125,691

 
125,131

 
102,336

Buildings
698,202

 
715,096

 
677,944

Machinery and equipment
1,952,037

 
1,838,590

 
1,750,729

Construction in progress
59,330

 
62,563

 
56,582

 
2,835,260

 
2,741,380

 
2,587,591

Less allowances for depreciation
1,814,230

 
1,719,997

 
1,621,695

 
1,021,030

 
1,021,383

 
965,896

Total Assets
$
5,706,052

 
$
6,382,507

 
$
6,234,737

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term borrowings
$
679,436

 
$
96,551

 
$
69,035

Accounts payable
1,042,182

 
998,484

 
922,999

Compensation and taxes withheld
360,458

 
337,637

 
314,892

Accrued taxes
86,744

 
79,504

 
52,104

Current portion of long-term debt
3,265

 
502,948

 
3,689

Other accruals
508,581

 
513,433

 
513,717

Total current liabilities
2,680,666

 
2,528,557

 
1,876,436

 
 
 
 
 
 
Long-term debt
1,122,715

 
1,122,373

 
1,632,165

Postretirement benefits other than pensions
277,892

 
268,874

 
320,223

Other long-term liabilities
628,309

 
688,168

 
614,109

 
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
Common stock - $1.00 par value:
 
 
 
 
 
    94,704,173, 100,129,380 and 103,270,067 shares outstanding
 
 
 
 
 
at December 31, 2014, 2013 and 2012, respectively
114,525

 
112,902

 
111,623

Preferred stock - convertible, no par value:
 
 
 
 
 
    40,406 and 101,086 shares outstanding
 
 
 
 
 
at December 31, 2013 and 2012, respectively
 
 
40,406

 
101,086

Unearned ESOP compensation
 
 
(40,406
)
 
(101,086
)
Other capital
2,079,639

 
1,847,801

 
1,673,788

Retained earnings
2,424,674

 
1,774,050

 
1,226,467

Treasury stock, at cost
(3,150,410
)
 
(1,639,174
)
 
(849,685
)
Cumulative other comprehensive loss
(471,958
)
 
(321,044
)
 
(370,389
)
Total shareholders’ equity
996,470

 
1,774,535

 
1,791,804

 
 
 
 
 
 
Total Liabilities and Shareholders’ Equity
$
5,706,052

 
$
6,382,507

 
$
6,234,737

See notes to consolidated financial statements.

41
STATEMENTS OF CONSOLIDATED CASH FLOWS
(thousands of dollars)

 
Year Ended December 31,
Operating Activities
2014
 
2013
 
2012
Net income
$
865,887

 
$
752,561

 
$
631,034

Adjustments to reconcile net income to net operating cash:
 
 
 
 
 
Depreciation
169,087

 
158,763

 
152,217

Amortization of intangible assets
29,858

 
29,031

 
26,985

Impairment of trademarks and goodwill
 
 
 
 
4,086

Provisions for environmental-related matters
36,046

 
(2,751
)
 
6,736

Provisions for qualified exit costs
13,578

 
4,682

 
2,734

Deferred income taxes
(19,038
)
 
27,775

 
(10,422
)
Defined benefit pension plans net cost
990

 
20,641

 
20,309

Stock-based compensation expense
64,735

 
58,004

 
54,348

Net (decrease) increase in postretirement liability
(718
)
 
5,233

 
3,666

Decrease in non-traded investments
63,365

 
57,261

 
72,861

Loss on disposition of assets
1,436

 
5,207

 
3,454

Other
203

 
(27,214
)
 
(18,349
)
Change in working capital accounts:
 
 
 
 
 
(Increase) in accounts receivable
(80,252
)
 
(41,473
)
 
(33,578
)
(Increase) decrease in inventories
(101,112
)
 
25,031

 
19,929

Increase (decrease) in accounts payable
78,603

 
34,685

 
(51,124
)
Increase (decrease) in accrued taxes
13,187

 
11,314

 
(70,264
)
Increase in accrued compensation and taxes withheld
29,513

 
24,435

 
63,697

(Decrease) increase in refundable income taxes
(36,601
)
 
13,244

 
(32,967
)
DOL settlement accrual
 
 
(80,000
)
 
80,000

Other
(20,029
)
 
43,804

 
11,000

Costs incurred for environmental-related matters
(9,676
)
 
(12,539
)
 
(31,689
)
Costs incurred for qualified exit costs
(10,882
)
 
(7,419
)
 
(4,577
)
Other
(6,652
)
 
(16,509
)
 
(12,200
)
Net operating cash
1,081,528

 
1,083,766

 
887,886

 
 
 
 
 
 
Investing Activities
 
 
 
 
 
Capital expenditures
(200,545
)
 
(166,680
)
 
(157,112
)
Acquisitions of businesses, net of cash acquired
 
 
(79,940
)
 
(99,242
)
Proceeds from sale of assets
1,516

 
3,045

 
9,677

Increase in other investments
(111,021
)
 
(94,739
)
 
(95,778
)
Net investing cash
(310,050
)
 
(338,314
)
 
(342,455
)
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
Net increase (decrease) in short-term borrowings
591,423

 
31,634

 
(284,839
)
Proceeds from long-term debt
1,474

 
473

 
999,697

Payments of long-term debt
(500,661
)
 
(10,932
)
 
(14,000
)
Payments of cash dividends
(215,263
)
 
(204,978
)
 
(160,939
)
Proceeds from stock options exercised
100,069

 
69,761

 
221,126

Income tax effect of stock-based compensation exercises and vesting
68,657

 
47,527

 
104,858

Treasury stock purchased
(1,488,663
)
 
(769,271
)
 
(557,766
)
Other
(24,111
)
 
(17,522
)
 
(21,559
)
Net financing cash
(1,467,075
)
 
(853,308
)
 
286,578

Effect of exchange rate changes on cash
(8,560
)
 
(9,845
)
 
(2,115
)
Net (decrease) increase in cash and cash equivalents
(704,157
)
 
(117,701
)
 
829,894

Cash and cash equivalents at beginning of year
744,889

 
862,590

 
32,696

Cash and cash equivalents at end of year
$
40,732

 
$
744,889

 
$
862,590

Taxes paid on income
$
310,039

 
$
200,748

 
$
223,329

Interest paid on debt
67,306

 
61,045

 
41,551


See notes to consolidated financial statements.

42 
STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(thousands of dollars except per common share data)



 
Common
Stock
 
Preferred
Stock
 
Unearned
ESOP
Compen-sation
 
Other
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Cumulative
Other
Comprehensive
Loss
 
Total
Balance at January 1, 2012
$
107,454

 
$
160,273

 
$
(160,273
)
 
$
1,297,625

 
$
756,372

 
$
(276,654
)
 
$
(367,878
)
 
$
1,516,919

Net income
 
 
 
 
 
 
 
 
631,034

 
 
 
 
 
631,034

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(2,511
)
 
(2,511
)
Treasury stock purchased
 
 
 
 
 
 
 
 
 
 
(557,766
)
 
 
 
(557,766
)
Redemption of preferred stock
 
 
(59,187
)
 
59,187

 
 
 
 
 
 
 
 
 


Stock options exercised
3,867

 
 
 
 
 
217,259

 
 
 
(15,265
)
 
 
 
205,861

Income tax effect of stock compensation
 
 
 
 
 
 
104,858

 
 
 
 
 
 
 
104,858

Restricted stock and stock option grants
(net activity)
302

 
 
 
 
 
54,046

 
 
 
 
 
 
 
54,348

Cash dividends - $1.56 per common share
 
 
 
 
 
 
 
 
(160,939
)
 
 
 
 
 
(160,939
)
Balance at December 31, 2012
111,623

 
101,086

 
(101,086
)
 
1,673,788

 
1,226,467

 
(849,685
)
 
(370,389
)
 
1,791,804

Net income
 
 
 
 
 
 
 
 
752,561

 
 
 
 
 
752,561

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
49,345

 
49,345

Treasury stock purchased
 
 
 
 
 
 
 
 
 
 
(769,271
)
 
 
 
(769,271
)
Redemption of preferred stock
 
 
(60,680
)
 
60,680

 
 
 
 
 
 
 
 
 


Stock options exercised
1,128

 
 
 
 
 
68,633

 
 
 
(20,218
)
 
 
 
49,543

Income tax effect of stock compensation
 
 
 
 
 
 
47,527

 
 
 
 
 
 
 
47,527

Restricted stock and stock option grants
(net activity)
151

 
 
 
 
 
57,853

 
 
 
 
 
 
 
58,004

Cash dividends - $2.00 per common share
 
 
 
 
 
 
 
 
(204,978
)
 
 
 
 
 
(204,978
)
Balance at December 31, 2013
112,902

 
40,406

 
(40,406
)
 
1,847,801

 
1,774,050

 
(1,639,174
)
 
(321,044
)
 
1,774,535

Net income
 
 
 
 
 
 
 
 
865,887

 
 
 
 
 
865,887

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(150,914
)
 
(150,914
)
Treasury stock purchased
 
 
 
 
 
 
 
 
 
 
(1,488,663
)
 
 
 
(1,488,663
)
Redemption of preferred stock
 
 
(40,406
)
 
40,406

 
 
 
 
 
 
 
 
 


Stock options exercised
1,423

 
 
 
 
 
98,646

 
 
 
(22,573
)
 
 
 
77,496

Income tax effect of stock compensation
 
 
 
 
 
 
68,657

 
 
 
 
 
 
 
68,657

Restricted stock and stock option grants
(net activity)
200

 
 
 
 
 
64,535

 
 
 
 
 
 
 
64,735

Cash dividends - $2.20 per common share
 
 
 
 
 
 
 
 
(215,263
)
 
 
 
 
 
(215,263
)
Balance at December 31, 2014
$
114,525

 
$
—

 
$
—

 
$
2,079,639

 
$
2,424,674

 
$
(3,150,410
)
 
$
(471,958
)
 
$
996,470

 













See notes to consolidated financial statements.

43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

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 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 and Asia.
Reportable segments. See Note 18 for further details.
Cash flows. Management considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Fair value of financial instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported for Cash and cash equivalents approximate fair value.
Short-term investments: The carrying amounts reported for Short-term investments approximate fair value.
Investments in securities: Investments classified as available-for-sale are carried at market value. See the recurring fair value measurement table on page 45.
 
Non-traded investments: The Company has invested in the U.S. affordable housing and historic renovation real estate markets. These non-traded investments have been identified as variable interest entities. However, because the Company does not have the power to direct the day-to-day operations of the investments and the risk of loss is limited to the amount of contributed capital, the Company is not considered the primary beneficiary. In accordance with the Consolidation Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), the investments are not consolidated. The Company uses the effective yield method to determine the carrying value of the investments. Under the effective yield method, the initial cost of the investments is amortized over the period that the tax credits are recognized. The carrying amounts of the investments, included in Other assets, were $223,935, $210,779 and $223,701 at December 31, 2014, 2013 and 2012, respectively. The liabilities recorded on the balance sheets for estimated future capital contributions to the investments were $198,776, $198,761 and $218,688 at December 31, 2014, 2013 and 2012, respectively.
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, shown below, are based on quoted market prices. The fair values of the Company’s non-traded debt, also shown below, 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 Note 7.


 
December 31,
 
2014
 
2013
 
2012
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Publicly traded debt
$
1,120,924

 
$
1,160,280

 
$
1,620,646

 
$
1,614,739

 
$
1,630,056

 
$
1,706,487

Non-traded debt
5,056

 
4,812

 
4,675

 
4,430

 
5,798

 
5,600


Derivative instruments: The Company utilizes derivative instruments as part of its overall financial risk management policy. The Company entered into foreign currency option and forward currency exchange contracts with maturity dates of less than twelve months in 2014, 2013 and 2012, primarily to hedge against value changes in foreign currency. See Note 13. There were no material derivative contracts outstanding at December 31, 2014, 2013 and 2012.
 
Fair value measurements. The following tables summarize the Company’s assets and liabilities measured on a recurring and non-recurring basis in accordance with the Fair Value Measurements and Disclosures Topic of the ASC:



44 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

Assets and Liabilities Reported at Fair Value on a Recurring Basis

 
Fair Value at
December 31,
2014
 
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 asset (a)
$
23,870

 
$
1,140

 
$
22,730

 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan liability (b)
$
34,443

 
$
34,443

 
 
 
 
(a)
The deferred compensation plan asset consists of the investment funds maintained for the future payments under the Company’s executive deferred compensation plan, which is structured as a rabbi trust. The investments are marketable securities accounted for under the Debt and Equity Securities Topic of the ASC. The level 1 investments are valued using quoted market prices multiplied by the number of shares. The level 2 investments are valued based on vendor or broker models. The cost basis of the investment funds is $22,715.
(b)
The deferred compensation plan liability represents the value of the Company’s liability under its deferred compensation plan based on quoted market prices in active markets for identical assets.
Assets and Liabilities Reported at Fair Value on a Nonrecurring Basis. Except for the acquisition-related fair value measurements described in Note 2 which qualify as level 2 measurements, there were no assets and liabilities measured at fair value on a nonrecurring basis in 2014.
Accounts receivable and allowance for doubtful accounts. Accounts receivable were recorded at the time of credit sales net of provisions for sales returns and allowances. The Company recorded an allowance for doubtful accounts of $53,770, $54,460 and $47,667 at December 31, 2014, 2013 and 2012, respectively, to reduce Accounts receivable to their estimated net realizable value. The allowance was based on an analysis of historical bad debts, a review of the aging of Accounts receivable and the current creditworthiness of customers. Account receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful collection of accounts are related to the creditworthiness of accounts and are included in Selling, general and administrative expenses.
Reserve for obsolescence. The Company recorded a reserve for obsolescence of $90,712, $97,523 and $88,356 at December 31, 2014, 2013 and 2012, respectively, to reduce Inventories to their estimated net realizable value. 
Goodwill. Goodwill represents the cost in excess of fair value of net assets acquired in business combinations accounted for by the purchase method. In accordance with the Impairments Topic of the ASC, goodwill is tested for impairment on an annual basis and in between annual tests if events or circumstances indicate potential impairment. See Note 4.
Intangible assets. Intangible assets include trademarks, non-compete covenants and certain intangible property rights. As required by the Goodwill and Other Intangibles Topic of the ASC, indefinite-lived trademarks are not amortized, but instead are tested annually for impairment, and between annual tests whenever an event occurs or circumstances indicate potential impairment. See Note 4. The cost of finite-lived trademarks, non-compete covenants and certain intangible property rights are amortized on a straight-line basis over the expected period of benefit as follows:
 
 
Useful Life
Finite-lived trademarks
5 years
Non-compete covenants
3 – 5 years
Certain intangible property rights
3 – 19 years
Accumulated amortization of finite-lived intangible assets was $303,902, $279,102 and $260,065 at December 31, 2014, 2013 and 2012, respectively. See Note 4.
Impairment of long-lived assets. In accordance with the Property, Plant and Equipment Topic of the ASC, management evaluates the recoverability and estimated remaining lives of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. See Notes 4 and 5.
Property, plant and equipment. Property, plant and equipment 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 expense caption on the Statements of Consolidated Income. Included in Property, plant and equipment are leasehold improvements. The major classes of assets and ranges of annual depreciation rates are:
Buildings
2.5% – 20.0%
Machinery and equipment
5.0% – 20.0%
Furniture and fixtures
10.0% – 33.3%
Automobiles and trucks
10.0% – 33.3%


45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

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 $23,442, $25,896 and $22,845 at December 31, 2014, 2013 and 2012, respectively.
Product warranties. 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 2014, 2013 and 2012, including customer satisfaction settlements during the year, were as follows:
 
2014
 
2013
 
2012
Balance at January 1
$
26,755

 
$
22,710

 
$
22,071

Charges to expense
37,879

 
33,265

 
28,590

Settlements
(36,911
)
 
(29,220
)
 
(27,951
)
Balance at December 31
$
27,723

 
$
26,755

 
$
22,710

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 is involved with environmental investigation and remediation activities at some of its currently and formerly owned sites and at a number of third-party sites. The Company accrued for environmental-related activities for which commitments or clean-up plans have been developed and when such costs could be reasonably estimated based on industry standards and professional judgment. All accrued amounts were recorded on an undiscounted basis. 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 8 and 13.
Employee Stock Purchase and Savings Plan and preferred stock. The Company accounts for the Employee Stock Purchase and Savings Plan (ESOP) in accordance with the Employee Stock Ownership Plans Subtopic of the Compensation – Stock Ownership Topic of the ASC. The Company recognized compensation expense for amounts contributed to the ESOP, and the ESOP used dividends on unallocated preferred shares to service debt. Unallocated preferred shares held by the ESOP were not considered outstanding in calculating earnings per share of the Company. During 2014, the Company redeemed all remaining preferred shares for cash. See Note 11.
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 6.
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 12.
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 Cumulative other comprehensive loss, a component of Shareholders’ equity.
Cumulative other comprehensive loss. At December 31, 2014, the ending balance of Cumulative other comprehensive loss included adjustments for foreign currency translation of $354,384, net prior service costs and net actuarial losses related to pension and other postretirement benefit plans of $118,167 and unrealized net gains on marketable equity securities of $593. At December 31, 2013 and 2012, the ending balance of Cumulative other comprehensive loss included adjustments for foreign currency translation of $250,943 and $204,195, respectively, net prior service costs and net actuarial losses related to pension and other postretirement benefit plans of $70,611 and $166,595, respectively, and unrealized gains on marketable equity securities of $510 and $401, respectively.
Revenue recognition. All revenues were recognized when products were shipped and title had passed to unaffiliated customers. Collectibility of amounts recorded as revenue was reasonably assured at the time of recognition.
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


46 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

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 all expenses related to the distribution of products including inbound freight charges, purchase and receiving costs, warehousing costs, internal transfer costs and all 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 $50,019, $47,042 and $44,648 for 2014, 2013 and 2012, respectively. The settlement gain related to the titanium dioxide litigation reduced 2014 Costs of goods sold by $21,420. See Note 9.
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 $299,201, $262,492 and $247,469 in advertising costs during 2014, 2013 and 2012, respectively. General and administrative expenses included human resources, legal, finance and other support and administrative functions.
Earnings per share. Shares of preferred stock held in an unallocated account of the ESOP (see Note 11) and common stock held in a revocable trust (see Note 10) were not considered outstanding shares for basic or diluted income per common share calculations. All references to “shares” or “per share” information throughout this report relate to common shares and are stated on a diluted per common share basis, unless otherwise indicated. Basic and diluted net income per common share were calculated using the two-class method in accordance with the Earnings Per Common Share Topic of the ASC. Basic net income per common share amounts were computed based on the weighted-average number of common shares outstanding during the year. Diluted net income per common share amounts were computed based on the weighted-average number of common shares outstanding plus all dilutive securities potentially outstanding during the year. See Note 15.
Impact of recently issued accounting standards. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, "Revenue Recognition - Revenue from Contracts with Customers," which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard is effective for interim and annual periods beginning after December 15, 2016, and either full retrospective adoption or modified retrospective adoption is permitted. The Company is in the process of evaluating the impact of the standard.
 

NOTE 2 – ACQUISITIONS
On September 16, 2013, the Company entered into a definitive Stock Purchase Agreement and completed the acquisition of the U.S./Canada business of Consorcio Comex, S.A. de C.V. (Comex). The U.S./Canada business of Comex focuses on the manufacture and sale of paint and paint related products through retail service centers under various proprietary brands. The acquisition strengthens the ability of the Paint Stores Group and Consumer Group to serve customers in key geographic markets. The acquisition resulted in the recognition of intangible assets of $4,696. Final asset valuation adjustments resulted in a realized gain of $6,198 which was included in Other (income) expense for the year ended December 31, 2014. The acquisition of the U.S./Canada business of Comex has been accounted for as a purchase and the results of operations have been included in the consolidated financial statements since the date of acquisition.
On April 3, 2014, the Company terminated the Stock Purchase Agreement entered into on November 9, 2013 and subsequently amended and restated for the acquisition of the Mexico business of Comex pursuant to the terms of the agreement.
The following unaudited pro-forma summary presents consolidated financial information as if the U.S./Canada business of Comex had been acquired at the beginning of 2013. The unaudited pro-forma consolidated financial information does not necessarily reflect the actual results that would have occurred had the acquisitions taken place on January 1, 2013 or the future results of operations of the combined companies under ownership and operation of the Company.
 
2014
 
2013
Net sales
$
11,129,533

 
$
10,540,181

Net income
865,887

 
725,774

Net income per common share:
 
 
 
Basic
8.95

 
7.13

Diluted
8.78

 
6.98



47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

NOTE 3 – INVENTORIES
Inventories were stated at the lower of cost or market with cost determined principally on the last-in, first-out (LIFO) method. The following presents the effect on inventories, net income and net income per common share had the Company used the first-in, first-out (FIFO) inventory valuation method adjusted for income taxes at the statutory rate and assuming no other adjustments. Management believes that the use of LIFO results in a better matching of costs and revenues. This information is presented to enable the reader to make comparisons with companies using the FIFO method of inventory valuation. During 2014, 2013 and 2012, certain inventories accounted for on the LIFO method were reduced, resulting in the liquidation of certain quantities carried at costs prevailing in prior years. The 2014 and 2013 liquidations increased net income by $196 and $169, respectively, while the 2012 liquidations reduced net income by $160.
 
2014
 
2013
 
2012
Percentage of total
inventories on LIFO
76
%
 
75
%
 
75
%
Excess of FIFO over
LIFO
$
331,867

 
$
337,214

 
$
357,303

Increase in net
income due to LIFO
3,230

 
12,299

 
13,365

Increase in net
income per common
share due to LIFO
.03

 
.12

 
.13

NOTE 4 – GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS
During 2013 and 2014, the Company recognized acquired customer relationships and finite-lived trademarks of $3,311 and $1,385, respectively, related to the acquisition of the U.S./Canada business of Comex. The customer relationships and finite-lived trademarks are being amortized over 7 years from the date of acquisition. The Company initially recognized $1,885 of goodwill and $466 of indefinite-lived trademarks in 2013, but subsequently adjusted these amounts to zero based on final asset valuations completed in 2014.
During 2012 and 2013, the Company recognized $60,027 of goodwill and $968 of indefinite-lived trademarks related to the 2012 acquisitions of Geocel and Pulanna. Acquired customer relationships, finite-lived trademarks, intellectual property and covenants not to compete recognized in these acquisitions valued at $25,120, $13,000, $4,955 and $1,335, respectively, are being amortized over periods ranging from 3 to 15 years from the date of acquisition.
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. Undiscounted cash flows are to be used to calculate the recoverable value of long-lived assets to determine if such assets are impaired. Where impairment is identified, a discounted cash flow valuation model, incorporating discount rates commensurate with the risks involved for each group of assets, is to be used to determine the
 
fair value for the assets to measure any potential impairment. No material impairments were recorded in 2014, 2013 and 2012.
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 discounted cash flow 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 Company used the qualitative assessment for each of its reporting units in 2014, 2013 and 2012.
The annual impairment reviews performed as of October 1, 2014 and 2013 did not result in any goodwill or trademark impairment. The 2012 impairment review resulted in trademark impairments in the Paint Stores Group and Global Finishes Group of $3,400 and $686, respectively, and no goodwill impairment. The trademark impairments related primarily to the planned conversion of various acquired brands and are reported as a separate line in the Statements of Consolidated Income.
Amortization of finite-lived intangible assets is as follows for the next five years: $26,379 in 2015, $20,297 in 2016, $15,706 in 2017 and $14,052 in 2018 and $12,711 in 2019.


48 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

A summary of changes in the Company’s carrying value of goodwill by Reportable Segment is as follows:
Goodwill
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings Group
 
Consolidated
Totals
Balance at January 1, 2012 (a)
$
286,998

 
$
689,279

 
$
120,350

 
$
11,381

 
$
1,108,008

Acquisitions
 
 
17,357

 
24,707

 
 
 
42,064

Currency and other adjustments
(214
)
 
(344
)
 
7,230

 
(739
)
 
5,933

Balance at December 31, 2012 (a)
286,784

 
706,292

 
152,287

 
10,642

 
1,156,005

Acquisitions
1,885

 
 
 
17,963

 
 
 
19,848

Currency and other adjustments
(1,369
)
 
(2,941
)
 
8,048

 
(904
)
 
2,834

Balance at December 31, 2013 (a)
287,300

 
703,351

 
178,298

 
9,738

 
1,178,687

Currency and other adjustments
(1,866
)
 
(1,145
)
 
(17,287
)
 
(43
)
 
(20,341
)
Balance at December 31, 2014 (a)
$
285,434

 
$
702,206

 
$
161,011

 
$
9,695

 
$
1,158,346

(a)
Net of accumulated impairment losses of $8,904 ($8,113 in the Consumer Group and $791 in the Global Finishes Group).
A summary of the Company’s carrying value of intangible assets is as follows: 
 
Finite-lived intangible assets
 
Trademarks
with indefinite
lives
 
Total
intangible
assets
 
Software
 
All other
 
Subtotal
 
December 31, 2014
 
 
 
 
 
 
 
 
 
Weighted-average amortization period
8 years

 
12 years

 
11 years

 
 
 
 
Gross
$
126,258

 
$
317,005

 
$
443,263

 
 
 
 
Accumulated amortization
(88,384
)
 
(215,518
)
 
(303,902
)
 
 
 
 
Net value
$
37,874

 
$
101,487

 
$
139,361

 
$
149,766

 
$
289,127

December 31, 2013
 
 
 
 
 
 
 
 
 
Weighted-average amortization period
8 years

 
10 years

 
9 years

 
 
 
 
Gross
$
114,404

 
$
327,962

 
$
442,366

 
 
 
 
Accumulated amortization
(77,018
)
 
(202,084
)
 
(279,102
)
 
 
 
 
Net value
$
37,386

 
$
125,878

 
$
163,264

 
$
150,035

 
$
313,299

December 31, 2012
 
 
 
 
 
 
 
 
 
Weighted-average amortization period
8 years

 
12 years

 
11 years

 
 
 
 
Gross
$
107,779

 
$
337,089

 
$
444,868

 
 
 
 
Accumulated amortization
(66,106
)
 
(193,959
)
 
(260,065
)
 
 
 
 
Net value
$
41,673

 
$
143,130

 
$
184,803

 
$
162,750

 
$
347,553

NOTE 5 – EXIT OR DISPOSAL ACTIVITIES
Management is continually re-evaluating the Company’s operating facilities, including acquired operating facilities, against its long-term strategic goals. Liabilities associated with exit or disposal activities are recognized as incurred in accordance with the Exit or Disposal Cost Obligations Topic of the ASC. Provisions for qualified exit costs are made at the time a facility is no longer operational. Qualified exit costs primarily include post-closure rent expenses or costs to terminate the contract before the end of its term and costs of employee terminations. Adjustments may be made to liabilities accrued for qualified exit costs if information becomes available upon which more accurate amounts can be reasonably estimated.
 
Concurrently, property, plant and equipment is tested for impairment in accordance with the Property, Plant and Equipment Topic of the ASC, and if impairment exists, the carrying value of the related assets is reduced to estimated fair value. Additional impairment may be recorded for subsequent revisions in estimated fair value. Adjustments to prior provisions and additional impairment charges for property, plant and equipment of closed sites being held for disposal are recorded in Other general expense – net.
During 2014, 7 facilities and 24 stores and branches were closed due to lower demand or redundancy. In addition, the Global Finishes Group exited its business in Venezuela. Provisions


49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

for severance and other qualified exit cost of $280, $4,809 and $4,767 were charged to the Paint Stores Group, Consumer Group and Global Finishes Group, respectively. Provisions for severance and other qualified exit costs related to manufacturing facilities, distribution facilities, stores and branches closed prior to 2014 of $3,722 were recorded.
During 2013, 5 facilities and 16 stores and branches were closed due to lower demand or redundancy. Provisions for severance and other qualified exit cost of $1,004, $598, $278 and $123 were charged to the Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group, respectively. Provisions for severance and other qualified exit costs and adjustments to prior provisions related to manufacturing facilities, distribution facilities, stores and branches closed prior to 2013 of $2,679 were recorded.
During 2012, 19 stores and branches were closed due to
 
lower demand or redundancy. Provisions for severance and other qualified exit cost of $7,363 and $313 were charged to the Global Finishes Group and Paint Stores Group, respectively. There were no provisions for severance and other qualified exit costs charged to the Consumer Group or Latin America Coatings Group. Adjustments to prior provisions related to manufacturing facilities, distribution facilities, stores and branches closed prior to 2012 of $(4,942) were recorded.
At December 31, 2014, a portion of the remaining accrual for qualified exit costs relating to facilities shutdown prior to 2012 is expected to be incurred by the end of 2015. The remaining portion of the ending accrual for facilities shutdown prior to 2012 primarily represented post-closure contractual expenses related to certain owned facilities which are closed and being held for disposal. The Company cannot reasonably estimate when such matters will be concluded to permit disposition.

The tables on the following pages summarize the activity and remaining liabilities associated with qualified exit costs:
Exit Plan
 
Balance at
December 31,
2013
 
Provisions in
Cost of goods
sold or SG&A
 
Actual
expenditures
charged to
accrual
 
Balance at
December 31,
2014
Paint Stores Group stores shutdown in 2014:
 
 
 
 
 
 
 
 
Other qualified exit costs
 
 
 
$
280

 
 
 
$
280

Consumer Group facilities shutdown in 2014:
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
4,028

 
$
(1,296
)
 
2,732

Other qualified exit costs
 
 
 
781

 
 
 
781

Global Finishes Group exit of business in 2014:
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
2,500

 
(2,396
)
 
104

Other qualified exit costs
 
 
 
2,267

 
(1,187
)
 
1,080

Paint Stores Group facility shutdown in 2013:
 
 
 
 
 
 
 
 
Severance and related costs
 
$
977

 
2,126

 
(2,449
)
 
654

Other qualified exit costs
 
 
 
1,499

 
(294
)
 
1,205

Consumer Group facilities shutdown in 2013:
 
 
 
 
 
 
 


Severance and related costs
 
598

 
97

 
(695
)
 

Global Finishes Group stores shutdown in 2013:
 
 
 
 
 
 
 


Severance and related costs
 
33

 
 
 
(5
)
 
28

Other qualified exit costs
 
220

 
 
 
(82
)
 
138

Latin America Coatings Group facilities
shutdown in 2013:
 
 
 
 
 
 
 
 
Severance and related costs
 
123

 
 
 
(123
)
 

Paint Stores Group stores shutdown in 2012:
 
 
 
 
 
 
 
 
Other qualified exit costs
 
244

 
 
 
(51
)
 
193

Global Finishes Group facilities shutdown in 2012:
 
 
 
 
 
 
 


Severance and related costs
 
2,177

 
 
 
(1,863
)
 
314

Other qualified exit costs
 
83

 
 
 
 
 
83

Other qualified exit costs for facilities
shutdown prior to 2012
 
1,365

 
 
 
(441
)
 
924

Totals
 
$
5,820

 
$
13,578

 
$
(10,882
)
 
$
8,516


50 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

Exit Plan
 
Balance at
December 31,
2012
 
Provisions in
Cost of goods
sold or SG&A
 
Actual
expenditures
charged to
accrual
 
Adjustments to
prior provisions
in Other general
expense - net
 
Balance at
December 31,
2013
Paint Stores Group stores shutdown in 2013:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
$
1,004

 
$
(27
)
 
 
 
$
977

Consumer Group facilities shutdown in 2013:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
598

 
 
 
 
 
598

Global Finishes Group branches shutdown in 2013:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
278

 
(25
)
 
 
 
253

Latin America Coatings Group facilities
shutdown in 2013:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
123

 
 
 
 
 
123

Paint Stores Group stores shutdown in 2012:
 
 
 
 
 
 
 
 
 
 
Other qualified exit costs
 
$
313

 
 
 
(68
)
 
$
(1
)
 
244

Global Finishes Group facilities shutdown in 2012:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
2,236

 
2,533

 
(2,592
)
 
 
 
2,177

Other qualified exit costs
 
3,430

 
83

 
(3,530
)
 
100

 
83

Global Finishes Group branches shutdown in 2011:
 
 
 
 
 
 
 
 
 
 
Other qualified exit costs
 
290

 
 
 
(222
)
 
 
 
68

Other qualified exit costs for facilities
shutdown prior to 2011
 
2,288

 
 
 
(955
)
 
(36
)
 
1,297

Totals
 
$
8,557

 
$
4,619

 
$
(7,419
)
 
$
63

 
$
5,820


Exit Plan
 
Balance at
January 1, 2012
 
Provisions in
Cost of goods
sold or SG&A
 
Actual
expenditures
charged to
accrual
 
Adjustments to
prior provisions
in Other general
expense - net
 
Balance at
December 31,
2012
Paint Stores Group stores shutdown
in 2012:
 
 
 
 
 
 
 
 
 
 
Other qualified exit costs
 
 
 
$
313

 
 
 
 
 
$
313

Global Finishes Group facility shutdown
in 2012:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
 
 
3,933

 
$
(1,697
)
 
 
 
2,236

Other qualified exit costs
 
 
 
3,430

 
 
 
 
 
3,430

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

 
 
 
(133
)
 
$
(64
)
 
 
Paint Stores Group stores shutdown
in 2011:
 
 
 
 
 
 
 
 
 
 
Other qualified exit costs
 
156

 
 
 
(144
)
 
(12
)
 
 
Global Finishes Group branches shutdown
in 2011:
 
 
 
 
 
 
 
 
 
 
Severance and related costs
 
129

 
 
 
(134
)
 
5

 
 
Other qualified exit costs
 
470

 
 
 
(180
)
 
 
 
290

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

 
 
 
(133
)
 
 
 
822

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

 
 
 
(2,156
)
 
(4,871
)
 
1,466

Totals
 
$
10,400

 
$
7,676

 
$
(4,577
)
 
$
(4,942
)
 
$
8,557


 

51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

NOTE 6 – PENSION, HEALTH CARE AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides pension benefits to substantially all 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 Cumulative other comprehensive loss, a component of Shareholders’ equity. The amounts recorded in Cumulative other comprehensive loss will continue to be modified as actuarial assumptions and service costs change, and all such amounts will be amortized to expense over a period of years through the net pension cost (credit) and net periodic benefit cost.
Health care plans. The Company provides certain domestic health care plans that are contributory and contain cost-sharing features such as deductibles and coinsurance. There were 21,239, 19,440 and 18,609 active employees entitled to receive benefits under these plans at December 31, 2014, 2013 and 2012, respectively. The cost of these benefits for active employees, which includes claims incurred and claims incurred but not reported, amounted to $202,787, $174,588 and $163,011 for 2014, 2013 and 2012, respectively.
Defined contribution pension plans. The Company’s annual contribution for its domestic defined contribution pension plan was $32,384, $27,803 and $25,147 for 2014, 2013 and 2012, 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 contribution for its foreign defined contribution pension plans, which is based on various percentages of compensation for covered employees up to certain limits, was $4,592, $1,428 and $4,621 for 2014, 2013 and 2012, respectively. Assets in employee accounts of the foreign defined contribution pension plans are invested in various investment funds. These investment funds did not own a significant number of shares of the Company’s common stock for any year presented.
Defined benefit pension plans. The Company has one salaried and one hourly domestic defined benefit pension plan, and twenty-one foreign defined benefit pension plans, including three Canadian plans acquired in connection with the 2013 acquisition of Comex's U.S./Canada business. All participants in the domestic salaried defined benefit pension plan prior to January 1, 2002 retain the previous defined benefit formula for computing benefits with certain modifications for active employees. Eligible domestic salaried employees hired or re-hired between January 1, 2002 and
 
September 30, 2011 became participants in the revised domestic salaried defined benefit pension plan upon completion of six months of service. All employees who became participants on or after January 1, 2002 and before January 1, 2005 were credited with certain contribution credits equivalent to six percent of their salary. All employees who became participants on or after January 1, 2005 were credited with certain contribution credits that range from two percent to seven percent of compensation based on an age and service formula. Effective July 1, 2009, the domestic salaried defined benefit pension plan was revised, and all employees who become participants on or after January 1, 2002 were credited with certain contribution credits that range from two percent to seven percent of compensation based on an age and service formula. Contribution credits are converted into units to account for each participant’s benefits. Participants will receive a variable annuity benefit upon retirement or a lump sum distribution upon termination (if vested). The variable annuity benefit is subject to the hypothetical returns achieved on each participant’s allocation of units from investments in various investment funds as directed by the participant. Contribution credits to the revised domestic salaried defined benefit pension plan are being funded through existing plan assets. Effective October 1, 2011, the domestic salaried defined benefit pension plan was frozen for new hires, and all newly hired U.S. non-collectively bargained employees are eligible to participate in the Company’s domestic defined contribution plan.
In connection with the 2013 acquisition of Comex's U.S./Canada business, the Company acquired a domestic defined benefit pension plan (Comex Plan). The Comex Plan was merged into the Company's salaried defined benefit pension plan as of November 29, 2013 and was frozen for new participants as of December 31, 2013. Accrued benefits and vesting service under the Comex Plan were credited under the Company's domestic salaried defined benefit pension plan.
At December 31, 2014, the domestic salaried and hourly defined benefit pension plans were overfunded, with a projected benefit obligation of $653,338, fair value of plan assets of $896,071 and excess plan assets of $242,733. The plans are


52 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

funded in accordance with all applicable regulations at December 31, 2014 and no funding will be required in 2015. At December 31, 2013, the domestic salaried and hourly defined benefit pension plans were overfunded, with a projected benefit obligation of $582,036, fair value of plan assets of $870,386 and excess plan assets of $288,350. At December 31, 2012, the domestic salaried defined benefit pension plan was overfunded, with a projected benefit obligation of $313,964, fair value of plan assets of $559,552 and excess plan assets of $245,588, and the domestic hourly defined benefit pension plan was underfunded, with a projected benefit obligation of $152,863, fair value of plan assets of $144,011 and a deficiency of plan assets of $8,852.
At December 31, 2014, seventeen 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 $143,324, $171,841, $117,623
 
and $54,218, respectively. An increase of $11,527 from 2013 in the combined projected benefit obligations of all foreign defined benefit pension plans was primarily due to changes in plan assumptions.
The Company expects to make the following benefit payments for all domestic and foreign defined benefit pension plans: $64,067 in 2015; $64,285 in 2016; $64,940 in 2017; $65,478 in 2018; $65,636 in 2019; and $286,119 in 2020 through 2024. The Company expects to contribute $6,281 to the foreign plans in 2015.
The estimated net actuarial losses and prior service costs for the defined benefit pension plans that are expected to be amortized from Cumulative other comprehensive loss into the net pension costs in 2015 are $5,311 and $1,310, respectively.
The following table summarizes the components of the net pension costs and Cumulative other comprehensive loss related to the defined benefit pension plans:

 
Domestic
Defined Benefit Pension Plans
 
Foreign
Defined Benefit Pension Plans
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Net pension costs:
 
 
 
 
 
 
 
 
 
 
 
Service costs
$
21,342

 
$
23,176

 
$
19,061

 
$
5,261

 
$
5,039

 
$
3,654

Interest costs
26,266

 
18,444

 
17,442

 
10,422

 
7,940

 
6,927

Expected returns on plan assets
(51,293
)
 
(42,937
)
 
(44,841
)
 
(10,836
)
 
(7,487
)
 
(6,799
)
Amortization of prior service costs
1,837

 
1,823

 
1,591

 
 
 
 
 
 
Amortization of actuarial losses
 
 
13,147

 
22,205

 
1,413

 
1,716

 
1,022

Ongoing pension (credits) costs
(1,848
)
 
13,653

 
15,458

 
6,260

 
7,208

 
4,804

Settlement (credits) costs
 
 
 
 
 
 
(3,422
)
 
(220
)
 
47

Net pension (credits) costs
(1,848
)
 
13,653

 
15,458

 
2,838

 
6,988

 
4,851

Other changes in plan assets and projected benefit
obligation recognized in Cumulative other comprehensive loss (before taxes):
 
 
 
 
 
 
 
 
 
 
 
Net actuarial losses (gains) arising during the year
47,785

 
(90,669
)
 
(26,459
)
 
21,792

 
(5,487
)
 
14,131

Prior service costs during the year
2,242

 
1,756

 
2,495

 
 
 
 
 
 
Amortization of prior service costs
(1,837
)
 
(1,823
)
 
(1,591
)
 
 
 
 
 
 
Amortization of actuarial losses
 
 
(13,147
)
 
(22,205
)
 
(1,413
)
 
(1,716
)
 
(1,022
)
Exchange rate (loss) gain recognized during year
 
 
 
 
 
 
(7,988
)
 
819

 
1,464

Total recognized in Cumulative other
comprehensive loss
48,190

 
(103,883
)
 
(47,760
)
 
12,391

 
(6,384
)
 
14,573

Total recognized in net pension costs (credits)
and Cumulative other comprehensive loss
$
46,342

 
$
(90,230
)
 
$
(32,302
)
 
$
15,229

 
$
604

 
$
19,424

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 45 – 65 percent equity securities and 30 – 40 percent fixed income securities.


53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

The following tables summarize the fair value of the defined benefit pension plan assets at December 31, 2014, 2013 and 2012:
 
Fair Value at
December 31,
2014
 
Quoted Prices in 
Active Markets for Identical
Assets
(Level 1)
 
Significant Other
Observable 
Inputs
(Level 2)
 
Significant
Unobservable 
Inputs
(Level 3)
Investments at fair value:
 
 
 
 
 
 
 
Short-term investments (a)
$
14,846

 
 
 
$
14,846

 
 
Equity investments (b)
739,358

 
$
404,542

 
334,816

 
 
Fixed income investments (c)
285,042

 
141,529

 
143,513

 
 
Other assets (d)
44,469

 
 
 
28,435

 
$
16,034

 
$
1,083,715

 
$
546,071

 
$
521,610

 
$
16,034

 
 
 
 
 
 
 
 
 
Fair Value at
December 31,
2013
 
Quoted Prices in
Active Markets for Identical
Assets
(Level 1)
 
Significant Other
Observable 
Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Investments at fair value:
 
 
 
 
 
 
 
Short-term investments (a)
$
15,055

 
$
1,941

 
$
13,114

 
 
Equity investments (b)
736,873

 
419,779

 
317,094

 
 
Fixed income investments (c)
255,927

 
125,377

 
130,550

 
 
Other assets (d)
47,494

 
 
 
29,553

 
$
17,941

 
$
1,055,349

 
$
547,097

 
$
490,311

 
$
17,941

 
 
 
 
 
 
 
 
 
Fair Value at
December 31,
2012
 
Quoted Prices in
Active Markets for Identical
Assets
(Level 1)
 
Significant Other
Observable 
Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Investments at fair value:
 
 
 
 
 
 
 
Short-term investments (a)
$
68,795

 
 
 
$
68,795

 
 
Equity investments (b)
490,993

 
$
243,553

 
247,440

 
 
Fixed income investments (c)
239,558

 
131,276

 
108,282

 


Other assets (d)
37,230

 
 
 
18,380

 
$
18,850

 
$
836,576

 
$
374,829

 
$
442,897

 
$
18,850


(a)
This category includes a full range of high quality, short-term money market securities.
(b)
This category includes actively managed equity assets that track primarily to the S&P 500.
(c)
This category includes government and corporate bonds that track primarily to the Barclays Capital Aggregate Bond Index.
(d)
This category consists of venture capital funds.
The following tables summarize the changes in the fair value of the defined benefit pension plan assets classified as level 3 at December 31, 2014, 2013 and 2012: 
 
Balance at
December 31,
2013
 
Dispositions
 
Realized and Unrealized Gains
 
Balance at
December 31,
2014
Other assets
$
17,941

 
$
(4,320
)
 
$
2,413

 
$
16,034

 
 
 
 
 
 
 
 
 
Balance at
December 31,
2012
 
Dispositions
 
Realized and Unrealized Gains
 
Balance at
December 31,
2013
Other assets
$
18,850

 
$
(4,068
)
 
$
3,159

 
$
17,941

 
 
 
 
 
 
 
 
 
Balance at
January 1, 
2012
 
Dispositions
 
Realized and Unrealized Gains
 
Balance at
December 31,
2012
Other assets
$
20,900

 
$
(3,827
)
 
$
1,777

 
$
18,850

Included as equity investments in the domestic defined benefit pension plan assets at December 31, 2014 were 300,000 shares of the Company’s common stock with a market value of $78,912, representing 8.8 percent of total domestic plan assets. Dividends received on the Company’s common stock during 2014 totaled $660.

54 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

The following table summarizes the obligations, plan assets and assumptions used for the defined benefit pension plans, which are all measured as of December 31:
 
Domestic
Defined Benefit Pension Plans
 
Foreign
Defined Benefit Pension Plans
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Accumulated benefit obligations
at end of year
$
648,480

 
$
577,736

 
$
460,591

 
$
203,610

 
$
187,670

 
$
142,769

Projected benefit obligations:
 
 
 
 
 
 
 
 
 
 
 
Balances at beginning of year
$
582,036

 
$
466,827

 
$
410,029

 
$
222,996

 
$
168,758

 
$
141,465

Service costs
21,342

 
23,176

 
19,061

 
5,261

 
5,039

 
3,654

Interest costs
26,266

 
18,444

 
17,442

 
10,422

 
7,940

 
6,927

Actuarial losses (gains)
68,748

 
(5,488
)
 
48,346

 
32,551

 
5,939

 
17,532

Acquisitions of businesses and other
2,242

 
113,174

 
2,496

 
(10,062
)
 
39,622

 
(975
)
Effect of foreign exchange
 
 
 
 
 
 
(18,987
)
 
1,549

 
6,633

Benefits paid
(47,296
)
 
(34,097
)
 
(30,547
)
 
(7,657
)
 
(5,851
)
 
(6,478
)
Balances at end of year
653,338

 
582,036

 
466,827

 
234,524

 
222,996

 
168,758

Plan assets:
 
 
 
 
 
 
 
 
 
 
 
Balances at beginning of year
870,386

 
703,563

 
614,463

 
184,963

 
133,013

 
118,060

Actual returns on plan assets
72,256

 
128,117

 
119,647

 
20,240

 
20,316

 
10,201

Acquisitions of businesses and other
725

 
72,803

 
 
 
3,958

 
36,106

 
6,205

Effect of foreign exchange
 
 
 
 
 
 
(13,859
)
 
1,379

 
5,025

Benefits paid
(47,296
)
 
(34,097
)
 
(30,547
)
 
(7,657
)
 
(5,851
)
 
(6,478
)
Balances at end of year
896,071

 
870,386

 
703,563

 
187,645

 
184,963

 
133,013

Excess (deficient) plan assets over
projected benefit obligations
$
242,733

 
$
288,350

 
$
236,736

 
$
(46,879
)
 
$
(38,033
)
 
$
(35,745
)
Assets and liabilities recognized in the
Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
 
 
 
Deferred pension assets
$
242,733

 
$
288,350

 
$
245,588

 
$
7,411

 
$
14,096

 
$
4,323

Other accruals
 
 
 
 
 
 
(810
)
 
(1,126
)
 
(869
)
Other long-term liabilities
 
 

 
(8,852
)
 
(53,480
)
 
(51,003
)
 
(39,199
)
 
$
242,733

 
$
288,350

 
$
236,736

 
$
(46,879
)
 
$
(38,033
)
 
$
(35,745
)
Amounts recognized in Cumulative other
comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net actuarial losses
$
(107,057
)
 
$
(59,272
)
 
$
(163,088
)
 
$
(47,574
)
 
$
(35,183
)
 
$
(41,567
)
Prior service costs
(6,448
)
 
(6,043
)
 
(6,110
)
 
 
 
 
 
 
 
$
(113,505
)
 
$
(65,315
)
 
$
(169,198
)
 
$
(47,574
)
 
$
(35,183
)
 
$
(41,567
)
Weighted-average assumptions used to
determine projected benefit obligations:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.95
%
 
4.65
%
 
3.73
%
 
3.92
%
 
4.89
%
 
4.58
%
Rate of compensation increase
4.00
%
 
4.00
%
 
4.00
%
 
3.70
%
 
4.31
%
 
4.08
%
Weighted-average assumptions used to
determine net pension costs:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.65
%
 
3.73
%
 
4.40
%
 
4.89
%
 
4.58
%
 
4.94
%
Expected long-term rate of
return on assets
6.00
%
 
6.00
%
 
7.50
%
 
5.58
%
 
5.67
%
 
6.04
%
Rate of compensation increase
4.00
%
 
4.00
%
 
4.00
%
 
4.31
%
 
4.08
%
 
4.04
%
 

55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

Postretirement Benefits Other Than Pensions. Employees of the Company hired in the United States prior to January 1, 1993 who are not members of a collective bargaining unit, and certain groups of employees added through acquisitions, are eligible for health care and life
 
insurance benefits upon retirement, subject to the terms of the unfunded plans. There were 4,443, 4,419 and 4,402 retired employees entitled to receive such postretirement benefits at December 31, 2014, 2013 and 2012, respectively.



The following table summarizes the obligation and the assumptions used for postretirement benefits other than pensions:
 
Postretirement Benefits Other than Pensions
 
2014
 
2013
 
2012
Benefit obligation:
 
 
 
 
 
Balance at beginning of year - unfunded
$
286,651

 
$
338,134

 
$
316,795

Service cost
2,434

 
3,061

 
2,943

Interest cost
12,782

 
12,183

 
13,520

Actuarial loss (gain)
27,757

 
(50,593
)
 
18,961

Plan amendments
(19,043
)
 
(2,503
)
 
 
Benefits paid
(15,432
)
 
(13,631
)
 
(14,085
)
Balance at end of year - unfunded
$
295,149

 
$
286,651

 
$
338,134

Liabilities recognized in the Consolidated Balance Sheets:
 
 
 
 
 
Postretirement benefits other than pensions
$
(277,892
)
 
$
(268,874
)
 
$
(320,223
)
Other accruals
(17,257
)
 
(17,777
)
 
(17,911
)
 
$
(295,149
)
 
$
(286,651
)
 
$
(338,134
)
Amounts recognized in Cumulative other comprehensive loss:
 
 
 
 
 
Net actuarial losses
$
(36,044
)
 
$
(8,287
)
 
$
(62,814
)
Prior service costs
21,043

 
2,503

 
328

 
$
(15,001
)
 
$
(5,784
)
 
$
(62,486
)
Weighted-average assumptions used to determine benefit obligation:
 
 
 
 
 
Discount rate
3.90
%
 
4.60
%
 
3.70
%
Health care cost trend rate - pre-65
7.00
%
 
7.50
%
 
8.00
%
Health care cost trend rate - post-65
6.50
%
 
6.50
%
 
8.00
%
Prescription drug cost increases
6.50
%
 
7.00
%
 
8.00
%
Employer Group Waiver Plan (EGWP) trend rate
8.00
%
 
 
 
 
Weighted-average assumptions used to determine net periodic benefit cost:
 
 
 
 
 
Discount rate
4.60
%
 
3.70
%
 
4.40
%
Health care cost trend rate - pre-65
7.50
%
 
8.00
%
 
8.00
%
Health care cost trend rate - post-65
6.50
%
 
8.00
%
 
8.00
%
Prescription drug cost increases
7.00
%
 
8.00
%
 
8.00
%

56 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

The following table summarizes the components of the net periodic benefit cost and cumulative other comprehensive loss related to postretirement benefits other than pensions:
 
Postretirement Benefits Other than Pensions
 
2014
 
2013
 
2012
Net periodic benefit cost:
 
 
 
 
 
Service cost
$
2,434

 
$
3,061

 
$
2,943

Interest cost
12,782

 
12,183

 
13,520

Amortization of actuarial losses
 
 
3,934

 
1,715

Amortization of prior service credit
(503
)
 
(328
)
 
(656
)
Net periodic benefit cost
14,713

 
18,850

 
17,522

Other changes in projected benefit obligation recognized in
Cumulative other comprehensive loss (before taxes):
 
 
 
 
 
Net actuarial loss (gain)
27,757

 
(50,593
)
 
18,961

Prior service credit arising during the year
(19,043
)
 
(2,503
)
 
 
Amortization of actuarial losses
 
 
(3,934
)
 
(1,715
)
Amortization of prior service credit
503

 
328

 
656

Total recognized in Cumulative other comprehensive loss
9,217

 
(56,702
)
 
17,902

Total recognized in net periodic benefit cost and
Cumulative other comprehensive loss
$
23,930

 
$
(37,852
)
 
$
35,424




The estimated net actuarial losses and prior service (credits) for postretirement benefits other than pensions that are expected to be amortized from Cumulative other comprehensive loss into net periodic benefit cost in 2015 are $1,011 and $(4,529), 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 2015 both decrease in each successive year until reaching 5.0 percent in 2022. The assumed health care and prescription drug cost trend rates have a significant effect on the amounts reported for the postretirement health care benefit obligation. A one-percentage-point change in assumed health care and prescription drug cost trend rates would have had the following effects at December 31, 2014:
 
One-Percentage Point
 
Increase
 
(Decrease)
Effect on total of service and interest cost components
$
23

 
$
(66
)
Effect on the postretirement benefit obligation
$
734

 
$
(1,697
)
 


Prior to the 2013 Patient Protection and Affordable Care Act (PPACA), the Company offered retiree prescription drug coverage under Medicare Part D and was entitled to a tax-free retiree drug subsidy (RDS). In accordance with the accounting guidance related to the Medicare Act included in the Retirement Benefits Topic of the ASC, the effects of the RDS resulted in a $21,400 reduction of the accumulated postretirement benefit obligation for benefits attributed to past service, which was recognized prospectively beginning July 1, 2004. During 2012, this recognition resulted in a $5,712 reduction of the net periodic benefit cost, which consisted of changes in actuarial experience and reductions in interest cost of $5,278 and $434, respectively. There is no expense impact in years after 2012 due to the elimination of the tax deduction previously allowed for the RDS. Subsequent to the passing of the PPACA, the Company's retiree prescription drug coverage was restructured as an EGWP, and the benefits provided to plan participants remain substantially the same.
The Company expects to make retiree health care benefit cash payments and to receive government reimbursements as follows:

 
Retiree Health
Care Benefits
 
Government Reimbursement
 
Expected Cash
Payments - Net
2015
$
19,563

 
$
(2,305
)
 
$
17,258

2016
20,759

 
(2,474
)
 
18,285

2017
22,000

 
(2,667
)
 
19,333

2018
22,884

 
(2,888
)
 
19,996

2019
23,486

 
(3,107
)
 
20,379

2020 through 2024
115,694

 
(16,779
)
 
98,915

Total expected benefit cash payments
$
224,386

 
$
(30,220
)
 
$
194,166


57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

NOTE 7 – DEBT
Long-term debt
 
Due Date
 
2014
 
2013
 
2012
1.35% Senior Notes
2017
 
$
699,460

 
$
699,277

 
$
699,091

4.00% Senior Notes
2042
 
298,595

 
298,545

 
298,493

7.375% Debentures
2027
 
119,369

 
119,366

 
129,060

7.45% Debentures
2097
 
3,500

 
3,500

 
3,500

2.02% to 8.00% Promissory Notes
Through 2029
 
1,791

 
1,685

 
2,109

3.125% Senior Notes
2014
 
 
 
 
 
499,912

 
 
 
$
1,122,715

 
$
1,122,373

 
$
1,632,165

Maturities of long-term debt are as follows for the next five years: $3,265 in 2015; $678 in 2016; $700,150 in 2017; $153 in 2018 and $156 in 2019. Interest expense on long-term debt was $56,408, $57,949 and $36,188 for 2014, 2013 and 2012, 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.
On December 4, 2012, the Company issued $700,000 of 1.35% Senior Notes due 2017 and $300,000 of 4.00% Senior Notes due 2042. The Senior Notes are covered under a shelf registration filed with the Securities and Exchange Commission (SEC) on December 16, 2009. The proceeds are being used for general corporate purposes, including repayment of short-term borrowings and financing acquisitions.
Short-term borrowings. At December 31, 2014, borrowings outstanding under the domestic commercial paper program totaled $625,860 and were included in Short-term borrowings. The weighted-average interest rate related to these borrowings was 0.3% at December 31, 2014. At December 31, 2013 and 2012, there were no borrowings outstanding under the domestic commercial paper program. Borrowings outstanding under various foreign programs of $53,576, $96,551 and $69,035 at December 31, 2014, 2013 and 2012, respectively, were included in Short-term borrowings. The weighted-average interest rate related to these borrowings was 6.0%, 7.8% and 2.8% at December 31, 2014, 2013 and 2012, respectively.
On September 19, 2012, Sherwin-Williams Luxembourg S.à r.l., a wholly-owned subsidiary of the Company, entered into a €95,000 (Euro) five-year revolving credit facility. This facility replaced the existing €97,000 (Euro) credit facility. On June 29, 2012, Sherwin-Williams Canada Inc., a wholly-owned subsidiary of the Company, entered into a new CAD 75,000 five-year credit facility which replaced the existing credit facility. On March 18, 2013, the aggregate amount of this credit facility was increased to CAD 150,000. These credit facilities are being used for general corporate purposes, including refinancing indebtedness and for acquisitions.
On January 30, 2012, the Company entered into a five-year credit agreement, subsequently amended on multiple dates, which gives the Company the right to borrow and to obtain the
 
issuance, renewal, extension and increase of a letter of credit of up to an aggregate availability of $500,000. On April 23, 2012, the Company entered into a five-year credit agreement, subsequently amended on multiple dates, which gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit up to an aggregate availability of $250,000. On November 14, 2012, the Company entered into a three-year credit agreement, subsequently amended on multiple dates, which gives the Company the right to borrow and to obtain the issuance, renewal, extension and increase of a letter of credit up to an aggregate availability of $250,000. The three credit agreements entered into in 2012 replace prior credit facilities that matured in 2012 and 2011. At December 31, 2014, 2013 and 2012, there were no borrowings outstanding under any of these credit agreements.
The Company uses a revolving credit agreement primarily to satisfy its commercial paper program’s dollar for dollar liquidity requirement. On July 8, 2011, the Company entered into a five-year $1.05 billion revolving credit agreement. The credit agreement allows the Company to extend the maturity of the facility with two one-year extension options and to increase the aggregate amount of the facility to $1.30 billion, both of which are subject to the discretion of each lender.
NOTE 8 – OTHER LONG-TERM LIABILITIES
The operations of the Company, like those of other companies in our industry, are subject to various domestic and


58 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

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 are determined based on currently available facts regarding each site. If the best estimate of costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided. 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. Included in Other long-term liabilities at December 31, 2014, 2013 and 2012 were accruals for extended environmental-related activities of $114,281, $86,647 and $97,220, respectively. Included in Other accruals at December 31, 2014, 2013 and 2012 were accruals for estimated costs of current investigation and remediation activities of $16,868, $15,385 and $17,101, 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 $89,733 higher than the minimum accruals at December 31, 2014.
Two of the Company’s currently and formerly owned manufacturing sites account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at December 31, 2014. At December 31, 2014, $82,707, or 63.1 percent of the total accrual, related directly to these two sites. In the aggregate unaccrued maximum of $89,733 at December 31, 2014, $57,927, or 64.6 percent, related to the two manufacturing sites. While environmental investigations and remedial actions are in different stages at these sites, additional investigations, remedial actions and monitoring will likely be required at each site.
Management cannot presently estimate the ultimate potential loss contingencies related to these sites or other less significant sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed. In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on net income for the annual or interim period during which the additional costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.
Management expects these contingent environmental-related liabilities to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indefinite amount of time to conduct investigation activities at any site, the indefinite amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indefinite amount of time necessary to conduct remediation activities.


59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

The Asset Retirement and Environmental Obligations Topic of the ASC requires a liability to be recognized for the fair value of a conditional asset retirement obligation if a settlement date and fair value can be reasonably estimated. The Company recognizes a liability for any conditional asset retirement obligation when sufficient information is available to reasonably estimate a settlement date to determine the fair value of such a liability. The Company has identified certain conditional asset retirement obligations at various current and closed manufacturing, distribution and store facilities. These obligations relate primarily to asbestos abatement, hazardous waste Resource Conservation and Recovery Act (RCRA) closures, well abandonment, transformers and used oil disposals and underground storage tank closures. Using investigative, remediation and disposal methods that are currently available to the Company, the estimated costs of these obligations were accrued and are not significant. The recording of additional liabilities for future conditional asset retirement obligations may result in a material impact on net income for the annual or interim period during which the costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time over which sufficient information may become available regarding the closure or modification of any one or group of the Company’s facilities. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.
NOTE 9 – 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 has not settled any material lead pigment or lead-based paint litigation. The Company expects that additional lead pigment and lead-based paint litigation may be filed against the Company in the future asserting similar or different legal theories and seeking similar or different types of damages and relief.
Notwithstanding the Company’s views on the merits, litigation is inherently subject to many uncertainties, and the Company ultimately may not prevail. Adverse court rulings or


60 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

determinations of liability, among other factors, could affect the lead pigment and lead-based paint litigation against the Company and encourage an increase in the number and nature of future claims and proceedings. In addition, from time to time, various legislation and administrative regulations have been enacted, promulgated or proposed to impose obligations on present and former manufacturers of lead pigments and lead-based paints respecting asserted health concerns associated with such products or to overturn the effect of court decisions in which the Company and other manufacturers have been successful.
Due to the uncertainties involved, management is unable to predict the outcome of the lead pigment and lead-based paint litigation, the number or nature of possible future claims and proceedings or the effect that any legislation and/or administrative regulations may have on the litigation or against the Company. In addition, management cannot reasonably determine the scope or amount of the potential costs and liabilities related to such litigation, or resulting from any such legislation and regulations. The Company has not accrued any amounts for such litigation. With respect to such litigation, including the public nuisance litigation, the Company does not believe that it is probable that a loss has occurred, and it is not possible to estimate the range of potential losses as there is no prior history of a loss of this nature and there is no substantive information upon which an estimate could be based. In addition, any potential liability that may result from any changes to legislation and regulations cannot reasonably be estimated. In the event any significant liability is determined to be attributable to the Company relating to such litigation, the recording of the liability may result in a material impact on net income for the annual or interim period during which such liability is accrued. Additionally, due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to the Company arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition. An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made due to the aforementioned uncertainties.
Public nuisance claim litigation. The Company and other companies are or were defendants in legal proceedings seeking recovery based on public nuisance liability theories, among other theories, brought by the State of Rhode Island, the City of St. Louis, Missouri, various cities and counties in the State of New Jersey, various cities in the State of Ohio and the State of Ohio, the City of Chicago, Illinois, the City of Milwaukee, Wisconsin and the County of Santa Clara, California and other public entities in the State of California. Except for the Santa Clara County, California proceeding, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.
The proceedings initiated by the State of Rhode Island included two jury trials. At the conclusion of the second trial, the jury returned a verdict finding that (i) the cumulative presence of lead pigment in paints and coatings on buildings in the State of Rhode Island constitutes a public nuisance, (ii) the Company,
 
along with two other defendants, caused or substantially contributed to the creation of the public nuisance and (iii) the Company and two other defendants should be ordered to abate the public nuisance. The Company and two other defendants appealed and, on July 1, 2008, the Rhode Island Supreme Court, among other determinations, reversed the judgment of abatement with respect to the Company and two other defendants. The Rhode Island Supreme Court’s decision reversed the public nuisance liability judgment against the Company on the basis that the complaint failed to state a public nuisance claim as a matter of law.
The Santa Clara County, California proceeding was initiated in March 2000 in the Superior Court of the State of California, County of Santa Clara. In the original complaint, the plaintiffs asserted various claims including fraud and concealment, strict product liability/failure to warn, strict product liability/design defect, negligence, negligent breach of a special duty, public nuisance, private nuisance, and violations of California’s Business and Professions Code. A number of the asserted claims were resolved in favor of the defendants through pre-trial proceedings. The named plaintiffs in the Fourth Amended Complaint, filed on March 16, 2011, are the Counties of Santa Clara, Alameda, Los Angeles, Monterey, San Mateo, Solano and Ventura, the Cities of Oakland and San Diego and the City and County of San Francisco. The Fourth Amended Complaint asserted a sole claim for public nuisance, alleging that the presence of lead pigments for use in paint and coatings in, on and around residences in the plaintiffs’ jurisdictions constitutes a public nuisance. The plaintiffs sought the abatement of the alleged public nuisance that exists within the plaintiffs’ jurisdictions. A trial commenced on July 15, 2013 and ended on August 22, 2013. The court entered final judgment on January 27, 2014, finding in favor of the plaintiffs and against the Company and two other defendants (ConAgra Grocery Products Company and NL Industries, Inc.). The final judgment held the Company jointly and severally liable with the other two defendants to pay $1.15 billion into a fund to abate the public nuisance. The Company strongly disagrees with the judgment.


61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

On February 18, 2014, the Company filed a motion for new trial and a motion to vacate the judgment. The court denied these motions on March 24, 2014. On March 28, 2014, the Company filed a notice of appeal to the Sixth District Court of Appeal for the State of California. The filing of the notice of appeal effects an automatic stay of the judgment without the requirement to post a bond. The Company believes that the judgment conflicts with established principles of law and is unsupported by the evidence. The Company has had a favorable history with respect to lead pigment and lead-based paint litigation, particularly other public nuisance litigation, and accordingly, the Company believes that it is not probable that a loss has occurred and it is not possible to estimate the range of potential loss with respect to the case.
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 state court against the Company, other alleged former lead pigment manufacturers and the Lead Industries Association in September 1999. The claims against the Company and the other defendants included strict liability, negligence, negligent misrepresentation and omissions, fraudulent misrepresentation and omissions, concert of action, civil conspiracy and enterprise liability. Implicit within these claims is the theory of “risk contribution” liability (Wisconsin’s theory which is similar to market share liability, except that liability can be joint and several) due to the plaintiff’s inability to identify the manufacturer of any product that allegedly injured the plaintiff. The case ultimately proceeded to trial and, on November 5, 2007, the jury returned a defense verdict, finding that the plaintiff had ingested white lead carbonate, but was not brain damaged or injured as a result. The plaintiff appealed and, on December 16, 2010, the Wisconsin Court of Appeals affirmed the final judgment in favor of the Company and other defendants.
Wisconsin is the only jurisdiction to date to apply a theory of liability with respect to alleged personal injury (i.e., risk contribution/market share liability) that does not require the plaintiff to identify the manufacturer of the product that allegedly injured the plaintiff in the lead pigment and lead-based paint litigation. Although the risk contribution liability theory was applied during the Thomas trial, the constitutionality of this theory as applied to the lead pigment cases has not been judicially determined by the Wisconsin state courts. However, in an unrelated action filed in the United States District Court for the Eastern District of Wisconsin, Gibson v. American Cyanamid, et al., on November 15, 2010, the District Court held that Wisconsin’s risk contribution theory as applied in that case violated the defendants’ right to substantive due process and is
 
unconstitutionally retroactive. The District Court's decision in Gibson v. American Cyanamid, et al., was appealed by the plaintiff to the United States Court of Appeals for the Seventh Circuit. On July 24, 2014, the United States Court of Appeals for the Seventh Circuit reversed the judgment and remanded the case back to the District Court for further proceedings. On January 16, 2015, the defendants filed a petition for certiorari in the United States Supreme Court seeking that Court's review of the Seventh Circuit’s decision. Also, in Yasmine Clark v. The Sherwin-Williams Company, et al., the Wisconsin Circuit Court, Milwaukee County, on March 25, 2014, held that the application to a pending case of Section 895.046 of the Wisconsin Statutes (which clarifies the application of the risk contribution theory) is unconstitutional as a violation of the plaintiff’s right to due process of law under the Wisconsin Constitution. On April 8, 2014, defendants filed a petition requesting the Wisconsin Court of Appeal to hear the issue as an interlocutory appeal. On August 21, 2014, the Wisconsin Court of Appeal granted defendants' petition.
Insurance coverage litigation. The Company and its liability insurers, including certain underwriters at Lloyd’s of London, initiated legal proceedings against each other to primarily determine, among other things, whether the costs and liabilities associated with the abatement of lead pigment are covered under certain insurance policies issued to the Company. The Company’s action, filed on March 3, 2006 in the Common Pleas Court, Cuyahoga County, Ohio, is currently stayed and inactive. The liability insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed. An ultimate loss in the insurance coverage litigation would mean that insurance proceeds could be unavailable under the policies at issue to mitigate any ultimate abatement related costs and liabilities. The Company has not recorded any assets related to these insurance policies or otherwise assumed that proceeds from these insurance policies would be received in estimating any contingent liability accrual. Therefore, an ultimate loss in the insurance coverage litigation without a determination of liability against the Company in the lead pigment or lead-based paint litigation will have no impact on


62 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

the Company’s results of operation, liquidity or financial condition. As previously stated, however, the Company has not accrued any amounts for the lead pigment or lead-based paint litigation and any significant liability ultimately determined to be attributable to the Company relating to such litigation may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.

Department of Labor (DOL) leveraged ESOP settlement. On February 20, 2013, the Company reached a settlement with the DOL of the DOL's investigation of transactions related to the Company's ESOP that were implemented on August 1, 2006 and August 27, 2003. The DOL had notified the Company, among others, of potential enforcement claims asserting breaches of fiduciary obligations and sought compensatory and equitable remedies. The Company resolved all ESOP related claims with the DOL by agreeing, in part, to make a one-time payment of $80,000 to the ESOP, resulting in a $49,163 after tax charge to earnings in the fourth quarter of 2012. The Company made this required $80,000 payment to the ESOP during the first quarter of 2013.

Government tax assessment settlements related to Brazilian operations. Charges totaling $28,711 and $2,873 were recorded to Cost of goods sold and SG&A, respectively, during the second and third quarters of 2013. The charges were primarily related to import duty taxes paid to the Brazilian government related to the handling of import duties on products brought into the country for the years 2006 through 2012. The Company elected to pay the taxes through an existing voluntary amnesty program offered by the government to resolve these issues rather than contest them in court. The after-tax charges were $21,858 for the full year 2013. The Company's import duty process in Brazil was changed to reach a final resolution of this matter with the Brazilian government.
Litigation related to Consorcio Comex. As previously disclosed, the Company entered into a definitive Stock Purchase Agreement (as subsequently amended and restated, the “Purchase Agreement”), with Avisep, S.A. de C.V. (“Avisep”) and Bevisep, S.A. de C.V. (“Bevisep”) to, among other things, acquire the Mexico business of Consorcio Comex, S.A. de C.V. (the "Acquisition"). Under the terms of the Purchase Agreement, either the Company or Avisep and Bevisep had the right to terminate the Purchase Agreement in the event that the closing of the Acquisition did not occur on or prior to March 31, 2014 and such party was not in material breach of the Purchase Agreement.
On April 3, 2014, the Company sent notice to Avisep and Bevisep that the Company was terminating the Purchase Agreement. On April 3, 2014, the Company filed a complaint for declaratory judgment in the Supreme Court of the State of New York, New York County, requesting the court to declare that the Company had used commercially reasonable efforts as required under the Purchase Agreement and has not breached the Purchase Agreement. On August 7, 2014, the case was removed by Avisep and Bevisep to the United States District Court for the Southern District of New York. On April 11, 2014, Avisep and Bevisep initiated an arbitration proceeding against the Company
 
in the International Court of Arbitration contending that the Company breached the Purchase Agreement by terminating the Purchase Agreement and not utilizing commercially reasonable efforts under the Purchase Agreement, which allegedly caused Avisep and Bevisep to incur damages. The Company believes that the claims are without merit and intends to vigorously defend against such claims.
Titanium dioxide suppliers antitrust class action lawsuit. The Company is a member of the plaintiff class related to Titanium Dioxide Antitrust Litigation that was initiated in 2010 against certain suppliers alleging various theories of relief arising from purchases of titanium dioxide made from 2003 through 2012. The Court approved a settlement less attorney fees and expense, and the Company timely submitted claims to recover its pro-rata portion of the settlement. There was no specified deadline for the claims administrator to complete the review of all claims submitted. In October 2014, the Company was notified that it would receive a disbursement of settlement funds, and the Company received a pro-rata disbursement net of all fees of approximately $21,420. The Company recorded this settlement gain in the fourth quarter of 2014.

NOTE 10 – CAPITAL STOCK
At December 31, 2014, 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. See Note 11. Under the amended and restated 2006 Equity and Performance Incentive Plan (2006 Employee Plan), 19,200,000 common shares may be issued or transferred. See Note 12. An aggregate of 10,304,816, 12,121,210 and 13,558,565 shares of common stock at December 31, 2014, 2013 and 2012, respectively, were reserved for future grants of restricted stock and the exercise and future grants of option rights. See Note 12. Common shares outstanding shown in the following table included 487,075, 486,138 and 484,872 shares of common stock held in a revocable trust at December 31, 2014, 2013 and 2012,


63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

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.

 
 
Common Shares
in Treasury
 
Common Shares
Outstanding
Balance at January 1, 2012
3,601,159

 
103,854,234

Shares tendered as payment for option rights exercised
7,766

 
(7,766
)
Shares issued for exercise of option rights
 
 
4,140,822

Shares tendered in connection with grants of restricted stock
143,979

 
(143,979
)
Net shares issued for grants of restricted stock
 
 
26,756

Treasury stock purchased
4,600,000

 
(4,600,000
)
Balance at December 31, 2012
8,352,904

 
103,270,067

Shares tendered as payment for option rights exercised
2,697

 
(2,697
)
Shares issued for exercise of option rights
 
 
1,127,942

Shares tendered in connection with grants of restricted stock
116,897

 
(116,897
)
Net shares issued for grants of restricted stock
 
 
150,965

Treasury stock purchased
4,300,000

 
(4,300,000
)
Balance at December 31, 2013
12,772,498

 
100,129,380

Shares tendered as payment for option rights exercised
7,229

 
(7,229
)
Shares issued for exercise of option rights
 
 
1,423,395

Shares tendered in connection with grants of restricted stock
108,352

 
(108,352
)
Net shares issued for grants of restricted stock
 
 
191,979

Treasury stock purchased
6,925,000

 
(6,925,000
)
Balance at December 31, 2014
19,813,079

 
94,704,173


NOTE 11 – STOCK PURCHASE PLAN AND PREFERRED STOCK
As of December 31, 2014, 33,958 employees contributed to the Company’s ESOP, a voluntary defined contribution plan available to all eligible salaried employees. Participants are allowed to contribute, on a pretax or after-tax basis, up to the lesser of twenty percent of their annual compensation or the maximum dollar amount allowed under the Internal Revenue Code. The Company matches one hundred percent of all contributions up to six percent of eligible employee contributions. Such participant contributions may be invested in a variety of investment funds or a Company common stock fund and may be exchanged between investments as directed by the participant. Participants are permitted to diversify both future and prior Company matching contributions previously allocated to the Company common stock fund into a variety of investment funds.
The Company made contributions to the ESOP on behalf of participating employees, representing amounts authorized by employees to be withheld from their earnings, of $109,036, $97,381 and $88,363 in 2014, 2013 and 2012, respectively. The Company’s matching contributions to the ESOP charged to operations were $74,574, $67,428 and $142,791 for 2014, 2013 and 2012, respectively. The 2012 Company contributions include $80,000 related to the DOL Settlement. See Note 9 for additional information on the DOL Settlement.
 
At December 31, 2014, there were 12,456,468 shares of the Company’s common stock being held by the ESOP, representing 13.2 percent 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.
On August 1, 2006, the Company issued 500,000 shares of convertible serial preferred stock, no par value (Series 2 Preferred stock) with cumulative quarterly dividends of $11.25 per share, for $500,000 to the ESOP. The ESOP financed the acquisition of the Series 2 Preferred stock by borrowing $500,000 from the Company at the rate of 5.5 percent per annum. This borrowing was payable over ten years in equal quarterly installments. Each share of Series 2 Preferred stock was entitled to one vote upon all matters presented to the Company’s shareholders and generally voted with the common stock together as one class. The Series 2 Preferred stock was held by the ESOP in an unallocated account. As the value of compensation expense related to contributions to the ESOP was earned, the Company


64 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

had the option of funding the ESOP by redeeming a portion of the preferred stock or with cash. Contributions were credited to the members’ accounts at the time of funding. The Series 2 Preferred stock was redeemable for cash or convertible into common stock or any combination thereof at the option of the ESOP based on the relative fair value of the Series 2 Preferred and common stock at the time of conversion. At December 31, 2014, 2013 and 2012, there were no allocated or committed-to-be released shares of Series 2 Preferred stock outstanding. In 2013 and 2012, the Company redeemed for cash 60,681 and 59,187 shares of Series 2 Preferred stock, respectively. The fair value of the Series 2 Preferred stock is based on a conversion/redemption formula outlined in the preferred stock terms. At December 31, 2013 and 2012, the fair value of the Series 2 Preferred stock was $86,309 and $210,773, respectively. In 2014, the Company redeemed for cash the remaining 40,406 shares of Series 2 Preferred stock.
NOTE 12 – STOCK-BASED COMPENSATION
The amended and restated 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 19,200,000 shares of common stock, plus any shares relating to awards that expire, are forfeited or canceled. The Employee Plan permits the granting of option rights, appreciation rights, restricted stock, restricted stock units, performance shares and performance units to eligible employees. At December 31, 2014, 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 are canceled. The Nonemployee Director Plan permits the granting of option rights, appreciation rights, restricted stock and restricted stock units to members of the Board of Directors who are not employees of the Company. At December 31, 2014, no option rights, appreciation rights or restricted stock units had been granted under the Nonemployee Director Plan.
The cost of the Company’s stock-based compensation is recorded in accordance with the Stock Compensation Topic of the ASC. The tax benefits associated with these share-based payments are classified as financing activities in the Statements of Consolidated Cash Flows.
At December 31, 2014, the Company had total unrecognized stock-based compensation expense of $76,099 that is expected to be recognized over a weighted-average period of 1.00 year. Stock-based compensation expense during 2014, 2013 and 2012 was $64,735, $58,004 and $54,348, respectively. The Company recognized a total income tax benefit related to stock-based compensation expense of $24,816, $22,368 and $20,948 during 2014, 2013 and 2012, respectively. The impact of total stock-based compensation expense, net of taxes, on net income reduced Basic and Diluted net income per common share by $.41 and $.40 during 2014, 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:
 
2014
 
2013
 
2012
Risk-free interest rate
1.47%
 
1.37%
 
.78%
Expected life of option rights
5.10 years
 
5.10 years
 
5.11 years
Expected dividend yield
of stock
1.19%
 
1.32%
 
1.43%
Expected volatility of stock
.223
 
.281
 
.274
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. The Company applied an estimated forfeiture rate of 2.60 percent to the 2014 grants. This rate was calculated based upon historical activity and is an estimate of granted shares not expected to vest. If actual forfeitures differ from the expected rate, the Company may be required to make additional adjustments to compensation expense in future periods.
Grants of option rights for non-qualified and incentive stock options have been awarded to certain officers, key employees and nonemployee directors under the 2006 Employee Plan and the 2003 Stock 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 $39,413 at December 31, 2014. The unrecognized compensation expense 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 1.03 years.


65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

The weighted-average per share grant date fair value of options granted during 2014, 2013 and 2012, respectively, was $43.11, $41.91 and $32.74. The total intrinsic value of exercised option rights for employees was $195,097, $129,742 and $298,883, and for nonemployee directors was $0, $525 and $1,412 during 2014, 2013 and 2012, respectively. The total fair value of options vested during the year was $32,313, $28,658 and $25,879 during 2014, 2013 and 2012, respectively. There
 
were no outstanding option rights for nonemployee directors for 2014 and 2013. The outstanding option rights for nonemployee directors were 3,500 for 2012. The Company issues new shares upon exercise of option rights or granting of restricted stock.

A summary of the Company’s non-qualified and incentive stock option right activity for employees and nonemployee directors, and related information for the years ended December 31 is shown in the following table:
 
2014
 
2013
 
2012
 
Optioned
Shares
 
Weighted-
Average
Exercise
Price
Per Share
 
Aggregate
Intrinsic
Value
 
Optioned
Shares
 
Weighted-
Average
Exercise
Price
Per Share
 
Aggregate
Intrinsic
Value
 
Optioned
Shares
 
Weighted-
Average
Exercise
Price
Per Share
 
Aggregate
Intrinsic
Value
Outstanding beginning
of year
6,484,592

 
$
96.25

 
 
 
6,748,126

 
$
79.39

 
 
 
9,857,695

 
$
60.31

 
 
Granted
672,565

 
224.65

 
 
 
898,728

 
179.67

 
 
 
1,089,240

 
152.93

 
 
Exercised
(1,421,045
)
 
70.71

 
 
 
(1,127,942
)
 
61.46

 
 
 
(4,140,822
)
 
53.40

 
 
Forfeited
(31,617
)
 
158.92

 
 
 
(33,278
)
 
115.24

 
 
 
(57,730
)
 
78.01

 
 
Expired
(4,603
)
 
86.66

 
 
 
(1,042
)
 
79.73

 
 
 
(257
)
 
72.65

 
 
Outstanding end of year
5,699,892

 
$
117.31

 
$
830,647

 
6,484,592

 
$
96.25

 
$
563,554

 
6,748,126

 
$
79.39

 
$
494,699

Exercisable at end of year
4,095,246

 
$
87.79

 
$
717,691

 
4,424,674

 
$
71.86

 
$
492,689

 
4,245,891

 
$
61.43

 
$
386,484

 
The weighted-average remaining term for options outstanding at the end of 2014, 2013 and 2012, respectively, was 6.57, 6.75 and 6.99 years. The weighted-average remaining term for options exercisable at the end of 2014, 2013 and 2012, respectively, was 5.63, 5.71 and 5.79 years. Shares reserved for future grants of option rights and restricted stock were 4,604,924, 5,636,618 and 6,810,439 at December 31, 2014, 2013 and 2012, respectively.
Restricted stock. Grants of restricted stock, 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 2014, 2013 and 2012 grants consisted of a combination of performance-based awards and time-based awards. The performance-based awards vest at the end of a three-year period based on the Company’s achievement of specified financial goals relating to earnings per share. The time-based awards vest at the end of a three-year period based on continuous employment. Unrecognized compensation expense with respect to grants of restricted stock to eligible employees amounted to $35,519 at December 31, 2014 and is being amortized on a straight-line basis over the vesting period and is expected to be recognized over a weighted-average period of 0.93 years.
Grants of restricted stock have been awarded to nonemployee directors under the Nonemployee Plan. These grants generally vest and stock is received without restriction to the extent of one-third of the granted stock for each year following the date of grant. Unrecognized compensation expense with respect to grants of restricted stock to nonemployee directors amounted to $1,167 at December 31,
 
2014 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 0.93 years.
A summary of grants of restricted stock to certain officers, key employees and nonemployee directors during each year is as follows:
 
2014
 
2013
 
2012
Restricted stock granted
201,412

 
172,406

 
301,856

Weighted-average per share
fair value of restricted stock
granted during the year
$
191.60

 
$
163.63

 
$
99.47




66 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

A summary of the Company’s restricted stock activity for the years ended December 31 is shown in the following table:
 
2014
 
2013
 
2012
Outstanding at beginning
of year
749,382

 
919,748

 
1,304,891

Granted
201,412

 
172,406

 
301,856

Vested
(294,438
)
 
(334,750
)
 
(412,859
)
Forfeited
(1,080
)
 
(8,022
)
 
(274,140
)
Outstanding at end of year
655,276

 
749,382

 
919,748

NOTE 13 – OTHER
Other general expense - net. Included in Other general expense - net were the following:
 
2014
 
2013
 
2012
Provisions for environmental
matters - net
$
36,046

 
$
(2,751
)
 
$
6,736

Loss on disposition of assets
1,436

 
5,207

 
3,454

Net expense (income) of exit or disposal activities
 
 
63

 
(4,942
)
Total
$
37,482

 
$
2,519

 
$
5,248

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. Environmental-related accruals are not recorded net of insurance proceeds in accordance with the Offsetting Subtopic of the Balance Sheet Topic of the ASC. See Note 8 for further details on the Company’s environmental-related activities.
The loss on disposition of assets represents net realized losses associated with the disposal of property, plant and equipment and intangible assets previously used in the conduct of the primary business of the Company.
The net expense (income) of exit or disposal activities includes changes to accrued qualified exit costs as information becomes available upon which more accurate amounts can be reasonably estimated, initial impairments of carrying value and additional impairments for subsequent reductions in estimated fair value of property, plant and equipment held for disposal. See Note 5 for further details on the Company’s exit or disposal activities. 
Other (income) expense - net. Included in Other (income) expense - net were the following:
 
2014
 
2013
 
2012
Dividend and royalty income
$
(4,864
)
 
$
(5,904
)
 
$
(4,666
)
Net expense from
financing activities
11,367

 
9,829

 
9,220

Foreign currency transaction related losses (gains)
3,603

 
7,669

 
(3,071
)
Other income
(37,524
)
 
(22,684
)
 
(21,074
)
Other expense
12,018

 
12,026

 
9,651

Total
$
(15,400
)
 
$
936

 
$
(9,940
)
 
The Net expense from financing activities includes the net expense relating to changes in the Company’s financing fees.
Foreign currency transaction related losses (gains) represent net realized losses (gains) on U.S. dollar-denominated liabilities of foreign subsidiaries and net realized and unrealized losses (gains) from foreign currency option and forward contracts. There were no material foreign currency option and forward contracts outstanding at December 31, 2014, 2013 and 2012.
Other income and Other expense included items of revenue, gains, expenses and losses that were unrelated to the primary business purpose of the Company. Other income for the year ended December 31, 2014 included a $6,336 gain on the early termination of a customer agreement recorded in the Global Finishes Group and a $6,198 realized gain resulting from final asset valuations related to the acquisition of the U.S./Canada business of Comex recorded in the Administrative segment. There were no other items within Other income or Other expense that were individually significant.


67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

NOTE 14 – INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates and laws that are currently in effect. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2014, 2013 and 2012 were as follows:
 
2014
 
2013
 
2012
Deferred tax assets:
 
 
 
 
 
Exit costs, environ-mental and other
similar items
$
56,441

 
$
45,322

 
$
45,403

Deferred employee
benefit items
55,765

 
32,600

 
93,039

Other items (each
less than 5 percent
of total assets)
85,841

 
53,727

 
73,388

Total deferred
tax assets
$
198,047

 
$
131,649

 
$
211,830

Deferred tax liabilities:
 
 
 
 
 
Depreciation and
amortization
$
227,765

 
$
214,696

 
$
202,891

Netted against the Company’s other deferred tax assets were valuation allowances of $1,725, $7,390 and $11,474 at December 31, 2014, 2013 and 2012, respectively. These reserves resulted from the uncertainty as to the realization of the tax benefits from foreign net operating losses and other foreign assets. The Company has $30,750 of domestic net operating loss carryforwards acquired through acquisitions that have expiration dates through the tax year 2037 and foreign net operating losses of $60,943. The foreign net operating losses are related to various jurisdictions that provide for both indefinite carryforward periods and others with carryforward periods that range from the tax years 2019 to 2034.
Significant components of the provisions for income taxes were as follows:
 
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$
308,283

 
$
229,997

 
$
207,791

Foreign
53,045

 
42,543

 
51,264

State and local
50,049

 
33,082

 
27,642

Total current
411,377

 
305,622

 
286,697

Deferred:
 
 
 
 
 
Federal
(14,974
)
 
30,384

 
8,692

Foreign
(7,361
)
 
(9,041
)
 
(16,964
)
State and local
3,297

 
6,432

 
(2,150
)
Total deferred
(19,038
)
 
27,775

 
(10,422
)
Total provisions for
income taxes
$
392,339

 
$
333,397

 
$
276,275

The provisions for income taxes included estimated taxes payable on that portion of retained earnings of foreign subsidiaries expected to be received by the Company. The effect of the repatriation provisions of the American Jobs Creation Act of 2004 and the provisions of the Income Taxes Topic of the
 
ASC, was $(1,887) in 2014, $4,411 in 2013 and $7,572 in 2012. A provision was not made with respect to $3,683 of retained earnings at December 31, 2014 that have been invested by foreign subsidiaries. The unrecognized deferred tax liability related to those earnings is approximately $539.
Significant components of income before income taxes as used for income tax purposes, were as follows:
 
2014
 
2013
 
2012
Domestic
$
1,113,527

 
$
969,790

 
$
712,873

Foreign
144,698

 
116,168

 
194,436

 
$
1,258,225

 
$
1,085,958

 
$
907,309

A reconciliation of the statutory federal income tax rate to the effective tax rate follows: 
 
2014
 
2013
 
2012
Statutory federal
income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Effect of:
 
 
 
 
 
State and local
income taxes
2.8

 
2.4

 
1.8

Investment vehicles
(2.5
)
 
(2.1
)
 
(2.1
)
Domestic production
activities
(2.5
)
 
(2.2
)
 
(1.9
)
Other - net
(1.6
)
 
(2.4
)
 
(2.4
)
Effective tax rate
31.2
 %
 
30.7
 %
 
30.4
 %
The 2014 state and local income tax component of the effective tax rate increased compared to 2013 primarily due to an increase in domestic income before income taxes in 2014 compared to 2013. The tax benefit related to investment vehicles increased in 2014 compared to 2013 due to an increase in income tax credits recognized and the favorable impact of the Company's capital position in these investments. The domestic production activities component of the effective tax rate increased due to an increase in qualified production activities income as well as an increase in domestic taxable income in 2014 compared to 2013.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The IRS commenced an examination of the Company's U.S. income tax returns for the 2010, 2011 and 2012 tax years in the fourth quarter of 2013. Fieldwork is expected to be completed during 2015. At this time, the Company has determined that an insignificant refund is due for issues under


68 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

review during this audit period. The refunds relate to tax credits not recognized on the returns when initially filed and the reversal of adjustments made to depreciation in prior audit cycles.
As of December 31, 2014, the Company is subject to non-U.S. income tax examinations for the tax years of 2007 through 2014. In addition, the Company is subject to state and local income tax examinations for the tax years 2004 through 2014.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
2014
 
2013
 
2012
Balance at beginning
of year
$
30,997

 
$
28,119

 
$
29,666

Additions based on
tax positions related
to the current year
3,370

 
3,480

 
3,760

Additions for tax
positions of prior
years
4,428

 
5,059

 
7,392

Reductions for tax
positions of prior
years
(2,349
)
 
(3,378
)
 
(6,583
)
Settlements
(4,089
)
 
(103
)
 
(1,139
)
Lapses of Statutes
of Limitations
(797
)
 
(2,180
)
 
(4,977
)
Balance at end of year
$
31,560

 
$
30,997

 
$
28,119

 
Included in the balance of unrecognized tax benefits at December 31, 2014, 2013 and 2012 is $28,208, $27,767 and $25,011 in unrecognized tax benefits, the recognition of which would have an effect on the effective tax rate.
Included in the balance of unrecognized tax benefits at December 31, 2014 is $4,372 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, assessed state income tax audits, federal and state settlement negotiations currently in progress and expiring statutes in federal, foreign and state jurisdictions.
The Company classifies all income tax related interest and penalties as income tax expense. During the years ended December 31, 2014 and 2013, there was an increase in income tax interest and penalties of $2,144 and $103, respectively. In the 2012 tax year, there was a release of $1,532. At December 31, 2014, 2013 and 2012, the Company accrued $5,732, $6,246 and $6,178, respectively, for the potential payment of interest and penalties.

NOTE 15 – NET INCOME PER COMMON SHARE 
 
2014
 
2013
 
2012
Basic
 
 
 
 
 
Average common shares outstanding
96,190,101

 
100,897,512

 
101,714,901

 
 
 
 
 
 
Net income
$
865,887

 
$
752,561

 
$
631,034

Less net income allocated to unvested restricted shares
(4,892
)
 
(4,596
)
 
(5,114
)
Net income allocated to common shares
$
860,995

 
$
747,965

 
$
625,920

Net income per common share
$
8.95

 
$
7.41

 
$
6.15

Diluted
 
 
 
 
 
Average common shares outstanding
96,190,101

 
100,897,512

 
101,714,901

Stock options and other contingently issuable shares (a)
1,885,334

 
2,151,359

 
2,215,528

Average common shares outstanding assuming dilution
98,075,435

 
103,048,871

 
103,930,429

 
 
 
 
 
 
Net income
$
865,887

 
$
752,561

 
$
631,034

Less net income allocated to unvested restricted shares
assuming dilution
(4,804
)
 
(4,509
)
 
(5,008
)
Net income allocated to common shares assuming dilution
$
861,083

 
$
748,052

 
$
626,026

Net income per common share
$
8.78

 
$
7.26

 
$
6.02


(a)
Stock options and other contingently issuable shares excludes 608,477, 842,354 and 1,047,734 shares at December 31, 2014, 2013 and 2012, respectively, due to their anti-dilutive effect.
The Company has two classes of participating securities: common shares and restricted shares, representing 99% and 1% of outstanding shares, respectively. The restricted shares are shares of unvested restricted stock granted under the Company’s restricted

69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

stock award program. Unvested restricted shares granted prior to April 21, 2010 received non-forfeitable dividends. Accordingly, the shares are considered a participating security and the two-class method of calculating basic and diluted earnings per share is required. Effective April 21, 2010, the restricted stock award program was revised and dividends on performance-based restricted shares granted after this date are deferred and payment is contingent upon the awards vesting. Only the time-based restricted shares, which continue to receive non-forfeitable dividends, are considered a participating security. Basic and diluted earnings per share are calculated using the two-class method in accordance with the Earnings Per Share Topic of the ASC.
NOTE 16 – SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) 
 
2014
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
 
Full Year
Net sales
$
2,366,556

 
$
3,042,995

 
$
3,150,570

 
$
2,569,412

 
$
11,129,533

Gross profit
1,065,901

 
1,409,653

 
1,470,955

 
1,217,975

 
5,164,484

Net income
115,457

 
291,447

 
326,240

 
132,743

 
865,887

Net income per common share - basic
1.16

 
3.00

 
3.42

 
1.40

 
8.95

Net income per common share - diluted
1.14

 
2.94

 
3.35

 
1.37

 
8.78

Net income in the fourth quarter was increased by inventory adjustments. Gross profit increased by $21,077 ($.13 per share), primarily as a result of adjustments based on an annual physical inventory count performed during the fourth quarter, year-end inventory levels and related cost adjustments. Gross profit was also increased by $21,420 ($.13 a share) as a result of the TiO2 settlement. Selling, general and administrative expenses decreased $14,141 ($.09 a share) related to compensation and benefit expense adjustments. Other general expense net was increased by $25,012 ($.16 a share) as a result of provision for environmental related matters - net.
 
2013
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
 
Full Year
Net sales
$
2,167,168

 
$
2,713,889

 
$
2,847,417

 
$
2,457,058

 
$
10,185,532

Gross profit
962,851

 
1,233,579

 
1,295,958

 
1,124,178

 
4,616,566

Net income
116,185

 
257,287

 
262,966

 
116,123

 
752,561

Net income per common share - basic
1.13

 
2.51

 
2.61

 
1.16

 
7.41

Net income per common share - diluted
1.11

 
2.46

 
2.55

 
1.14

 
7.26

Net income in the fourth quarter was increased by inventory adjustments. Gross profit increased by $14,938 ($.09 per share), primarily as a result of adjustments based on an annual physical inventory count performed during the fourth quarter, year-end inventory levels and related cost adjustments.
.
NOTE 17 – OPERATING LEASES
The Company leases certain stores, warehouses, manufacturing facilities, office space and equipment. Renewal options are available on the majority of leases and, under certain conditions, options exist to purchase certain properties. Rental expense for operating leases, recognized on a straight-line basis over the lease term in accordance with the Leases Topic of the ASC was $376,914, $327,592 and $310,109 for 2014, 2013 and 2012, respectively. Certain store leases require the payment of contingent rentals based on sales in excess of specified minimums. Contingent rentals included in rent expense were $52,379, $44,084 and $39,340 in 2014, 2013 and 2012, respectively. Rental income, as lessor, from real estate leasing activities and sublease rental income for all years presented was
 
not significant. The following schedule summarizes the future minimum lease payments under noncancellable operating leases having initial or remaining terms in excess of one year at December 31, 2014:
2015
$
296,875

2016
254,608

2017
204,898

2018
156,495

2019
113,968

Later years
287,929

Total minimum lease payments
$
1,314,773



70 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

NOTE 18 – 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 determined that it has four reportable operating segments: Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group (individually, a "Reportable Segment" and collectively, the “Reportable Segments”). Factors considered in determining the four 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. See pages 6 through 15 of this report for more information about the Reportable Segments.
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 profit or loss before income taxes 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 Paint Stores Group consisted of 4,003 company-operated specialty paint stores in the United States, Canada, Puerto Rico, Virgin Islands, Trinidad and Tobago, St. Maarten, Jamaica, Curacao, Aruba and St. Lucia at December 31, 2014. Each store in this segment is engaged in the related business activity of selling paint, coatings and related products to end-use customers. The Paint Stores Group markets and sells Sherwin-Williams® branded architectural paint and coatings, protective and marine products, OEM product finishes and related items. These products are produced by manufacturing facilities in the Consumer Group. In addition, each store sells selected purchased associated products. The loss of any single customer would not have a material adverse effect on the business of this segment. During 2014, this segment opened 95 net new stores, consisting of 109 new stores opened (95 in the United States, 9 in Canada, 2 in Puerto Rico, 1 in Trinidad, 1 in Jamaica and 1 in St. Lucia) and 14 stores closed (11 in the United States and 3 in Canada). In 2013 and 2012, this segment opened or acquired 388 and 70 net new stores, respectively. A map on the cover flap of this report shows the number of paint stores and their geographic location. The CODM uses discrete financial information about the Paint Stores Group, supplemented with information by geographic region, product type and customer type, to assess performance of and allocate resources to the Paint Stores Group as a whole. In accordance with ASC 280-10-50-9, the Paint Stores 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 Group develops, manufactures and distributes a variety of paint, coatings and related products to third-party customers primarily in the United States and Canada and the Paint Stores Group. Approximately 66 percent of the total sales of the Consumer Group in 2014 were intersegment transfers of products primarily sold through the
 
Paint Stores Group. Sales and marketing of certain controlled brand and private labeled products is performed by a direct sales staff. The products distributed through third-party customers are intended for resale to the ultimate end-user of the product. The Consumer Group had sales to certain customers that, individually, may be a significant portion of the sales of the segment. However, the loss of any single customer would not have a material adverse effect on the overall profitability of the segment. This segment incurred most of the Company’s capital expenditures related to ongoing environmental compliance measures at sites currently in operation. The CODM uses discrete financial information about the Consumer Group, supplemented with information by product types and customer, to assess performance of and allocate resources to the Consumer Group as a whole. In accordance with ASC 280-10-50-9, the Consumer 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 Global Finishes Group develops, licenses, manufactures, distributes and sells a variety of protective and marine products, automotive finishes and refinish products, OEM product finishes and related products in North and South America, Europe and Asia. This segment meets the demands of its customers for a consistent worldwide product development, manufacturing and distribution presence and approach to doing business. This segment licenses certain technology and trade names worldwide. Sherwin-Williams® and other controlled brand products are distributed through the Paint Stores Group and this segment’s 300 company-operated branches and by a direct sales staff and


71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)
 

outside sales representatives to retailers, dealers, jobbers, licensees and other third-party distributors. During 2014, this segment opened 1 new branch in the United States and closed 1 branch in the United States resulting in no net change. At December 31, 2014, the Global Finishes Group consisted of operations in the United States, subsidiaries in 34 foreign countries and income from licensing agreements in 16 foreign countries. The CODM uses discrete financial information about the Global Finishes Group reportable segment, supplemented with information about geographic divisions, business units and subsidiaries, to assess performance of and allocate resources to the Global Finishes Group as a whole. In accordance with ASC 280-10-50-9, the Global Finishes 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. A map on the cover flap of this report shows the number of branches and their geographic locations.
The Latin America Coatings Group develops, licenses, manufactures, distributes and sells a variety of architectural paint and coatings, protective and marine products, OEM product finishes and related products in North and South America. This segment meets the demands of its customers for consistent regional product development, manufacturing and distribution presence and approach to doing business. Sherwin-Williams® and other controlled brand products are distributed through this segment’s 276 company-operated stores and by a direct sales staff and outside sales representatives to retailers, dealers, licensees and other third-party distributors. During 2014, this segment opened 3 new stores in South America and closed 9 (7 in South America and 2 in Mexico) for a net decrease of 6 stores. At December 31, 2014, the Latin America Coatings Group consisted of operations from subsidiaries in 9 foreign countries, 4 foreign joint ventures and income from licensing agreements in 7 foreign countries. The CODM uses discrete financial information about the Latin America Coatings Group, supplemented with information about geographic divisions, business units and subsidiaries, to assess performance of and allocate resources to the Latin America Coatings Group as a whole. In accordance with ASC 280-10-50-9, the Latin America 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. A map on the cover flap of this report shows the number of stores and their geographic locations.
The Administrative segment includes the administrative expenses of the Company’s corporate headquarters site. Also included in the Administrative segment was interest expense, interest and investment income, certain expenses related to closed facilities and environmental-related matters, and other expenses which were not directly associated with the Reportable Segments. The Administrative segment did not include any significant foreign operations. Also included in the Administrative segment was a real estate management unit that is responsible for the ownership, management and leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities. Sales of this segment represented external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its primary businesses. Gains and losses from the sale of property were not a significant operating factor in determining the performance of the Administrative segment.
Net external sales of all consolidated foreign subsidiaries were $2,203,804, $2,129,626 and $2,049,814 for 2014, 2013 and 2012, respectively. Segment profit of all consolidated foreign subsidiaries was $115,629, $106,166 and $158,377 for 2014, 2013 and 2012, respectively. The decrease in segment profit in 2013 was primarily due to Brazil tax assessments and unfavorable currency rate changes.
 
Additionally, 2014 segment profit was adversely impacted by unfavorable currency rate changes. Domestic operations accounted for the remaining net external sales and segment profits. Long-lived assets consisted of Property, plant and equipment, Goodwill, Intangible assets, Deferred pension assets and Other assets. The aggregate total of long-lived assets for the Company was $3,139,272, $3,223,790 and, $3,085,499 at December 31, 2014, 2013 and 2012, respectively. Long-lived assets of consolidated foreign subsidiaries totaled $551,364, $648,908 and $616,869 at December 31, 2014, 2013 and 2012, respectively. Total Assets of the Company were $5,706,052, $6,382,507 and $6,234,737 at December 31, 2014, 2013 and 2012, respectively. Total assets of consolidated foreign subsidiaries were $1,359,991, $1,625,422 and $1,598,996, which represented 23.8 percent, 25.5 percent and 25.6 percent of the Company’s total assets at December 31, 2014, 2013 and 2012, respectively. No single geographic area outside the United States was significant relative to consolidated net sales or operating profits. Export sales and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all years presented.


72 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(thousands of dollars unless otherwise indicated)

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.

(millions of dollars)
2014
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
6,852

 
$
1,421

 
$
2,081

 
$
771

 
$
5

 
$
11,130

Intersegment transfers
 
 
2,745

 
8

 
40

 
(2,793
)
 
 
Total net sales and
intersegment transfers
$
6,852

 
$
4,166

 
$
2,089

 
$
811

 
$
(2,788
)
 
$
11,130

Segment profit
$
1,201

 
$
253

 
$
201

 
$
40

 
 
 
$
1,695

Interest expense
 
 
 
 
 
 
 
 
$
(64
)
 
(64
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(373
)
 
(373
)
Income before income taxes
$
1,201

 
$
253

 
$
201

 
$
40

 
$
(437
)
 
$
1,258

Reportable segment margins
17.5
%
 
6.1
%
 
9.6
%
 
4.9
%
 
 
 
 
Identifiable assets
$
1,602

 
$
1,883

 
$
874

 
$
427

 
$
920

 
$
5,706

Capital expenditures
87

 
45

 
16

 
8

 
45

 
201

Depreciation
58

 
48

 
28

 
9

 
26

 
169

 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
Paint Stores
Group
 
Consumer
Group
 
Global
Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
6,002

 
$
1,342

 
$
2,005

 
$
832

 
$
5

 
$
10,186

Intersegment transfers
 
 
2,409

 
9

 
39

 
(2,457
)
 
 
Total net sales and
intersegment transfers
$
6,002

 
$
3,751

 
$
2,014

 
$
871

 
$
(2,452
)
 
$
10,186

Segment profit
$
991

 
$
242

 
$
170

 
$
39

 
 
 
$
1,442

Interest expense
 
 
 
 
 
 
 
 
$
(63
)
 
(63
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(293
)
 
(293
)
Income before income taxes
$
991

 
$
242

 
$
170

 
$
39

 
$
(356
)
 
$
1,086

Reportable segment margins
16.5
%
 
6.5
%
 
8.4
%
 
4.5
%
 
 
 
 
Identifiable assets
$
1,668

 
$
1,762

 
$
964

 
$
485

 
$
1,504

 
$
6,383

Capital expenditures
73

 
40

 
15

 
7

 
32

 
167

Depreciation
55

 
45

 
29

 
10

 
20

 
159

 
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
Paint Stores
Group
 
Consumer
Group
 
Global
 Finishes
Group
 
Latin America
Coatings
Group
 
Administrative
 
Consolidated
Totals
Net external sales
$
5,410

 
$
1,322

 
$
1,961

 
$
836

 
$
5

 
$
9,534

Intersegment transfers
 
 
2,320

 
7

 
47

 
(2,374
)
 
 
Total net sales and
intersegment transfers
$
5,410

 
$
3,642

 
$
1,968

 
$
883

 
$
(2,369
)
 
$
9,534

Segment profit
$
862

 
$
217

 
$
147

 
$
81

 

 
$
1,307

Interest expense
 
 
 
 
 
 
 
 
$
(43
)
 
(43
)
Administrative expenses and other
 
 
 
 
 
 
 
 
(357
)
(1) 
(357
)
Income before income taxes
$
862

 
$
217

 
$
147

 
$
81

 
$
(400
)
 
$
907

Reportable segment margins
15.9
%
 
6.0
%
 
7.5
%
 
9.2
%
 
 
 
 
Identifiable assets
$
1,374

 
$
1,701

 
$
987

 
$
485

 
$
1,688

 
$
6,235

Capital expenditures
67

 
47

 
14

 
9

 
20

 
157

Depreciation
49

 
43

 
30

 
10

 
20

 
152

(1) 
Includes $80 pre-tax charge related to DOL Settlement. See Note 9.

73

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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to” and similar expressions.
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 the control of the Company, that could cause actual results to differ materially from such statements and from the Company’s historical results and experience. These risks, uncertainties and other factors include such things as: (a) general business conditions, strengths of retail and manufacturing economies and the growth in the coatings industry; (b) competitive factors, including pricing pressures and product innovation and quality; (c) changes in raw material and energy supplies and pricing; (d) changes in the Company’s relationships with customers and suppliers; (e) the Company’s ability to attain cost savings from productivity initiatives; (f) the Company’s ability to successfully integrate past and future acquisitions into its existing operations, including the recent acquisition of the Comex business in the United States and
 
Canada, as well as the performance of the businesses acquired; (g) changes in general domestic 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; (h) risks and uncertainties associated with the Company’s expansion into and its 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; (i) the achievement of growth in foreign markets, such as Asia, Europe and South America; (j) increasingly stringent domestic and foreign governmental regulations including those affecting health, safety and the environment; (k) inherent uncertainties involved in assessing the Company’s potential liability for environmental-related activities; (l) other changes in governmental policies, laws and regulations, including changes in accounting policies and standards and taxation requirements (such as new tax laws and new or revised tax law interpretations); (m) 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; and (n) unusual weather conditions.
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 the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.



74 

SHAREHOLDER INFORMATION

Annual Meeting
The annual meeting of shareholders
will be held in the Landmark
Conference Center, 927 Midland
Building, 101 W. Prospect Avenue,
Cleveland, Ohio on Wednesday,
April 15, 2015 at 9:00 A.M.,
local time.

Headquarters
101 W. Prospect Avenue
Cleveland, Ohio 44115-1075
(216) 566-2000
www.sherwin.com

Investor Relations
Robert J. Wells
Senior Vice President - Corporate
Communications and Public Affairs
The Sherwin-Williams Company
101 W. Prospect Avenue
Cleveland, Ohio 44115-1075
 
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
Wells Fargo Shareowner Services.

Form 10-K
The Company’s Annual Report on
Form 10-K, filed with the Securities
and Exchange Commission, is
available without charge. To obtain
a copy, contact Investor Relations.
 
Transfer Agent & Registrar
Our transfer agent, Wells Fargo
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:
Wells Fargo Shareowner Services
P.O. Box 64856
St. Paul, MN 55164-0856
www.shareowneronline.com
1-800-468-9716 Toll-free
651-450-4064 outside the United States
651-450-4144 TDD



COMMON STOCK TRADING STATISTICS
 
2014
 
2013
 
2012
 
2011
 
2010
High
$
266.25

 
$
195.32

 
$
159.80

 
$
90.42

 
$
84.99

Low
174.29

 
153.94

 
90.21

 
69.47

 
57.86

Close December 31
263.04

 
183.50

 
153.82

 
89.27

 
83.75

Shareholders of record
7,250

 
7,555

 
7,954

 
8,360

 
8,706

Shares traded (thousands)
152,913

 
186,854

 
282,397

 
286,276

 
316,582



QUARTERLY STOCK PRICES AND DIVIDENDS
2014
 
2013
Quarter
 
High
 
Low
 
Dividend
 
Quarter
 
High
 
Low
 
Dividend
1st
 
$
208.63

 
$
174.29

 
$
.550

 
1st
 
$
172.41

 
$
153.94

 
$
.500

2nd
 
208.00

 
188.25

 
.550

 
2nd
 
194.56

 
162.22

 
.500

3rd
 
222.53

 
201.47

 
.550

 
3rd
 
190.68

 
163.63

 
.500

4th
 
266.25

 
202.01

 
.550

 
4th
 
195.32

 
170.63

 
.500



75

CORPORATE OFFICERS AND
OPERATING MANAGEMENT


Corporate Officers
 
Operating Management
 
 
 
 
 
 
 
Christopher M. Connor, 58*
 
Joel Baxter, 54
 
Dennis H. Karnstein, 48
Chairman and Chief Executive Officer
 
President & General Manager
 
President & General Manager

 
Global Supply Chain Division
 
Product Finishes Division
John G. Morikis, 51*
 
Consumer Group
 
Global Finishes Group
President and Chief Operating Officer
 

 


 
Paul R. Clifford, 51
 
Cheri M. Phyfer, 43
Sean P. Hennessy, 57*
 
President & General Manager
 
President & General Manager
Senior Vice President - Finance and
 
Canada Division
 
Diversified Brands Division
Chief Financial Officer
 
The Americas Group
 
Consumer Group

 

 

Thomas E. Hopkins, 57*
 
Robert J. Davisson, 54*
 
Ronald B. Rossetto, 48
Senior Vice President -
 
President
 
President & General Manager
Human Resources
 
The Americas Group
 
Protective & Marine Coatings Division

 

 
Global Finishes Group
Catherine M. Kilbane, 51*
 
Brian L. Gallagher, 43
 

Senior Vice President, General
 
President & General Manager
 
David B. Sewell, 46*
Counsel and Secretary
 
Eastern Division
 
President

 
The Americas Group
 
Global Finishes Group
Timothy A. Knight, 50
 

 

Senior Vice President -
 
Pablo Garcia-Casas, 54
 
Todd V. Wipf, 50
Administration
 
President & General Manager
 
President & General Manager

 
Latin America Division
 
Southeastern Division
Allen J. Mistysyn, 46*
 
The Americas Group
 
The Americas Group
Senior Vice President -
 

 
 
Corporate Controller
 
Monty J. Griffin, 54
 
 

 
President & General Manager
 
 
Steven J. Oberfeld, 62*
 
South Western Division
 
 
Senior Vice President -
 
The Americas Group
 
 
Corporate Planning and Development
 

 
 

 
Thomas C. Hablitzel, 52
 
 
Robert J. Wells, 57*
 
President & General Manager
 
 
Senior Vice President - Corporate
 
Automotive Division
 
 
Communications and Public Affairs
 
Global Finishes Group
 
 

 

 
 
Jeffrey J. Miklich, 40
 
Peter J. Ippolito, 50
 
 
Vice President and Treasurer
 
President & General Manager
 
 

 
Mid Western Division
 
 
Jane M. Cronin, 47
 
The Americas Group
 
 
Vice President - Corporate Audit
 
 
 
 
and Loss Prevention
 
 
 
 

 
 
 
 
Michael T. Cummins, 56
 
 
 
 
Vice President - Taxes and
 
 
 
 
Assistant Secretary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
* Executive Officer as defined by the Securities Exchange Act of 1934


76 

CORPORATE OFFICERS AND
OPERATING MANAGEMENT










EXHIBIT 21

The Sherwin-Williams Company
Subsidiaries

Domestic


Subsidiary
State of
 
Incorporation
 
 
Comex North America, Inc.
DE
Contract Transportation Systems Co.
DE
CTS National Corporation
DE
Omega Specialty Products & Services LLC
OH
Sherwin-Williams Realty Holdings, Inc.
IL
SWIMC, Inc.
DE
The Sherwin-Williams Acceptance Corporation
NV
        

Foreign


Subsidiary
Country of
 
Incorporation
 
 
Compania Sherwin-Williams, S.A. de C.V.
Mexico
Geocel Limited
UK
Jiangsu Pulanna Coating Co., Ltd.
China
Oy Sherwin-Williams Finland Ab
Finland
Pinturas Condor S.A.
Ecuador
Pinturas Industriales S.A.
Uruguay
Productos Quimicos y Pinturas, S.A. de C.V.
Mexico
Przedsiêbiorstwo Altax Sp. z o.o    
Poland
Quetzal Pinturas, S.A. de C.V.
Mexico
Ronseal (Ireland) Limited
Ireland
Sherwin-Williams Argentina I.y C.S.A.
Argentina
Sherwin-Williams Aruba VBA
Aruba
Sherwin-Williams (Australia) Pty. Ltd.
Australia
Sherwin-Williams Automotive Mexico S. de R.L. de C.V.
Mexico    
Sherwin-Williams Balkan S.R.L.
Romania
Sherwin-Williams Bel
Belarus
Sherwin-Williams (Belize) Limited
Belize
Sherwin-Williams Benelux NV
Belgium
Sherwin-Williams Canada Inc.
Canada
Sherwin-Williams (Caribbean) N.V.
Curacao
Sherwin-Williams Cayman Islands Limited
Grand Cayman




Sherwin-Williams Chile S.A.
Chile
Sherwin-Williams Coatings India Private Limited
India
Sherwin-Williams Coatings S.a r.l.
Luxembourg
Sherwin Williams Colombia S.A.S.
Colombia
Sherwin-Williams Czech Republic spol. s r.o
Czech Republic
Sherwin-Williams Denmark A/S    
Denmark
Sherwin-Williams Deutschland GmbH
Germany
Sherwin-Williams Diversified Brands Limited
UK
Sherwin-Williams do Brasil Industria e Comercio Ltda.
Brazil
Sherwin-Williams France Finishes SAS
France
Sherwin-Williams HK Limited
Hong Kong
Sherwin-Williams (Ireland) Limited
Ireland
Sherwin-Williams Italy S.r.l.
Italy
Sherwin-Williams Luxembourg Investment Management
                   Company S.a r.l.
Luxembourg
Sherwin-Williams (Malaysia) Sdn. Bhd.
Malaysia
Sherwin-Williams Norway AS
Norway
Sherwin-Williams Paints Limited Liability Company
Russia
Sherwin-Williams Peru S.R.L.
Peru
Sherwin-Williams Pinturas de Venezuela S.A.
Venezuela
Sherwin-Williams Poland Sp. z o.o
Poland
Sherwin-Williams Protective & Marine Coatings    
UK
Sherwin-Williams (S) Pte. Ltd.
Singapore
Sherwin-Williams Services (Malaysia) Sdn. Bhd.
Malaysia
Sherwin-Williams (Shanghai) Limited
China
Sherwin-Williams Spain Coatings S.L.
Spain
Sherwin-Williams Sweden AB
Sweden    
Sherwin-Williams (Thailand) Co., Ltd.
Thailand
Sherwin-Williams UK Automotive Limited
UK
Sherwin-Williams Uruguay S.A.
Uruguay
Sherwin-Williams (Vietnam) Limited
Vietnam
Sherwin-Williams (West Indies) Limited
Jamaica    
SWIPCO - Sherwin Williams do Brasil Propriedade
                   Intelectual Ltda.    
Brazil
The Sherwin-Williams Company Resources Limited
Jamaica    
TOB Becker Acroma Ukraine
Ukraine
UAB Sherwin-Williams Lietuva
Lithuania
ZAO Sherwin-Williams    
Russia
Zhao Qing Sherwin Williams Coatings Co., Ltd.
China
            






EXHIBIT 23

Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Sherwin-Williams Company of our reports dated February 25, 2015 with respect to the consolidated financial statements of The Sherwin-Williams Company and the effectiveness of internal control over financial reporting of The Sherwin-Williams Company, included in the 2014 Annual Report to Shareholders of The Sherwin-Williams Company.
 
Our audits also included the financial statement schedule of The Sherwin-Williams Company listed in Item 15(a). This schedule is the responsibility of The Sherwin-Williams Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 25, 2015, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We consent to the incorporation by reference in the following Registration Statements of our reports dated February 25, 2015 with respect to the consolidated financial statements and schedule of The Sherwin-Williams Company and the effectiveness of internal control over financial reporting of The Sherwin-Williams Company, incorporated by reference herein, and our report included in the preceding paragraph with respect to the financial statement schedule of The Sherwin-Williams Company included in this Annual Report (Form 10-K) of The Sherwin-Williams Company:

Registration Number
Description
333-166365
The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan (as Amended and Restated as of April 21, 2010) Form S-8 Registration Statement
333-152443
The Sherwin-Williams Company Employee Stock Purchase and Savings Plan Form S-8 Registration Statement
333-133419
The Sherwin-Williams Company 2006 Equity and Performance Incentive Plan and The Sherwin-Williams Company 2006 Stock Plan for Nonemployee Directors Form S-8 Registration Statement
333-129582
The Sherwin-Williams Company 2005 Deferred Compensation Savings and Pension Equalization Plan, The Sherwin-Williams 2005 Key Management Deferred Compensation Plan and The Sherwin-Williams Company 2005 Director Deferred Fee Plan Form S-8 Registration Statement
333-105211
The Sherwin-Williams Company Employee Stock Purchase and Savings Plan Form S-8 Registration Statement
333-101229
The Sherwin-Williams Company 2003 Stock Plan Form S-8 Registration Statement
333-66295
The Sherwin-Williams Company Deferred Compensation Savings Plan, The Sherwin-Williams Company Key Management Deferred Compensation Plan and The Sherwin-Williams Company Director Deferred Fee Plan Form S-8 Registration Statement


Cleveland, Ohio
February 25, 2015






EXHIBIT 24(a)
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY

KNOW ALL BY THESE PRESENTS, that each of the undersigned directors and/or officers of The Sherwin-Williams Company, an Ohio corporation (the “Company”), hereby constitutes and appoints each of Christopher M. Connor, Sean P. Hennessy and Catherine M. Kilbane, with full power of substitution and resubstitution, as the true and lawful attorney-in-fact or attorneys-in-fact of the undersigned to execute and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, with any and all amendments, supplements and exhibits thereto, and any and all other documents in connection therewith, with full power and authority to do and perform any and all acts and things necessary, appropriate or desirable to be done in the premises, or in the name, place and stead of the undersigned, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and approving all that said attorneys-in-fact or any of them and any substitute therefor may lawfully do or cause to be done by virtue thereof.
This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it.
Executed as of this 18th day of February, 2015.
Signature
 
 
 
Title
  /s/ Christopher M. Connor
 
 
 
Chairman and Chief Executive Officer, Director (Principal Executive Officer)
Christopher M. Connor
 
 
 
  /s/ Sean P. Hennessy
 
 
 
Senior Vice President – Finance and Chief Financial Officer (Principal Financial Officer)
Sean P. Hennessy
 
 
 
  /s/ Allen J. Mistysyn 
 
 
 
Senior Vice President – Corporate Controller
(Principal Accounting Officer)
Allen J. Mistysyn
 
 
 
  /s/ Arthur F. Anton
 
 
 
Director
Arthur F. Anton
 
 
 
  /s/ David F. Hodnik
 
 
 
Director
David F. Hodnik
 
 
 
  /s/ Thomas G. Kadien
 
 
 
Director
Thomas G. Kadien
 
 
 
  /s/ Richard J. Kramer
 
 
 
Director
Richard J. Kramer
 
 
 
  /s/ Susan J. Kropf
 
 
 
Director
Susan J. Kropf
 
 
 
  /s/ Christine A. Poon
 
 
 
Director
Christine A. Poon
 
 
 
  /s/ Richard K. Smucker
 
 
 
Director
Richard K. Smucker
 
 
 
  /s/ John M. Stropki
 
 
 
Director
John M. Stropki
 
 
 
  /s/ Matthew Thornton III
 
 
 
Director
Matthew Thornton III
 
 
 






EXHIBIT 24(b)


CERTIFICATE


I, the undersigned, Secretary of The Sherwin-Williams Company (the “Company”), hereby certify that attached hereto is a true and complete copy of a resolution of the Board of Directors of the Company, duly adopted at a meeting held on February 18, 2015, and that such resolution is in full force and effect and has not been amended, modified, revoked or rescinded as of the date hereof.

IN WITNESS WHEREOF, I have executed this certificate as of this 18th day of February, 2015.


/s/ Catherine M. Kilbane                
Catherine M. Kilbane
Secretary








RESOLVED, that the appropriate officers of the Company are each hereby authorized to execute and deliver a power of attorney appointing Christopher M. Connor, Sean P. Hennessy and Catherine M. Kilbane or any of them, with full power of substitution and resubstitution, to act as attorneys-in-fact for the Company and for such officers for the purpose of executing and filing with the Securities and Exchange Commission and any national securities exchange, on behalf of the Company, the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and any and all amendments, exhibits and other documents in connection therewith, and to take other action deemed necessary and appropriate to effect the filing of such Annual Report on Form 10-K and any and all such amendments, exhibits and other documents in connection therewith.





EXHIBIT 31(a)

CERTIFICATION
I, Christopher M. Connor, certify that:
1.
I have reviewed this annual report on Form 10-K of The Sherwin-Williams Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:
February 25, 2015
 
 
/s/ Christopher M. Connor   
 
 
 
 
Christopher M. Connor
Chairman and Chief
    Executive Officer




EXHIBIT 31(b)

CERTIFICATION
I, Sean P. Hennessy, certify that:
1.
I have reviewed this annual report on Form 10-K of The Sherwin-Williams Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date:
February 25, 2015
 
 
/s/ Sean P. Hennessy
 
 
 
 
Sean P. Hennessy
Senior Vice President – Finance and
    Chief Financial Officer




EXHIBIT 32(a)

SECTION 1350 CERTIFICATION
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of The Sherwin-Williams Company (the “Company”) for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher M. Connor, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated:
February 25, 2015
 
 
/s/ Christopher M. Connor   
 
 
 
 
Christopher M. Connor
Chairman and Chief
    Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to The Sherwin-Williams Company and will be retained by The Sherwin-Williams Company and furnished to the Securities and Exchange Commission or its staff upon request.




EXHIBIT 32(b)

SECTION 1350 CERTIFICATION
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of The Sherwin-Williams Company (the “Company”) for the fiscal year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean P. Hennessy, Senior Vice President – Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated:
February 25, 2015
 
 
/s/ Sean P. Hennessy
 
 
 
 
Sean P. Hennessy
Senior Vice President – Finance and
    Chief Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to The Sherwin-Williams Company and will be retained by The Sherwin-Williams Company and furnished to the Securities and Exchange Commission or its staff upon request.



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