Company Quick10K Filing
Sherwin-Williams
Price544.54 EPS15
Shares94 P/E37
MCap50,971 P/FCF31
Net Debt8,283 EBIT2,051
TEV59,254 TEV/EBIT29
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-29
10-K 2019-12-31 Filed 2020-02-21
10-Q 2019-09-30 Filed 2019-10-22
10-Q 2019-06-30 Filed 2019-07-24
10-Q 2019-03-31 Filed 2019-04-25
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-25
10-Q 2018-03-31 Filed 2018-04-25
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-10-25
10-Q 2017-06-30 Filed 2017-07-26
10-Q 2017-03-31 Filed 2017-04-21
10-K 2016-12-31 Filed 2017-02-22
10-Q 2016-06-30 Filed 2016-07-27
10-Q 2016-03-31 Filed 2016-04-27
10-K 2015-12-31 Filed 2016-02-24
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-22
10-Q 2015-03-31 Filed 2015-04-22
10-K 2014-12-31 Filed 2015-02-25
10-Q 2014-09-30 Filed 2014-10-29
10-Q 2014-06-30 Filed 2014-07-24
10-Q 2014-03-31 Filed 2014-04-23
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-30 Filed 2013-10-30
10-Q 2013-06-30 Filed 2013-07-24
10-Q 2013-03-31 Filed 2013-04-24
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-10-26
10-Q 2012-06-30 Filed 2012-07-25
10-Q 2012-03-31 Filed 2012-04-25
10-K 2011-12-31 Filed 2012-02-23
10-Q 2011-09-30 Filed 2011-10-27
10-Q 2011-06-30 Filed 2011-07-27
10-Q 2011-03-31 Filed 2011-04-26
10-Q 2010-06-30 Filed 2010-07-27
10-Q 2010-03-31 Filed 2010-04-28
10-K 2009-12-31 Filed 2010-02-24
8-K 2020-04-29 Earnings, Exhibits
8-K 2020-04-22 Shareholder Vote
8-K 2020-03-17 Other Events, Exhibits
8-K 2020-01-30 Earnings, Exhibits
8-K 2019-11-11 Regulation FD
8-K 2019-10-22 Earnings, Exhibits
8-K 2019-10-08 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-08-26 Other Events, Exhibits
8-K 2019-07-23 Earnings, Exhibits
8-K 2019-06-28 Regulation FD
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-04-17 Shareholder Vote
8-K 2019-02-13 Officers, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2019-01-15 Earnings, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-17 Amend Bylaw, Exhibits
8-K 2018-09-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-07-19 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-18 Shareholder Vote
8-K 2018-02-27 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-25 Earnings, Exhibits
8-K 2018-01-17 Officers
8-K 2018-01-01 Officers, Exhibits

SHW 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Recently Issued Accounting Pronouncements
Note 3 - Revenue
Note 4 - Inventories
Note 5 - Goodwill, Intangible and Long - Lived Assets
Note 6 - Debt
Note 7 - Pension, Health Care and Postretirement Benefits Other Than Pensions
Note 8 - Other Long - Term Liabilities
Note 9 - Litigation
Note 10 - Shareholders' Equity
Note 11 - Accumulated Other Comprehensive Loss (Income)
Note 12 - Derivatives and Hedging
Note 13 - Fair Value Measurements
Note 14 - Other
Note 15 - Income Taxes
Note 16 - Net Income per Share
Note 17 - Reportable Segment Information
Note 18 - Non - Traded Investments
Item 2. Management's Discussion and Analysis Of
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.A shw-2020331x10qxexh31a.htm
EX-31.B shw-2020331x10qxexh31b.htm
EX-32.A shw-2020331x10qxexh32a.htm
EX-32.B shw-2020331x10qxexh32b.htm

Sherwin-Williams Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
25201510502012201420172020
Assets, Equity
4.93.92.92.01.00.02012201420172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Period Ended March 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission file number 1-04851
 
THE SHERWIN-WILLIAMS COMPANY
(Exact name of registrant as specified in its charter)
 
Ohio
34-0526850
(State or other jurisdiction of 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)
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common Stock, par value of $1.00 per share
 
SHW
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
Emerging growth company
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $1.00 Par Value – 90.8 million shares as of March 31, 2020.




TABLE OF CONTENTS
 









PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(millions of dollars, except share and per share data)
 
Three Months Ended
March 31,
 
2020
 
2019
Net sales
$
4,146.7

 
$
4,040.9

Cost of goods sold
2,257.0

 
2,305.8

Gross profit
1,889.7

 
1,735.1

Percent to net sales
45.6
%
 
42.9
%
Selling, general and administrative expenses
1,307.6

 
1,244.0

Percent to net sales
31.5
%
 
30.8
%
Other general expense (income) - net
3.7

 
(0.5
)
Amortization
78.1

 
78.8

Interest expense
86.2

 
91.0

Interest and net investment income
(0.6
)
 
(0.4
)
Other expense - net
22.4

 
23.3

Income before income taxes
392.3

 
298.9

Income taxes
70.6

 
53.7

Net income
$
321.7

 
$
245.2

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
Basic
$
3.53

 
$
2.67

Diluted
$
3.46

 
$
2.62

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
91,075,973

 
91,952,828

Diluted
92,859,944

 
93,668,728



See notes to condensed consolidated financial statements.

2



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
(millions of dollars)
Three Months Ended
 
March 31,
 
2020
 
2019
Net income
$
321.7

 
$
245.2

 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
(218.7
)
 
7.9

 
 
 
 
Pension and other postretirement benefit adjustments:
 
 
 
Amounts reclassified from Other comprehensive (loss) income (2)
0.6

 
(0.4
)
 
0.6

 
(0.4
)
 
 
 
 
Unrealized net gains on cash flow hedges:
 
 
 
Amounts reclassified from Other comprehensive (loss) income (3)
(3.5
)
 
(1.5
)
 
(3.5
)
 
(1.5
)
 
 
 
 
Other comprehensive (loss) income
(221.6
)
 
6.0

 
 
 
 
Comprehensive income
$
100.1

 
$
251.2

(1)  
The three months ended March 31, 2020 includes unrealized gains of $9.2 million, net of taxes of $(2.9) million, related to the net investment hedges. See Note 12 for additional information.
(2)  
Net of taxes of $(0.2) million and $0.1 million in the three months ended March 31, 2020 and 2019, respectively.
(3) 
Net of taxes of $1.2 million and $0.5 million in the three months ended March 31, 2020 and 2019, respectively.




See notes to condensed consolidated financial statements.


3



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(millions of dollars, except per share data)
March 31,
2020
 
December 31,
2019
 
March 31,
2019
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
238.5

 
$
161.8

 
$
94.4

Accounts receivable, less allowance
2,291.5

 
2,088.9

 
2,339.6

Inventories
1,954.8

 
1,889.6

 
1,993.4

Other current assets
443.2

 
491.4

 
387.8

Total current assets
4,928.0

 
4,631.7

 
4,815.2

Property, plant and equipment, net
1,829.5

 
1,835.2

 
1,763.0

Goodwill
6,958.7

 
7,004.8

 
6,956.4

Intangible assets
4,585.4

 
4,734.5

 
5,127.1

Operating lease right-of-use assets
1,683.4

 
1,685.6

 
1,663.4

Other assets
585.3

 
604.4

 
636.5

Total assets
$
20,570.3

 
$
20,496.2

 
$
20,961.6

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term borrowings
$
1,051.5

 
$
204.7

 
$
824.8

Accounts payable
1,958.4

 
1,876.3

 
1,894.0

Compensation and taxes withheld
438.0

 
552.7

 
400.8

Accrued taxes
106.5

 
85.7

 
128.9

Current portion of long-term debt
429.5

 
429.8

 
303.9

California litigation accrual
12.0

 
12.0

 
136.3

Current portion of operating lease liabilities
371.1

 
371.6

 
356.5

Other accruals
853.2

 
989.1

 
955.4

Total current liabilities
5,220.2

 
4,521.9

 
5,000.6

Long-term debt
8,289.2

 
8,050.7

 
8,702.6

Postretirement benefits other than pensions
262.8

 
263.0

 
258.7

Deferred income taxes
949.5

 
969.9

 
1,128.8

Long-term operating lease liabilities
1,373.7

 
1,370.7

 
1,371.4

Other long-term liabilities
1,185.8

 
1,196.7

 
1,039.4

Shareholders’ equity:
 
 
 
 
 
  Common stock—$1.00 par value:
 
 
 
 
 
90.8 million, 92.1 million and 92.3 million shares outstanding
 
 
 
 
 
at March 31, 2020, December 31, 2019 and March 31, 2019, respectively
119.7

 
119.4

 
118.7

Other capital
3,215.5

 
3,153.0

 
2,945.6

Retained earnings
7,562.7

 
7,366.9

 
6,386.9

Treasury stock, at cost
(6,707.7
)
 
(5,836.5
)
 
(5,358.9
)
Accumulated other comprehensive loss
(901.1
)
 
(679.5
)
 
(632.2
)
Total shareholders' equity
3,289.1

 
4,123.3

 
3,460.1

Total liabilities and shareholders’ equity
$
20,570.3

 
$
20,496.2

 
$
20,961.6



See notes to condensed consolidated financial statements.

4



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(millions of dollars)
Three Months Ended
 
March 31,
2020
 
March 31,
2019
OPERATING ACTIVITIES
 
 
 
Net income
$
321.7

 
$
245.2

Adjustments to reconcile net income to net operating cash:
 
 
 
Depreciation
66.5

 
64.7

Non-cash lease expense
93.8

 
90.7

Amortization of intangible assets
78.1

 
78.8

Loss on extinguishment of debt
21.3

 


Amortization of credit facility and debt issuance costs
1.9

 
2.2

Stock-based compensation expense
20.1

 
23.1

Provisions for environmental-related matters
2.2

 
0.6

Defined benefit pension plans net cost
1.9

 
35.2

Deferred income taxes
9.5

 
(2.6
)
Other
1.1

 
7.4

Change in working capital accounts - net
(430.1
)
 
(500.4
)
Change in operating lease liabilities
(89.1
)
 
(80.6
)
Costs incurred for environmental-related matters
(7.9
)
 
(4.6
)
Other
(36.1
)
 
4.3

Net operating cash
54.9

 
(36.0
)
 
 
 
 
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(106.6
)
 
(51.4
)
Proceeds from sale of assets
2.3

 
2.8

Decrease (increase) in other investments
6.4

 
(23.6
)
Net investing cash
(97.9
)
 
(72.2
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net increase in short-term borrowings
849.7

 
496.2

Proceeds from long-term debt
999.0

 

Payments of long-term debt
(771.2
)
 


Payments for credit facility and debt issuance costs
(10.0
)
 


Payments of cash dividends
(122.9
)
 
(104.8
)
Proceeds from stock options exercised
30.0

 
24.9

Treasury stock purchased
(890.3
)
 
(305.1
)
Proceeds from treasury stock issued
57.4

 


Other
(26.0
)
 
(59.8
)
Net financing cash
115.7

 
51.4

 
 
 
 
Effect of exchange rate changes on cash
4.0

 
(4.3
)
Net increase (decrease) in cash and cash equivalents
76.7

 
(61.1
)
Cash and cash equivalents at beginning of year
161.8

 
155.5

Cash and cash equivalents at end of period
$
238.5

 
$
94.4

 
 
 
 
Income taxes paid
$
18.3

 
$
16.1

Interest paid
82.7

 
57.9



See notes to condensed consolidated financial statements.

5



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
(millions of dollars, except per share data)
Common
Stock
 
Other
Capital
 
Retained Earnings
 
Treasury
Stock
 
Accumulated Other Comprehensive Loss
 
Total
Balance at December 31, 2019
$
119.4

 
$
3,153.0

 
$
7,366.9

 
$
(5,836.5
)
 
$
(679.5
)
 
$
4,123.3

Net income

 

 
321.7

 

 

 
321.7

Other comprehensive loss

 

 

 

 
(221.6
)
 
(221.6
)
Adjustment to initially adopt
ASU 2016-13
 
 
 
 
(3.0
)
 
 
 
 
 
(3.0
)
Treasury stock purchased

 

 

 
(890.3
)
 

 
(890.3
)
Treasury stock issued
 
 
13.5

 
 
 
43.9

 
 
 
57.4

Stock-based compensation activity
0.3

 
48.7

 

 
(24.8
)
 

 
24.2

Other adjustments

 
0.3

 

 

 

 
0.3

Cash dividends -- $1.34 per share

 

 
(122.9
)
 

 

 
(122.9
)
Balance at March 31, 2020
$
119.7

 
$
3,215.5

 
$
7,562.7

 
$
(6,707.7
)
 
$
(901.1
)
 
$
3,289.1


(millions of dollars, except per share data)
Common
Stock
 
Other
Capital
 
Retained Earnings
 
Treasury
Stock
 
Accumulated Other Comprehensive Loss
 
Total
Balance at December 31, 2018
$
118.4

 
$
2,896.4

 
$
6,246.5

 
$
(4,900.7
)
 
$
(629.9
)
 
$
3,730.7

Net income
 
 
 
 
245.2

 
 
 
 
 
245.2

Other comprehensive income
 
 
 
 
 
 
 
 
6.0

 
6.0

Adjustment to initially adopt
ASU 2016-02
 
 
 
 
(8.4
)
 
 
 

 
(8.4
)
Adjustment to initially adopt
ASU 2018-02
 
 
 
 
8.3

 
 
 
(8.3
)
 

Treasury stock purchased
 
 
 
 
 
 
(305.1
)
 
 
 
(305.1
)
Treasury stock transferred from defined benefit pension plan
 
 
 
 
 
 
(131.8
)
 
 
 
(131.8
)
Stock-based compensation activity
0.3

 
47.6

 
 
 
(21.3
)
 
 
 
26.6

Other adjustments
 
 
1.6

 
0.1

 

 
 
 
1.7

Cash dividends -- $1.13 per share
 
 
 
 
(104.8
)
 
 
 
 
 
(104.8
)
Balance at March 31, 2019
$
118.7

 
$
2,945.6

 
$
6,386.9

 
$
(5,358.9
)
 
$
(632.2
)
 
$
3,460.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



See notes to condensed consolidated financial statements.


6



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(millions of dollars, unless otherwise noted)
Periods ended March 31, 2020 and 2019
NOTE 1—BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
There have been no significant changes in significant accounting policies since December 31, 2019, except as described in Note 2. Accounting estimates were revised as necessary during the first three months of 2020 based on new information and changes in facts and circumstances. Certain amounts in the 2019 condensed consolidated financial statements have been reclassified to conform to the 2020 presentation.
The Company primarily uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs are subject to the final year-end LIFO inventory valuation. In addition, interim inventory levels include management’s estimates of annual inventory losses due to shrinkage and other factors. For further information on inventory valuations and other matters, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2019.
The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The results of operations for the three months ended March 31, 2020 are not indicative of the results to be expected for the full year as business is seasonal in nature with the majority of Net sales for the Reportable Segments traditionally occurring during the second and third quarters. However, periods of economic downturn can alter the Company's seasonal patterns.
NOTE 2—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, "Measurement of Credit Losses on Financial Instruments" (ASC 326). This ASU replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In addition, new disclosures are required. The Company adopted ASU 2016-13 using the modified retrospective transition method. The adoption of ASU 2016-13 did not result in a material cumulative-effect adjustment to the opening balance of retained earnings at January 1, 2020 and did not have a material impact on the Company's results of operations, financial condition or liquidity. See Note 3 for additional information.
NOTE 3REVENUE
The Company manufactures and sells paint, stains, supplies, equipment and floor covering through company-operated stores, branded and private label products through retailers, and a broad range of industrial coatings directly to global manufacturing customers through company-operated branches. A large portion of the Company’s revenue is recognized at a point in time and made to customers who are not engaged in a long-term supply agreement or any form of contract with the Company. These sales are paid for at the time of sale in cash, credit card or on account with the vast majority of customers having terms between 30 and 60 days, not to exceed one year. Many customers who purchase on account take advantage of early payment discounts offered by paying within 30 days of being invoiced. The Company estimates variable consideration for these sales on the basis of both historical information and current trends to estimate the expected amount of discounts to which customers are likely to be entitled.
The remaining revenue is governed by long-term supply agreements and related purchase orders (“contracts”) that specify shipping terms and aspects of the transaction price including rebates, discounts and other sales incentives, such as advertising support. Contracts are at standalone pricing. The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control of our products to the customer. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
Refer to Note 17 for the Company's disaggregation of Net sales by reportable segment. As the reportable segments are aligned by

7



similar economic factors, trends and customers, this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The Company has made payments or credits for rebates or incentives at the beginning of a long-term contract where future revenue is expected and before satisfaction of performance obligations. Under these circumstances, the Company recognizes a contract asset and amortizes these prepayments over the expected benefit life of the long-term contract typically on a straight-line basis.
The majority of variable consideration in the Company’s contracts include a form of volume rebate, discounts, and other incentives, where the customer receives a retrospective percentage rebate based on the amount of their purchases. In these situations, the rebates are accrued as a fixed percentage of sales and recorded as a reduction of net sales until paid to the customer per the terms of the contract. Forms of variable consideration such as tiered rebates, whereby a customer receives a retrospective price decrease dependent on the volume of their purchases, are calculated using a forecasted percentage to determine the most likely amount to accrue. Management creates a baseline calculation using historical sales and then utilizing forecast information, estimates the anticipated sales volume each quarter to calculate the expected reduction to sales. The remainder of the transaction price is fixed as agreed upon with the customer, limiting estimation of revenues including constraints.
The Company’s Accounts receivable and current and long-term contract assets and liabilities are summarized in the following table.
 
Accounts Receivable, Less Allowance
 
Contract
Assets
(Current)
 
Contract
Assets
(Long-Term)
 
Contract Liabilities (Current)
 
Contract Liabilities (Long-Term)
Balance at December 31, 2019
$
2,088.9

 
$
50.5

 
$
178.2

 
$
242.8

 
$
10.4

Balance at March 31, 2020
2,291.5

 
61.2

 
169.0

 
175.6

 
10.6


The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.
Provisions for estimated returns are established and the expected costs continue to be recognized as contra-revenue per ASC 606 when the products are sold. The Company only offers an assurance type warranty on products sold, and there is no material service to the customer beyond fixing defects that existed at the time of sale and no warranties are sold separately.
Warranty liabilities are excluded from the table above. Amounts recognized during the quarter from deferred revenue were not material. The Company records a right of return liability within each of its operations to accrue for expected customer returns. Historical actual returns are used to estimate future returns as a percentage of current sales. Obligations for returns and refunds were not material individually or in the aggregate.
Allowance for Credit Losses
The Company's primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the Accounts receivable balance to the estimated net realizable value. The allowance was based on an analysis of historical bad debts, a review of the aging of Accounts receivable and the current creditworthiness of customers. Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful collection of accounts are included in Selling, general and administrative expenses. The adoption of ASU 2016-13 as of January 1, 2020 did not result in a material cumulative effect adjustment upon adoption, however during the first quarter of 2020, the Company recognized $15.1 million of bad debt expense for incremental expected credit losses. See Note 2 for additional information.
The following table summarizes the movement in the Company's allowance for doubtful accounts:
Balance at December 31, 2019
 
$
36.5

Adjustment upon adoption of ASU 2016-13
 
3.0

Bad debt expense
 
30.2

Uncollectible accounts written off, net of recoveries
 
(9.5
)
Balance at March 31, 2020
 
$
60.2




8



NOTE 4INVENTORIES
Included in Inventories were the following:
 
March 31,
 
December 31,
 
March 31,
 
2020
 
2019
 
2019
Finished goods
$
1,586.9

 
$
1,509.6

 
$
1,618.4

Work in process and raw materials
367.9

 
380.0

 
375.0

Inventories
$
1,954.8

 
$
1,889.6

 
$
1,993.4


NOTE 5GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS
Included in Property, plant and equipment, net were the following:
 
March 31,
 
December 31,
 
March 31,
 
2020
 
2019
 
2019
Land
$
238.0

 
$
242.1

 
$
243.7

Buildings
1,041.0

 
1,044.2

 
984.3

Machinery and equipment
2,920.1

 
2,952.1

 
2,670.9

Construction in progress
186.5

 
144.0

 
142.9

Property, plant and equipment, gross
4,385.6

 
4,382.4

 
4,041.8

Less allowances for depreciation
2,556.1

 
2,547.2

 
2,278.8

Property, plant and equipment, net
$
1,829.5

 
$
1,835.2

 
$
1,763.0


In accordance with the Goodwill and Other Intangibles Topic of the ASC, goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter, and interim impairment tests are performed whenever an event occurs or circumstances change that indicate an impairment has more likely than not occurred.
As of March 31, 2020, the Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units and intangible assets. During this review, management considered the Company's current market capitalization, forecasts for reporting units, as well as the results of the annual 2019 impairment tests performed during the fourth quarter of 2019. The Company determined it was not more likely than not that the goodwill and intangible assets were impaired, and thus, a triggering event had not occurred which would require an interim impairment test to be performed.
Although the Company believes its assumptions and estimates of fair value related to reporting units and indefinite-lived trademarks are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results (including sales projections which have a significant impact on the valuation of trademarks under the royalty savings method) or other underlying assumptions could have a significant impact and future impairment charges could be required.
NOTE 6DEBT
In March 2020, the Company issued $500.0 million of 2.30% Senior Notes due May 2030 and $500.0 million of 3.30% Senior Notes due May 2050 (collectively the "New Notes") in a public offering. The net proceeds from the issuance of the New Notes are primarily being used to repurchase a portion of the 2.75% Senior Notes due 2022 and redeem the 2.25% Senior Notes due May 2020. The repurchase of the 2.75% Senior Notes due 2022 during the first quarter of 2020 resulted in a loss of $21.3 million recorded in Other expense - net.
For further details on the Company’s debt, see Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

9



NOTE 7PENSION, HEALTH CARE AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The following table summarizes the components of the Company’s net periodic benefit cost for domestic defined benefit pension plans, foreign defined benefit pension plans and postretirement benefits other than pensions:
 
Domestic Defined
Benefit Pension Plans
 
Foreign Defined
Benefit Pension Plans
 
Postretirement
Benefits Other than
Pensions
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Three Months Ended March 31:
 
 
 
 
 
 
 
 
 
 
 
  Net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1.1

 
$
0.9

 
$
1.7

 
$
1.5

 
$
0.4

 
$
0.3

Interest cost
0.8

 
1.2

 
1.8

 
2.3

 
1.9

 
2.8

Expected return on assets
(1.5
)
 
(1.3
)
 
(2.6
)
 
(2.4
)
 

 

Recognition of:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized prior service cost (credit)
0.3

 
0.3

 


 


 
(0.3
)
 
(1.2
)
 Unrecognized actuarial loss


 


 
0.3

 
0.3

 
0.5

 
0.1

Ongoing pension cost
0.7

 
1.1

 
1.2

 
1.7

 
2.5

 
2.0

Settlement expense


 
32.4

 


 


 


 


Net periodic benefit cost
$
0.7

 
$
33.5

 
$
1.2

 
$
1.7

 
$
2.5

 
$
2.0


Service cost is recorded in Cost of goods sold and Selling, general and administrative expenses. All other components are recorded in Other expense - net.
During the first quarter of 2019, the Company purchased annuity contracts to settle the remaining liabilities of the domestic defined benefit pension plan that was terminated in 2018. The annuity contract purchase resulted in a settlement charge of $32.4 million in the first quarter of 2019.
For further details on the Company’s health care, pension and other benefits, see Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
NOTE 8—OTHER LONG-TERM LIABILITIES
The operations of the Company, like those of other companies in its industry, are subject to various domestic and foreign environmental laws and regulations. These laws and regulations not only govern current operations and products, but also impose potential liability on the Company for past operations. Management expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and the industry in the future. Management believes that the Company conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs designed to protect the environment and promote continued compliance.
The Company is involved with environmental investigation and remediation activities at some of its currently and formerly owned sites (including sites which were previously owned and/or operated by businesses acquired by the Company). In addition, the Company, together with other parties, has been designated a potentially responsible party under federal and state environmental protection laws for the investigation and remediation of environmental contamination and hazardous waste at a number of third-party sites, primarily Superfund sites. In general, these laws provide that potentially responsible parties may be held jointly and severally liable for investigation and remediation costs regardless of fault. The Company may be similarly designated with respect to additional third-party sites in the future.
The Company initially provides for estimated costs of environmental-related activities relating to its past operations and third-party sites for which commitments or clean-up plans have been developed and when such costs can be reasonably estimated based on industry standards and professional judgment. These estimated costs, which are not discounted, are determined based on currently available facts regarding each site. If the reasonably estimable costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is provided.
The Company continuously assesses its potential liability for investigation and remediation-related activities and adjusts its environmental-related accruals as information becomes available upon which more accurate costs can be reasonably estimated and as additional accounting guidelines are issued. At March 31, 2020 and 2019, the Company had accruals reported on the balance

10



sheet as Other long-term liabilities of $308.6 million and $319.0 million, respectively. Estimated costs of current investigation and remediation activities of $57.6 million and $51.0 million are included in Other accruals at March 31, 2020 and 2019, respectively.
Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site. If the Company's future loss contingency is ultimately determined to be at the unaccrued maximum of the estimated range of possible outcomes for every site for which costs can be reasonably estimated, the Company's accrual for environmental-related activities would be $114.0 million higher than the minimum accruals at March 31, 2020. Additionally, costs for environmental-related activities may not be reasonably estimable at early stages of investigation and therefore would not be included in the unaccrued maximum amount.
Four of the Company’s currently and formerly owned manufacturing sites ("Major Sites") account for the majority of the accrual for environmental-related activities and the unaccrued maximum of the estimated range of possible outcomes at March 31, 2020. At March 31, 2020, $315.4 million, or 86.1% of the total accrual, related directly to the Major Sites. In the aggregate unaccrued maximum of $114.0 million at March 31, 2020, $90.2 million, or 79.1%, related to the Major Sites. The significant cost components of this liability continue to be related to remedy implementation, regulatory agency interaction, project management and other costs. While different for each specific environmental situation, these components generally each account for approximately 85%, 10%, and 5%, respectively, of the accrued amount and those percentages are subject to change over time. While environmental investigations and remedial actions are in different stages at these sites, additional investigations, remedial actions and monitoring will likely be required at each site.
The largest and most complex of the Major Sites is the Gibbsboro, New Jersey site ("Gibbsboro") which comprises the substantial majority of the environmental-related accrual. Gibbsboro, a former manufacturing plant, and related areas, which ceased operations in 1978, has had various areas included on the National Priorities List since 1999. This location has soil, waterbodies, and groundwater contamination related to the historic operations of the facility. Gibbsboro has been divided by the Environmental Protection Agency ("EPA") into six operable units ("OUs") based on location and characteristics, whose investigation and remediation efforts are likely to occur over an extended period of time. Each of the OUs are in various phases of investigation and remediation with the EPA that provide enough information to reasonably estimate cost ranges and record environmental-related accruals. The most significant assumptions underlying the reliability and precision of remediation cost estimates for the Gibbsboro site are the type and extent of future remedies to be selected by the EPA and the costs of implementing those remedies.
The remaining three Major Sites comprising the majority of the accrual include (1) a multi-party Superfund site that has received a record of decision from the federal EPA and is currently in the remedial design phase for one operable unit and for which a remedial investigation/feasibility study has been submitted for another operable unit, (2) a closed paint manufacturing facility that is in the operation and maintenance phase of remediation under both federal and state EPA programs, and (3) a formerly-owned site containing warehouse and office space that is in the remedial investigation phase under a state EPA program. Each of these three Major Sites are in phases of investigation and remediation that provide sufficient information to reasonably estimate cost ranges and record environmental-related accruals.
Excluding the Major Sites discussed above, no sites are individually material to the total accrual balance. There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution, and securing applicable governmental agency approvals, all of which have the potential to contribute to the uncertainty surrounding these future events. As these events occur and to the extent that the cost estimates of the environmental remediation change, the existing reserve will be adjusted.
Management cannot presently estimate the ultimate potential loss contingencies related to these sites or other less significant sites until such time as a substantial portion of the investigation at the sites is completed and remedial action plans are developed. Unasserted claims could have a material effect on the Company's loss contingency as more information becomes available over time. At March 31, 2020, the Company did not have material loss contingency accruals related to unasserted claims. Management does not expect that a material portion of unrecognized loss contingencies will be recoverable through insurance, indemnification agreements or other sources. In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on net income for the annual or interim period during which the additional costs are accrued. Moreover, management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended length of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.

11



Management expects these contingent environmental-related liabilities to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indeterminate amount of time to conduct investigation activities at any site, the indeterminate amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indeterminate amount of time necessary to conduct remediation activities.
The Asset Retirement and Environmental Obligations Topic of the ASC requires a liability to be recognized for the fair value of a conditional asset retirement obligation if a settlement date and fair value can be reasonably estimated. The Company recognizes a liability for any conditional asset retirement obligation when sufficient information is available to reasonably estimate a settlement date to determine the fair value of such a liability. The Company has identified certain conditional asset retirement obligations at various current and closed manufacturing, distribution and store facilities. These obligations relate primarily to asbestos abatement, hazardous waste Resource Conservation and Recovery Act (RCRA) closures, well abandonment, transformers and used oil disposals and underground storage tank closures. Using investigative, remediation and disposal methods that are currently available to the Company, the estimated costs of these obligations were accrued and are not significant. The recording of additional liabilities for future conditional asset retirement obligations may result in a material impact on net income for the annual or interim period during which the costs are accrued. Management does not believe that any potential liability ultimately attributed to the Company for its conditional asset retirement obligations will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended period of time over which sufficient information may become available regarding the closure or modification of any one or group of the Company’s facilities. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.
NOTE 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 expects that additional lead pigment and lead-based paint litigation may be filed against the Company in the future asserting similar or different legal theories and seeking similar or different types of damages and relief. The Company will continue to vigorously defend against any additional lead pigment and lead-based paint litigation that may be filed, including utilizing all avenues of appeal, if necessary.
Notwithstanding the Company’s views on the merits, litigation is inherently subject to many uncertainties, and the Company ultimately may not prevail. Adverse court rulings or determinations of liability, among other factors, could affect the lead pigment and lead-based paint litigation against the Company and encourage an increase in the number and nature of future claims and

12



proceedings. In addition, from time to time, various legislation and administrative regulations have been enacted, promulgated or proposed to impose obligations on present and former manufacturers of lead pigments and lead-based paints respecting asserted health concerns associated with such products or to overturn the effect of court decisions in which the Company and other manufacturers have been successful.
Due to the uncertainties involved, management is unable to predict the outcome of the lead pigment and lead-based paint litigation, the number or nature of possible future claims and proceedings or the effect that any legislation and/or administrative regulations may have on the litigation or against the Company. In addition, management cannot reasonably determine the scope or amount of the potential costs and liabilities related to such litigation, or resulting from any such legislation and regulations. Except with respect to the litigation in California discussed below, the Company has not accrued any amounts for such litigation because the Company does not believe it is probable that a loss has occurred, and the Company believes it is not possible to estimate the range of potential losses as there is no substantive information upon which an estimate could be based. In addition, any potential liability that may result from any changes to legislation and regulations cannot reasonably be estimated. Due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to the Company arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition. An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made due to the aforementioned uncertainties.
Public Nuisance Claim Litigation. The Company and other companies are or were defendants in legal proceedings seeking recovery based on public nuisance liability theories, among other theories, brought by the State of Rhode Island; the City of St. Louis, Missouri; various cities and counties in the State of New Jersey; various cities in the State of Ohio and the State of Ohio; the City of Chicago, Illinois; the City of Milwaukee, Wisconsin; the County of Santa Clara, California, and other public entities in the State of California; and Lehigh and Montgomery Counties in Pennsylvania. Except for the Santa Clara County, California proceeding and the pending Pennsylvania proceedings, all of these legal proceedings have been concluded in favor of the Company and other defendants at various stages in the proceedings.
Santa Clara County, California Proceeding. The Santa Clara County, California proceeding was initiated in March 2000 in the Superior Court of the State of California, County of Santa Clara. In an amended complaint filed in March 2011, the plaintiffs 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 bench trial commenced in July 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.
The Company filed a notice of appeal to the Sixth District Court of Appeal for the State of California. On November 14, 2017, the Sixth District Court of Appeal entered its decision, which affirmed the trial court’s judgment of liability with respect to residences built before 1951 and reversed and vacated the trial court’s judgment with respect to residences built after 1950. The Sixth District Court of Appeal directed the trial court to: (i) recalculate the amount of the abatement fund to limit the fund to the amount necessary to cover the cost of inspecting and remediating pre-1951 residences; and (ii) hold an evidentiary hearing to appoint a suitable receiver. On December 22, 2017, the Company and the two other defendants submitted separate Petitions for Review to the California Supreme Court, which were subsequently denied. On July 16, 2018, the Company filed a Petition for Writ of Certiorari with the Supreme Court of the United States seeking discretionary review, which was subsequently denied. On April 17, 2018, the parties filed their briefs with the trial court regarding the recalculation of the amount of the abatement fund. The trial court subsequently ruled the amount of the abatement fund to be $409.1 million, which was later reduced to $401.1 million. The trial court also subsequently issued a tentative ruling on May 10, 2019, denying the plaintiffs’ motion for fees and costs.
On July 17, 2019, the Company, ConAgra and NL Industries reached an agreement in principle with the plaintiffs to resolve the litigation. The agreement provides that, in full and final satisfaction of any and all claims of the plaintiffs, the Company and the other two defendants collectively shall pay a total of $305.0 million, with the Company and the other two defendants each paying approximately $101.7 million as follows: (i) an initial payment of $25.0 million within sixty days after the entry of a dismissal order and judgment; (ii) subsequent annual payments of $12.0 million one year after the initial payment and for a period of four years thereafter; and (iii) a final payment of approximately $16.7 million on the sixth anniversary of the initial payment. Should NL Industries fail to make any of its payments required under the agreement, the Company has agreed to backstop and pay on behalf of NL Industries a maximum amount of $15.0 million. On July 24, 2019, the trial court approved the agreement, discharged the receiver, and granted a judgment of dismissal with prejudice in favor of the Company and the other two defendants. The Company accrued $136.3 million for this litigation in the third quarter of 2018. During the third quarter of 2019, the Company reduced its accrual by $59.6 million as a result of the final court approved agreement to resolve the litigation and the initial payment of $25.0 million made to the plaintiffs on September 23, 2019. The next payment of $12.0 million is due on September 22, 2020 and is included in current liabilities, while the remaining $64.7 million is included in other long-term liabilities.

13



Pennsylvania Proceedings. Two proceedings in Pennsylvania were initiated in October 2018. The County of Montgomery, Pennsylvania filed a Complaint against the Company and several other former lead-based paint and lead pigment manufacturers in the Court of Common Pleas of Montgomery County, Pennsylvania. The County of Lehigh, Pennsylvania also filed a Complaint against the Company and several other former lead-based paint and lead pigment manufacturers in the Court of Common Pleas of Lehigh County, Pennsylvania. The Company removed both actions to the United States District Court for the Eastern District of Pennsylvania on November 28, 2018. The plaintiffs filed a motion for remand in each action on January 7, 2019, which the defendants opposed. The federal trial court remanded each action on June 5, 2019. The defendants asked the federal court to stay the order of remand pending appeal, which the federal court granted on June 27, 2019, and the defendants filed a notice of appeal with the United States Court of Appeals for the Third Circuit. On August 12, 2019, the defendants filed their opening brief with the Third Circuit, to which the plaintiffs filed their opposition brief on September 11, 2019, and the defendants filed their reply brief on October 2, 2019. The Third Circuit took the appeal under submission without oral argument. On February 26, 2020, the Third Circuit affirmed the trial court's order to remand the cases to state court.
In both actions, the counties request declaratory relief establishing the existence of a public nuisance and the defendants' contribution to it, the abatement of an ongoing public nuisance arising from the presence of lead-based paint in housing throughout the applicable county, an injunction against future illicit conduct, and the costs of litigation and attorneys' fees.
In October 2018, the Company filed a Complaint in the United States District Court for the Eastern District of Pennsylvania against the Pennsylvania Counties of Delaware, Erie and York seeking injunctive and declaratory relief to prevent the violation of the Company's rights under the First Amendment and Due Process Clause of the U.S. Constitution. The Company voluntarily dismissed defendant Erie County on November 9, 2018 and defendant York County on November 21, 2018. Defendant Delaware County filed a motion to dismiss the Complaint, which the federal trial court granted on October 4, 2019. The Company appealed the federal trial court’s dismissal on November 1, 2019 and filed its opening brief in the Third Circuit on January 21, 2020. The plaintiffs filed their opposition brief on February 20, 2020. The Company filed its reply brief on March 12, 2020. Oral argument currently is scheduled for May 26, 2020.
Litigation seeking damages from alleged personal injury. The Company and other companies are defendants in a number of legal proceedings seeking monetary damages and other relief from alleged personal injuries. These proceedings include claims by children allegedly injured from ingestion of lead pigment or lead-containing paint and claims for damages allegedly incurred by the children’s parents or guardians. These proceedings generally seek compensatory and punitive damages, and seek other relief including medical monitoring costs. These proceedings include purported claims by individuals, groups of individuals and class actions.
The plaintiff in Thomas v. Lead Industries Association, et al., initiated an action in Wisconsin state court against the Company, other alleged former lead pigment manufacturers and the Lead Industries Association in September 1999. The claims against the Company and the other defendants included strict liability, negligence, negligent misrepresentation and omissions, fraudulent misrepresentation and omissions, concert of action, civil conspiracy and enterprise liability. Implicit within these claims is the theory of “risk contribution” liability (Wisconsin’s theory which is similar to market share liability, except that liability can be joint and several) due to the plaintiff’s inability to identify the manufacturer of any product that allegedly injured the plaintiff. The case ultimately proceeded to trial and, on November 5, 2007, the jury returned a defense verdict, finding that the plaintiff had ingested white lead carbonate, but was not brain damaged or injured as a result. The plaintiff appealed and, on December 16, 2010, the Wisconsin Court of Appeals affirmed the final judgment in favor of the Company and other defendants.
Wisconsin is the only jurisdiction to date to apply a theory of liability with respect to alleged personal injury (i.e., risk contribution/market share liability) that does not require the plaintiff to identify the manufacturer of the product that allegedly injured the plaintiff in the lead pigment and lead-based paint litigation. Although the risk contribution liability theory was applied during the Thomas trial, the constitutionality of this theory as applied to the lead pigment cases has not been judicially determined by the Wisconsin state courts. However, in an unrelated action filed in the United States District Court for the Eastern District of Wisconsin, Gibson v. American Cyanamid, et al., on November 15, 2010, the District Court held that Wisconsin’s risk contribution theory as applied in that case violated the defendants’ right to substantive due process and is unconstitutionally retroactive. The District Court's decision in Gibson v. American Cyanamid, et al., was appealed by the plaintiff to the United States Court of Appeals for the Seventh Circuit. On July 24, 2014, the United States Court of Appeals for the Seventh Circuit reversed the judgment and remanded the case back to the District Court for further proceedings. On January 16, 2015, the defendants filed a petition for certiorari in the United States Supreme Court seeking that Court's review of the Seventh Circuit's decision, and on May 18, 2015, the United States Supreme Court denied the defendants' petition. The case is currently pending in the District Court.
The United States District Court for the Eastern District of Wisconsin consolidated three cases (Ravon Owens v. American Cyanamid, et al., Cesar Sifuentes v. American Cyanamid, et al., and Glenn Burton, Jr. v. American Cyanamid, et al.) for purposes of trial. A trial commenced on May 6, 2019 and ended on May 31, 2019, with a jury verdict for the three plaintiffs in the amount of $2.0 million each for a total of $6.0 million against the Company and two other defendants (Armstrong Containers Inc. and

14



E.I. du Pont de Nemours). The Company filed a motion for judgment in its favor based on public policy factors under Wisconsin law. On September 20, 2019, the trial court denied the motion and entered judgment in favor of the plaintiffs. On October 18, 2019, the Company filed post-trial motions for judgment as a matter of law and for a new trial. On February 27, 2020, the trial court denied the Company's post-trial motion for judgment as a matter of law. On April 10, 2020, the trial court granted the Company's post-trial motion for a new trial to the extent that the damages award to Glenn Burton shall be remitted to $800,000, and denied the motion in all other respects. The Company intends to appeal the jury verdict.
In Maniya Allen, et al. v. American Cyanamid, et al., also pending in the United States District Court for the Eastern District of Wisconsin, cases involving six of the 146 plaintiffs were selected for discovery. In Dijonae Trammell, et al. v. American Cyanamid, et al., also pending in the United States District Court for the Eastern District of Wisconsin, discovery for one of the three plaintiffs was consolidated with the six Allen cases referenced above. The parties have selected four of the cases to proceed to expert discovery and to prepare for trial. On November 14, 2019, the District Court issued an order scheduling trial in the four cases to commence on June 15, 2020.
Other lead-based paint and lead pigment litigation. In Mary Lewis v. Lead Industries Association, et al. pending in the Circuit Court of Cook County, Illinois, parents seek to recover the cost of their children’s blood lead testing against the Company and three other defendants that made (or whose alleged corporate predecessors made) white lead pigments. The Circuit Court has certified a statewide class and a Chicago subclass of parents or legal guardians of children who lived in high-risk zip codes identified by the Illinois Department of Health and who were screened for lead toxicity between August 1995 and February 2008. Excluded from the class are those parents or guardians who have incurred no expense, liability or obligation to pay for the cost of their children’s blood lead testing. In 2017, the Company and other defendants moved for summary judgment on the grounds that the three named plaintiffs have not paid and have no obligation or liability to pay for their children’s blood lead testing because Medicaid paid for the children of two plaintiffs and private insurance paid for the third plaintiff without any evidence of a co-pay or deductible. The Circuit Court granted the motion, but on September 7, 2018, the Appellate Court reversed with respect to the two plaintiffs for whom Medicaid paid for their children’s testing. Defendants filed a petition with the Supreme Court of Illinois for discretionary review. By order entered January 31, 2019, that court allowed defendants’ petition for leave to appeal. The defendants filed their opening brief in the Supreme Court of Illinois on April 11, 2019, to which the plaintiffs filed a response brief on June 17, 2019. The defendants filed their reply brief on July 15, 2019. Oral argument was held before the Supreme Court of Illinois on November 14, 2019, and the parties are awaiting the decision.
Insurance coverage litigation. The Company and its liability insurers, including certain underwriters at Lloyd’s of London, initiated legal proceedings against each other to determine, among other things, whether the costs and liabilities associated with the abatement of lead pigment are covered under certain insurance policies issued to the Company. The Company’s action, filed on March 3, 2006 in the Common Pleas Court, Cuyahoga County, Ohio, previously was stayed and inactive. On January 9, 2019, the Company filed an unopposed motion to lift the stay with the trial court, which was granted, allowing the case to proceed. On June 28, 2019, the Company and its liability insurers each filed separate motions for summary judgment seeking various forms of relief. Oral argument regarding those motions occurred on October 24, 2019 and those motions remain pending before the trail court. The liability insurers’ action, which was filed on February 23, 2006 in the Supreme Court of the State of New York, County of New York, has been dismissed. An ultimate loss in the insurance coverage litigation would mean that insurance proceeds could be unavailable under the policies at issue to mitigate any ultimate abatement related costs and liabilities. The Company has not recorded any assets related to these insurance policies or otherwise assumed that proceeds from these insurance policies would be received in estimating any contingent liability accrual. Therefore, an ultimate loss in the insurance coverage litigation without a determination of liability against the Company in the lead pigment or lead-based paint litigation will have no impact on the Company’s results of operation, liquidity or financial condition. As previously stated, however, except with respect to the litigation in California discussed above, the Company has not accrued any amounts for the lead pigment or lead-based paint litigation and any significant liability ultimately determined to be attributable to the Company relating to such litigation may result in a material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which such liability is accrued.
Other litigation. On December 18, 2019, the New Jersey Department of Environmental Protection, the Commissioner of the New Jersey Department of Environmental Protection, and the Administrator of the New Jersey Spill Compensation Fund filed a lawsuit against the Company in the Superior Court of New Jersey Law Division in Camden County, New Jersey. The plaintiffs seek to recover natural resource damages, punitive damages, and litigation fees and costs, as well as other costs, damages, declaratory relief, and penalties pursuant to New Jersey state statutes and common law theories in connection with the alleged discharge of hazardous substances and pollutants at the Company’s Gibbsboro, New Jersey site, a former manufacturing plant and related facilities. On February 21, 2020, the Company filed a motion to dismiss. On April 7, 2020, the plaintiffs filed a brief in opposition. The Company filed a reply brief on April 20, 2020. A hearing on the motion to dismiss is scheduled for August 7, 2020.

15



NOTE 10—SHAREHOLDERS' EQUITY
Dividends paid on common stock during the first quarter of 2020 and 2019 were $1.34 per share and $1.13 per share, respectively.
During the three months ended March 31, 2020, 168,152 stock options were exercised at a weighted average price per share of $179.07. In addition, 119,014 restricted stock units vested during this period.
The treasury stock transferred from defined benefit pension plan during the three months ended March 31, 2019 relates to the termination of the Company's domestic defined benefit pension plan as described in Note 7. In February 2020, the Company received proceeds of $57.4 million in conjunction with the issuance of 100,000 treasury shares to fund Company contributions to the domestic defined contribution plan.
NOTE 11ACCUMULATED OTHER COMPREHENSIVE LOSS (INCOME)
The components of accumulated other comprehensive loss (income) (AOCI), including the reclassification adjustments for items that were reclassified from AOCI to net income, are shown below.
 
Foreign Currency Translation Adjustments
 
Pension and Other Postretirement Benefits Adjustments
 
Unrealized Net Gains on Cash Flow Hedges
 
Total
Balance at December 31, 2019
$
(657.4
)
 
$
(69.2
)
 
$
47.1

 
$
(679.5
)
Amounts recognized in AOCI
(218.7
)
 
 
 
 
 
(218.7
)
Amounts reclassified from AOCI
 
 
0.6

 
(3.5
)
 
(2.9
)
Balance at March 31, 2020
$
(876.1
)
 
$
(68.6
)
 
$
43.6

 
$
(901.1
)
 
Foreign Currency Translation Adjustments
 
Pension and Other Postretirement Benefits Adjustments
 
Unrealized Net Gains on Cash Flow Hedges
 
Total
Balance at December 31, 2018
$
(607.6
)
 
$
(67.1
)
 
$
44.8

 
$
(629.9
)
Reclassifications from AOCI to Retained earnings for adoption of ASU 2018-02
 
 
(19.3
)
 
11.0

 
(8.3
)
Amounts recognized in AOCI
7.9

 
 
 
 
 
7.9

Amounts reclassified from AOCI
 
 
(0.4
)
 
(1.5
)
 
(1.9
)
Balance at March 31, 2019
$
(599.7
)
 
$
(86.8
)
 
$
54.3

 
$
(632.2
)

NOTE 12DERIVATIVES AND HEDGING
In February 2020, the Company settled its $400.0 million U.S. Dollar to Euro cross currency swap contract entered into in May 2019 to hedge the Company's net investment in its European operations. At the time of the settlement, an unrealized gain of $11.8 million, net of tax, was recognized in AOCI.
In February 2020, the Company entered into two U.S Dollar to Euro cross currency swap contracts to hedge the Company's net investment in its European operations. The contracts have a notional value of $500.0 million and $244.0 million, respectively, and mature on June 1, 2024 and November 15, 2021, respectively. During the term of the $500.0 million contract, the Company will pay fixed-rate interest in Euros and receive fixed-rate interest in U.S. Dollars, thereby effectively converting a portion of the Company's U.S. Dollar denominated fixed-rate debt to Euro denominated fixed-rate debt. During the term of the $244.0 million contract, the Company will pay floating-rate interest in Euros and receive floating-rate interest in U.S. Dollars. The fair value of the contracts are included in Other assets and Other liabilities on the balance sheet. See Note 13. The changes in fair value are recognized in the foreign currency translation adjustments component of AOCI. For the three months ended March 31, 2020, a net unrealized loss of $1.5 million, net of tax, was recognized in AOCI.


16



NOTE 13FAIR VALUE MEASUREMENTS
The Fair Value Measurements and Disclosures Topic of the ASC applies to the Company’s financial and non-financial assets and liabilities. The guidance applies when other standards require or permit the fair value measurement of assets and liabilities. The Company did not have any fair value measurements for its non-financial assets and liabilities during the first quarter. There were no assets and liabilities measured at fair value on a nonrecurring basis. The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis, categorized using the fair value hierarchy:
 
March 31, 2020
 
Total
Fair Value
 
 Quoted Prices
in Active
 Markets for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Deferred compensation plan assets (1)
$
55.0

 
$
29.6

 
$
25.4

 
 
Net investment hedge asset (2)
2.6

 
 
 
2.6

 
 
 
$
57.6

 
$
29.6

 
$
28.0

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan liabilities (3)
$
65.6

 
$
65.6

 
 
 
 
Net investment hedge liability (2)
4.7

 
 
 
$
4.7

 
 
 
$
70.3

 
$
65.6

 
$
4.7

 
$

 
December 31, 2019
 
Total
Fair Value
 
 Quoted Prices
in Active
Markets for
 Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Deferred compensation plan assets (1)
$
61.1

 
$
29.9

 
$
31.2

 
 
Net investment hedge asset (2)
1.5

 
 
 
1.5

 
 
 
$
62.6

 
$
29.9

 
$
32.7

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan liabilities (3)
$