Company Quick10K Filing
Sherwin-Williams
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 94 $42,549
10-Q 2019-07-24 Quarter: 2019-06-30
10-Q 2019-04-25 Quarter: 2019-03-31
10-K 2019-02-22 Annual: 2018-12-31
10-Q 2018-10-25 Quarter: 2018-09-30
10-Q 2018-07-25 Quarter: 2018-06-30
10-Q 2018-04-25 Quarter: 2018-03-31
10-K 2018-02-23 Annual: 2017-12-31
10-Q 2017-10-25 Quarter: 2017-09-30
10-Q 2017-07-26 Quarter: 2017-06-30
10-Q 2017-04-21 Quarter: 2017-03-31
10-K 2017-02-22 Annual: 2016-12-31
10-Q 2016-07-27 Quarter: 2016-06-30
10-Q 2016-04-27 Quarter: 2016-03-31
10-K 2016-02-24 Annual: 2015-12-31
10-Q 2015-10-29 Quarter: 2015-09-30
10-Q 2015-07-22 Quarter: 2015-06-30
10-Q 2015-04-22 Quarter: 2015-03-31
10-K 2015-02-25 Annual: 2014-12-31
10-Q 2014-10-29 Quarter: 2014-09-30
10-Q 2014-07-24 Quarter: 2014-06-30
10-Q 2014-04-23 Quarter: 2014-03-31
10-K 2014-02-27 Annual: 2013-12-31
10-Q 2013-10-30 Quarter: 2013-09-30
10-Q 2013-07-24 Quarter: 2013-06-30
10-Q 2013-04-24 Quarter: 2013-03-31
10-K 2013-02-28 Annual: 2012-12-31
10-Q 2012-10-26 Quarter: 2012-09-30
10-Q 2012-07-25 Quarter: 2012-06-30
10-Q 2012-04-25 Quarter: 2012-03-31
10-K 2012-02-23 Annual: 2011-12-31
10-Q 2011-10-27 Quarter: 2011-09-30
10-Q 2011-07-27 Quarter: 2011-06-30
10-Q 2011-04-26 Quarter: 2011-03-31
10-Q 2010-07-27 Quarter: 2010-06-30
10-Q 2010-04-28 Quarter: 2010-03-31
10-K 2010-02-24 Annual: 2009-12-31
8-K 2019-11-11 Regulation FD
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 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1-Basis of Presentation
Note 2-Recently Issued Accounting Pronouncements
Note 3-Revenue
Note 4-Shareholders' Equity
Note 5-Product Warranties
Note 6-Exit or Disposal Activities
Note 7-Health Care, Pension and Other Benefits
Note 8-Other Long-Term Liabilities
Note 9 - Litigation
Note 10-Other
Note 11-Income Taxes
Note 12-Net Income per Share
Note 13-Reportable Segment Information
Note 14-Fair Value Measurements
Note 15-Debt
Note 16-Derivatives and Hedging
Note 17-Leases
Note 18-Non-Traded Investments
Item 2. Management's Discussion And
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-10.1 shw-2019630x10qxexh101.htm
EX-31.A shw-2019630x10qxexh31a.htm
EX-31.B shw-2019630x10qxexh31b.htm
EX-32.A shw-2019630x10qxexh32a.htm
EX-32.B shw-2019630x10qxexh32b.htm

Sherwin-Williams Earnings 2019-06-30

SHW 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
SHW 42,549 21,186 17,439 17,714 7,610 1,171 2,492 51,051 43% 20.5 6%
FAST 18,506 3,756 1,253 5,189 2,470 765 1,217 18,831 48% 15.5 20%
TSCO 12,999 5,313 3,768 8,191 2,805 550 928 13,045 34% 14.1 10%
FND 4,067 2,011 1,340 1,911 778 119 204 4,163 41% 20.4 6%
BECN 2,481 6,532 4,294 7,011 1,734 10 423 4,948 25% 11.7 0%
BLDR 1,837 3,250 2,546 7,470 1,975 228 391 3,276 26% 8.4 7%
BMCH 1,411 1,811 892 3,622 932 120 248 1,601 26% 6.4 7%
GMS 1,189 2,274 1,612 3,185 1,033 72 306 2,340 32% 7.7 3%
BCC 996 1,733 1,028 4,676 0 -19 167 1,234 0% 7.4 -1%
FBM 817 1,450 1,067 2,133 634 2 131 1,383 30% 10.6 0%

Document
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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 June 30, 2019
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 – 92,256,348 shares as of June 30, 2019.




TABLE OF CONTENTS
 
 
 
 
 
 
 
EX-10.1
 
EX-31(a)
 
EX-31(b)
 
EX-32(a)
 
EX-32(b)
 
EX-101 INSTANCE DOCUMENT
 
EX-101 SCHEMA DOCUMENT
 
EX-101 PRESENTATION LINKBASE DOCUMENT
 
EX-101 CALCULATION LINKBASE DOCUMENT
 
EX-101 LABEL LINKBASE DOCUMENT
 
EX-101 DEFINITION LINKBASE DOCUMENT
 









PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Thousands of dollars, except per share data
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net sales
$
4,877,860

 
$
4,773,796

 
$
8,918,721

 
$
8,738,802

Cost of goods sold
2,696,425

 
2,735,168

 
5,002,209

 
5,013,327

Gross profit
2,181,435

 
2,038,628

 
3,916,512

 
3,725,475

Percent to net sales
44.7
%
 
42.7
%
 
43.9
%
 
42.6
%
Selling, general and administrative expenses
1,331,288

 
1,307,861

 
2,575,305

 
2,522,426

Percent to net sales
27.3
%
 
27.4
%
 
28.9
%
 
28.9
%
Other general expense - net
7,122

 
26,979

 
6,664

 
29,969

Amortization
78,081

 
73,893

 
156,852

 
158,942

Interest expense
89,198

 
93,507

 
180,192

 
185,054

Interest and net investment income
(541
)
 
(559
)
 
(951
)
 
(2,177
)
Other expense (income) - net
586

 
(1,139
)
 
23,895

 
(10,411
)
Income before income taxes
675,701

 
538,086

 
974,555

 
841,672

Income taxes
204,698

 
134,482

 
258,315

 
187,941

Net income
$
471,003

 
$
403,604

 
$
716,240

 
$
653,731

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share - basic
$
5.13

 
$
4.34

 
$
7.80

 
$
7.02

 
 
 
 
 
 
 
 
Net income per share - diluted
$
5.03

 
$
4.25

 
$
7.65

 
$
6.86

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average shares outstanding - basic
91,775,295

 
92,926,421

 
91,864,062

 
93,132,993

 
 
 
 
 
 
 
 
Average shares and equivalents outstanding - diluted
93,561,725

 
94,884,187

 
93,566,627

 
95,258,956



See notes to condensed consolidated financial statements.

2



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
Thousands of dollars

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net income
 
$
471,003

 
$
403,604

 
$
716,240

 
$
653,731

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
 
3,335

 
(205,028
)
 
11,306

 
(152,296
)
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefit adjustments:
 
 
 
 
 
 
 
 
Amounts reclassified from Other
comprehensive income (2)
 
(373
)
 
144

 
(733
)
 
(65
)
 
 
(373
)
 
144

 
(733
)
 
(65
)
 
 
 
 
 
 
 
 
 
Unrealized net gains on cash flow hedges:
 
 
 
 
 
 
 
 
Amounts reclassified from Other
comprehensive income (3)
 
(1,548
)
 
(1,910
)
 
(3,078
)
 
(2,898
)
 
 
(1,548
)
 
(1,910
)
 
(3,078
)
 
(2,898
)
 
 
 
 
 
 
 
 
 
Total
 
1,414

 
(206,794
)
 
7,495

 
(155,259
)
 
 
 
 
 
 
 
 
 
Comprehensive income
 
$
472,417

 
$
196,810

 
$
723,735

 
$
498,472



(1) The three and six months ended June 30, 2019 includes unrealized losses of $4,935, net of taxes of $1,626, related to the net investment hedge.

(2) Net of taxes of $135 and $415 in the three months ended June 30, 2019 and 2018, respectively. Net of taxes of $283 and $505 in the six months ended June 30, 2019 and 2018, respectively.

(3) Net of taxes of $510 and $148 in the three months ended June 30, 2019 and 2018, respectively. Net of taxes $1,015 of $1,195 and in the six months ended June 30, 2019 and 2018, respectively.




See notes to condensed consolidated financial statements.


3



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars
 
June 30,
2019
 
December 31,
2018
 
June 30,
2018
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
145,577

 
$
155,505

 
$
154,973

Accounts receivable, less allowance
2,659,051

 
2,018,768

 
2,625,066

Inventories:
 
 
 
 
 
Finished goods
1,531,950

 
1,426,366

 
1,384,628

Work in process and raw materials
362,915

 
388,909

 
431,113

 
1,894,865

 
1,815,275

 
1,815,741

Other current assets
390,471

 
354,939

 
382,515

Total current assets
5,089,964

 
4,344,487

 
4,978,295

Property, plant and equipment:
 
 
 
 
 
Land
243,966

 
244,608

 
245,247

Buildings
1,010,422

 
979,140

 
919,212

Machinery and equipment
2,816,065

 
2,668,492

 
2,589,790

Construction in progress
136,630

 
147,931

 
143,393

 
4,207,083

 
4,040,171

 
3,897,642

Less allowances for depreciation
2,433,497

 
2,263,332

 
2,121,264

 
1,773,586

 
1,776,839

 
1,776,378

Goodwill
6,961,787

 
6,956,702

 
6,994,206

Intangible assets
5,043,692

 
5,201,579

 
5,463,518

Operating lease right-of-use assets
1,667,517

 


 


Deferred pension assets
34,812

 
270,664

 
301,664

Other assets
614,778

 
584,008

 
581,761

Total assets
$
21,186,136

 
$
19,134,279

 
$
20,095,822

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Short-term borrowings
$
808,800

 
$
328,403

 
$
650,718

Accounts payable
2,067,854

 
1,799,424

 
2,049,123

Compensation and taxes withheld
418,272

 
504,547

 
405,762

Accrued taxes
154,619

 
80,766

 
173,022

Current portion of long-term debt
1,437,812

 
307,191

 
1,179

California litigation accrual
136,333

 
136,333

 


Current portion of operating lease liabilities
361,676

 


 


Other accruals
957,274

 
1,141,083

 
910,283

Total current liabilities
6,342,640

 
4,297,747

 
4,190,087

Long-term debt
7,209,481

 
8,708,057

 
9,722,918

Postretirement benefits other than pensions
259,852

 
257,621

 
276,796

Deferred income taxes
1,114,740

 
1,130,872

 
1,365,775

Long-term operating lease liabilities
1,362,218

 


 


Other long-term liabilities
1,149,723

 
1,009,237

 
837,472

Shareholders’ equity:
 
 
 
 
 
Common stock—$1.00 par value:
 
 
 
 
 
92,256,348, 93,116,762 and 93,381,022 shares outstanding
 
 
 
 
 
at June 30, 2019, December 31, 2018 and June 30, 2018, respectively
118,936

 
118,373

 
117,964

Other capital
3,010,662

 
2,896,448

 
2,795,196

Retained earnings
6,752,956

 
6,246,548

 
5,953,313

Treasury stock, at cost
(5,504,293
)
 
(4,900,690
)
 
(4,621,250
)
Cumulative other comprehensive loss
(630,779
)
 
(629,934
)
 
(542,449
)
Total shareholders' equity
3,747,482

 
3,730,745

 
3,702,774

Total liabilities and shareholders’ equity
$
21,186,136

 
$
19,134,279

 
$
20,095,822



See notes to condensed consolidated financial statements.

4



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of dollars
 
Six Months Ended
 
June 30,
2019
 
June 30,
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
716,240

 
$
653,731

Adjustments to reconcile net income to net operating cash:
 
 
 
Depreciation
129,748

 
144,133

Amortization of intangible assets
156,852

 
158,942

Stock-based compensation expense
47,660

 
36,776

Amortization of credit facility and debt issuance costs
4,348

 
5,513

Provisions for qualified exit costs
3,611

 
9,941

Provisions for environmental-related matters
7,272

 
32,018

Defined benefit pension plans net cost
38,034

 
(868
)
Net change in postretirement liability
672

 
996

Deferred income taxes
(30,215
)
 
27,455

Other
4,424

 
(9,995
)
Change in working capital accounts - net
(418,327
)
 
(471,675
)
Costs incurred for environmental-related matters
(11,100
)
 
(8,473
)
Costs incurred for qualified exit costs
(3,402
)
 
(14,325
)
Other
112,184

 
14,927

Net operating cash
758,001

 
579,096

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(127,879
)
 
(101,826
)
Proceeds from sale of assets
2,750

 
14,354

Increase in other investments
(52,115
)
 
(19,511
)
Net investing cash
(177,244
)
 
(106,983
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net increase in short-term borrowings
480,692

 
23,985

Payments of long-term debt
(360,863
)
 
(151,794
)
Payments for credit facility and debt issuance costs


 
(113
)
Payments of cash dividends
(209,757
)
 
(161,641
)
Proceeds from stock options exercised
65,527

 
33,419

Treasury stock purchased
(450,507
)
 
(334,155
)
Proceeds from real estate financing transactions
8,736

 
88,581

Other
(118,426
)
 
(14,995
)
Net financing cash
(584,598
)
 
(516,713
)
 
 
 
 
Effect of exchange rate changes on cash
(6,087
)
 
(4,640
)
Net decrease in cash and cash equivalents
(9,928
)
 
(49,240
)
Cash and cash equivalents at beginning of year
155,505

 
204,213

Cash and cash equivalents at end of period
$
145,577

 
$
154,973

 
 
 
 
Income taxes paid
$
123,832

 
$
95,181

Interest paid
180,461

 
185,065





See notes to condensed consolidated financial statements.

5



THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended June 30, 2019 and 2018
NOTE 1—BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
There have been no significant changes in critical accounting policies since December 31, 2018, except as described in Note 2. Accounting estimates were revised as necessary during the first six months of 2019 based on new information and changes in facts and circumstances. Certain amounts in the 2018 condensed consolidated financial statements have been reclassified to conform to the 2019 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, 2018.
The consolidated results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
NOTE 2—RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adopted in 2019
Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, "Leases" (ASC 842). ASC 842 consists of a comprehensive lease accounting standard requiring most leases to be recognized on the balance sheet and significant new disclosures. The Company adopted ASC 842 using the modified retrospective optional transition method. Therefore, the standard was applied starting January 1, 2019 and prior periods were not restated. The adoption of ASC 842 did not result in a material cumulative-effect adjustment to the opening balance of retained earnings.
The Company applied the package of practical expedients permitted under the ASC 842 transition guidance. As a result, the Company did not reassess the identification, classification and initial direct costs of leases commencing before the effective date. The Company also applied the practical expedient to not separate lease and non-lease components to all new leases as well as leases commencing before the effective date.
As a result of the adoption of ASC 842, right-of-use assets, current liabilities and non-current liabilities related to operating leases of $1.7 billion, $.4 billion and $1.4 billion, respectively, were recognized on the balance sheet at June 30, 2019. In addition, the adoption of ASC 842 resulted in a transition adjustment reducing the opening balance of retained earnings by $8.4 million at January 1, 2019. The adoption of ASC 842 did not have a material impact on the Company's results of operations, cash flows or debt covenants. See Note 17 for additional information.
Effective January 1, 2019, the Company adopted ASU 2018-02, "Reclassification of Certain Income Tax Effects from Accumulated Other Comprehensive Income." This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. As a result of this standard, the Company recorded an $8.3 million reclassification from cumulative other comprehensive loss to retained earnings. See Note 4. The adoption of this standard did not have a significant impact on the Company's results of operations, financial condition or liquidity.
Effective January 1, 2019, the Company adopted ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities." This standard better aligns hedging activities and financial reporting for hedging relationships. It eliminates the requirement to separately measure and report hedge ineffectiveness and reduces the complexity of applying certain aspects of hedge accounting. There were no outstanding hedges as of the adoption date. The prospective adoption of this standard did not

6



have a significant impact on the Company's results of operations, financial condition or liquidity. The disclosures required by this standard are included in Note 16.
Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment methodology in current 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 ASU is effective for fiscal years beginning after December 15, 2019. The Company is evaluating the potential impact of the standard.
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 may be 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 13 for the Company's disaggregation of Net sales by reportable segment. As the reportable segments are aligned by similar economic factors, trends and customers, this disaggregation best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The Company has made payments or credits for rebates or incentives at the beginning of a long-term contract where future revenue is expected and before satisfaction of performance obligations. Under these circumstances, the Company recognizes a contract asset and amortizes these prepayments over the expected benefit life of the long-term contract typically on a straight-line basis. Management judgment is required when estimating sales-based variable consideration, determining whether it is constrained, measuring obligations for returns, refunds, and determining amortization periods for prepayments.
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 supply agreement. 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.

7



(Thousands of dollars)
 
 
 
 
 
 
 
 
 
 
Accounts Receivable, Less Allowance
 
Contract
Assets
(Current)
 
Contract
Assets
(Long-Term)
 
Contract Liabilities (Current)
 
Contract Liabilities (Long-Term)
Balance at December 31, 2018
$
2,018,768

 
$
56,598

 
$
213,954

 
$
272,857

 
$
8,745

Balance at June 30, 2019
2,659,051

 
62,428

 
195,923

 
236,724

 
8,745


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 and discussed in Note 5. Amounts recognized during the quarter from deferred liabilities to 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.
NOTE 4—SHAREHOLDERS' EQUITY
Dividends paid on common stock during each of the first two quarters of 2019 and 2018 were $1.13 per share and $.86 per share, respectively.
The following tables summarize the changes in the components of shareholders' equity for the three months ended June 30, 2019 and 2018.

(Thousands of dollars, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Other
Capital
 
Retained Earnings
 
Treasury
Stock
 
Cumulative Other Comprehensive Loss
 
Total
Balance at March 31, 2019
$
118,672

 
$
2,945,521

 
$
6,386,948

 
$
(5,358,887
)
 
$
(632,193
)
 
$
3,460,061

Net income

 

 
471,003

 

 

 
471,003

Other comprehensive income

 

 

 

 
1,414

 
1,414

Treasury stock purchased

 

 

 
(145,361
)
 

 
(145,361
)
Stock-based compensation activity
264

 
64,925

 

 
(45
)
 

 
65,144

Other adjustments

 
216

 

 

 

 
216

Cash dividends

 

 
(104,995
)
 

 

 
(104,995
)
Balance at June 30, 2019
$
118,936

 
$
3,010,662

 
$
6,752,956

 
$
(5,504,293
)
 
$
(630,779
)
 
$
3,747,482


(Thousands of dollars, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Other
Capital
 
Retained Earnings
 
Treasury
Stock
 
Cumulative Other Comprehensive Loss
 
Total
Balance at March 31, 2018
$
117,875

 
$
2,761,206

 
$
5,630,323

 
$
(4,528,018
)
 
$
(335,655
)
 
$
3,645,731

Net income
 
 
 
 
403,604

 
 
 
 
 
403,604

Other comprehensive loss
 
 
 
 
 
 
 
 
(206,794
)
 
(206,794
)
Treasury stock purchased
 
 
 
 
 
 
(93,007
)
 
 
 
(93,007
)
Stock-based compensation activity
89

 
33,934

 
 
 
(225
)
 
 
 
33,798

Other adjustments
 
 
56

 
(1
)
 

 
 
 
55

Cash dividends
 
 
 
 
(80,613
)
 
 
 
 
 
(80,613
)
Balance at June 30, 2018
$
117,964

 
$
2,795,196

 
$
5,953,313

 
$
(4,621,250
)
 
$
(542,449
)
 
$
3,702,774


8








The following tables summarize the changes in the components of Shareholders' equity for the six months ended June 30, 2019 and 2018.
(Thousands of dollars, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Other
Capital
 
Retained Earnings
 
Treasury
Stock
 
Cumulative Other Comprehensive Loss
 
Total
Balance at December 31, 2018
$
118,373

 
$
2,896,448

 
$
6,246,548

 
$
(4,900,690
)
 
$
(629,934
)
 
$
3,730,745

Net income
 
 
 
 
716,240

 
 
 
 
 
716,240

Other comprehensive income
 
 
 
 
 
 
 
 
7,495

 
7,495

Adjustment to initially adopt ASU 2016-02
 
 
 
 
(8,415
)
 
 
 
 
 
(8,415
)
Adjustment to initially adopt ASU 2018-02
 
 
 
 
8,340

 
 
 
(8,340
)
 

Treasury stock purchased
 
 
 
 
 
 
(450,507
)
 
 
 
(450,507
)
Treasury stock transferred from defined benefit pension plan

 
 
 
 
 
 
(131,781
)
 
 
 
(131,781
)
Stock-based compensation activity
563

 
112,486

 
 
 
(21,315
)
 
 
 
91,734

Other adjustments
 
 
1,728

 

 
 
 
 
 
1,728

Cash dividends
 
 
 
 
(209,757
)
 
 
 
 
 
(209,757
)
Balance at June 30, 2019
$
118,936

 
$
3,010,662

 
$
6,752,956

 
$
(5,504,293
)
 
$
(630,779
)
 
$
3,747,482


(Thousands of dollars, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Other
Capital
 
Retained Earnings
 
Treasury
Stock
 
Cumulative Other Comprehensive Loss
 
Total
Balance at December 31, 2017
$
117,561

 
$
2,723,183

 
$
5,458,416

 
$
(4,266,416
)
 
$
(384,870
)
 
$
3,647,874

Net income

 

 
653,731

 

 

 
653,731

Other comprehensive loss
 
 
 
 
 
 
 
 
(155,259
)
 
(155,259
)
Adjustment to initially adopt ASU 2016-01
 
 
 
 
2,320

 
 
 
(2,320
)
 

Treasury stock purchased
 
 
 
 
 
 
(334,155
)
 
 
 
(334,155
)
Stock-based compensation activity
403

 
69,755

 
 
 
(20,679
)
 
 
 
49,479

Other adjustments
 
 
2,258

 
487

 

 
 
 
2,745

Cash dividends
 
 
 
 
(161,641
)
 
 
 
 
 
(161,641
)
Balance at June 30, 2018
$
117,964

 
$
2,795,196

 
$
5,953,313

 
$
(4,621,250
)
 
$
(542,449
)
 
$
3,702,774



The treasury stock transferred from defined benefit pension plan relates to the termination of the Company's domestic defined benefit pension plan as described in Note 7. See Note 2 for information on ASU 2018-02.

9



NOTE 5—PRODUCT WARRANTIES
Changes in the Company’s accrual for product warranty claims during the first six months of 2019 and 2018, including customer satisfaction settlements, were as follows:
 
(Thousands of dollars)
 
 
 
 
2019
 
2018
Balance at January 1
$
57,067

 
$
151,425

Charges to expense
16,093

 
14,639

Settlements
(15,542
)
 
(8,185
)
Acquisition, divestiture and other adjustments


 
(15,309
)
Balance at June 30
$
57,618

 
$
142,570




For further details on the Company’s accrual for product warranty claims, see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The decrease in the accrual for product warranty claims at June 30, 2019 was primarily due to the divestiture of the furniture protection plan business in the third quarter of 2018.
NOTE 6—EXIT OR DISPOSAL ACTIVITIES
Liabilities associated with exit or disposal activities are recognized as incurred in accordance with the Exit or Disposal Cost Obligations Topic of the ASC. Qualified exit costs primarily include post-closure rent expenses, incremental post-closure costs and costs of employee terminations. Adjustments may be made to liabilities accrued for qualified exit costs if information becomes available upon which more accurate amounts can be reasonably estimated. Concurrently, property, plant and equipment is tested for impairment in accordance with the Property, Plant and Equipment Topic of the ASC, and if impairment exists, the carrying value of the related assets is reduced to estimated fair value. Additional impairment may be recorded for subsequent revisions in estimated fair value.
In the six months ended June 30, 2019, thirteen stores in The Americas Group and two branches in the Performance Coatings Group were closed due to lower demand or redundancy. The Company continues to evaluate all legacy operations in response to the Valspar acquisition in order to optimize restructured operations. These acquisition-related restructuring charges to date are recorded in the Administrative segment. The following table summarizes the activity and remaining liabilities associated with qualified exit costs at June 30, 2019 and 2018. The provisions and expenditures relate primarily to acquisition-related restructuring.
(Thousands of dollars)
 
 
 
 
2019
 
2018
Balance at January 1
$
7,052

 
$
13,385

Provisions in Cost of goods sold or SG&A
3,611

 
9,941

Actual expenditures charged to accrual
(3,402
)
 
(14,325
)
Balance at June 30
$
7,261


$
9,001


For further details on the Company’s exit or disposal activities, see Note 6 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

10



NOTE 7HEALTH CARE, PENSION AND OTHER BENEFITS
Shown below are the components of the Company’s net periodic benefit cost (credit) for domestic defined benefit pension plans, foreign defined benefit pension plans and postretirement benefits other than pensions:
 
(Thousands of dollars)
Domestic Defined
Benefit Pension Plans
 
Foreign Defined
Benefit Pension Plans
 
Postretirement
Benefits Other than
Pensions
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Three Months Ended June 30:
 
 
 
 
 
 
 
 
 
 
 
  Net periodic benefit cost (credit):
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
932

 
$
1,158

 
$
1,490

 
$
2,016

 
$
362

 
$
499

Interest cost
1,199

 
8,540

 
2,356

 
2,351

 
2,801

 
2,544

Expected return on assets
(1,332
)
 
(14,382
)
 
(2,441
)
 
(2,685
)
 

 

Recognition of:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized prior service cost (credit)
350

 
406

 


 


 
(1,250
)
 
(1,642
)
 Unrecognized actuarial loss


 


 
258

 
383

 
134

 
582

Net periodic benefit cost (credit)
$
1,149

 
$
(4,278
)
 
$
1,663

 
$
2,065

 
$
2,047

 
$
1,983

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30:
 
 
 
 
 
 
 
 
 
 
 
  Net periodic benefit cost (credit):
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1,865

 
$
5,515

 
$
2,980

 
$
4,032

 
$
723

 
$
997

Interest cost
2,397

 
16,692

 
4,712

 
4,703

 
5,601

 
5,089

Expected return on assets
(2,664
)
 
(28,816
)
 
(4,881
)
 
(5,370
)
 

 

Recognition of:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized prior service cost (credit)
699

 
785

 


 


 
(2,499
)
 
(3,284
)
Unrecognized actuarial loss


 


 
516

 
766

 
268

 
1,163

Ongoing pension cost (credit)
2,297

 
(5,824
)
 
3,327

 
4,131

 
4,093

 
3,965

Curtailment expense


 
825

 


 


 

 


Settlement expense
32,410

 


 


 


 


 


Net periodic benefit cost (credit)
$
34,707

 
$
(4,999
)
 
$
3,327

 
$
4,131

 
$
4,093

 
$
3,965


Service cost is recorded in Cost of goods sold and Selling, general and administrative expenses. All other components are recorded in Other expense (income) - 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 (Terminated Plan). The annuity contract purchase resulted in a settlement charge of $32.4 million in the first quarter of 2019. The remaining surplus of the Terminated Plan will be used, as prescribed in the applicable regulations, to fund future Company contributions to a qualified replacement pension plan, which is the current domestic defined contribution plan (Qualified Replacement Plan). During the first quarter of 2019, the Company transferred $201.8 million of the surplus to a suspense account held within a trust for the Qualified Replacement Plan. This amount included $131.8 million of Company stock (300,000 shares). The shares are treated as treasury stock in accordance with ASC 715. The remainder of the surplus related to the Terminated Plan will be transferred to the Qualified Replacement Plan suspense account after the final expenses associated with the wind-up of the Terminated Plan have been settled.
For further details on the Company’s health care, pension and other benefits, see Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
NOTE 8—OTHER LONG-TER