SecProbe.io

CORRESP
1
filename1.htm

		Document

The Sherwin-Williams Company

101 West Prospect Avenue

Cleveland, OH 44115-1075

Allen J. Mistysyn

Senior Vice President - Finance and

Chief Financial Officer

November 25, 2019

Correspondence Filing Via EDGAR

United States Securities and Exchange Commission

Division of Corporation Finance

Office of Manufacturing and Construction

100 F Street, NE

Washington, DC 20549

Attention:

 Jeffrey Gordon

Anne McConnell

Re:

 The Sherwin-Williams Company

Form 10-K for the Year Ended December 31, 2018

Filed February 22, 2019

Form 10-Q for the Period Ended June 30, 2019

Filed July 24, 2019

Item 2.02 Form 8-K

Filed October 22, 2019

CORRESP filed September 18, 2019

File No. 001-04851

Ladies and Gentlemen:

We have set forth below responses of The Sherwin-Williams Company (“Sherwin-Williams” or "Company") to address the comments of the Staff of the Division of Corporation Finance contained in your letter dated November 15, 2019 regarding your review of Sherwin-Williams’ filings noted above.

For your convenience, we have restated in bold type each of the Staff’s comments followed by our response.

Form 10-K for the Year Ended December 31, 2018

Exhibit 13

Note 9 - Other Long-Term Liabilities, page 62

1.

 Comment: We note your response to comment 2 and appreciate the additional disclosures you provided regarding the Gibbsboro site. Please expand your disclosures to also clarify the current stage at each of your other Major Sites, including whether remediation activities and implementation costs at each Major Site are reasonably estimable.

Response: The Company respectfully acknowledges the Staff's comment and will enhance its Other Long-Term Liabilities disclosure accordingly. For reference, excluding Gibbsboro, the other three Major Sites comprise in total between 10% and 20% of both the total environmental-related accrual and the total unaccrued maximum.

Below is the Company's proposed disclosure using information as of the third quarter of 2019 for illustrative purposes, which has been marked to show changes from the Company's Form 10-Q disclosure for the period ended September 30, 2019 to facilitate the Staff's review. The following proposed Form 10-Q disclosure encompasses the enhancements discussed in the Company's comment letter response dated September 18, 2019. The Company will present the following enhanced disclosure in both its future Forms 10-K and 10-Q, beginning with the Company's Form 10-K for the period 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 September 30, 2019 and 2018, the Company had accruals reported on the Company's balance sheet as other long-term liabilities of $321.8 million and $209.9 million, respectively. Estimated costs of current investigation and remediation activities of $51.0 million and $27.0 million are included in other accruals at September 30, 2019 and 2018, respectively.

Actual costs incurred may vary from the accrued estimates due to the inherent uncertainties involved including, among others, the number and financial condition of parties involved with respect to any given site, the volumetric contribution which may be attributed to the Company relative to that attributed to other parties, the nature and magnitude of the wastes involved, the various technologies that can be used for remediation and the determination of acceptable remediation with respect to a particular site. If the Company's future loss contingency is ultimately determined to be at the unaccrued maximum of the estimated range of possible outcomes for every site for which costs can be reasonably estimated, the Company's accrual for environmental-related activities would be $116.4 million higher than the minimum accruals at September 30, 2019. 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 September 30, 2019. At September 30, 2019, $322.2 million, or 86.4% of the total accrual, related directly to the Major Sites. In the aggregate unaccrued maximum of $116.4 million at September 30, 2019, $92.7 million, or 79.7%, 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 facilities, which ceased operations in 1978, has had various facilities 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 types and extent of contamination.

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 four Major Sites making up the majority of the accrual 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 September 30, 2019, the

Company did not have material loss contingency accruals related to unasserted claims. Management does not expect that a material portion of unrecognized loss contingencies will be recoverable through insurance, indemnification agreements or other sources. In the event any future loss contingency significantly exceeds the current amount accrued, the recording of the ultimate liability may result in a material impact on net income for the annual or interim period during which the additional costs are accrued. Moreover, management does not believe that any potential liability ultimately attributed to the Company for its environmental-related matters will have a material adverse effect on the Company’s financial condition, liquidity, or cash flow due to the extended length of time during which environmental investigation and remediation takes place. An estimate of the potential impact on the Company’s operations cannot be made due to the aforementioned uncertainties.

Management expects these contingent environmental-related liabilities to be resolved over an extended period of time. Management is unable to provide a more specific time frame due to the indeterminate amount of time to conduct investigation activities at any site, the indeterminate amount of time to obtain environmental agency approval, as necessary, with respect to investigation and remediation activities, and the indeterminate amount of time necessary to conduct remediation activities.

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

Form 10-Q for the Period Ended June 30, 2019

Note 11 - Income Taxes, page 16

2.

 Comment: We note your response to comment 4 related to the reversal of net tax benefits recognized in previous tax years from federal renewable energy tax credit funds. Please address the following:

•

 Please quantify for us the tax benefits recognized in each of the previous three years and subsequent interim period.

•

 Please tell us how you determined the tax provision recognized in the 2nd quarter of 2019 did not represent a correction of an error in previously issued financial statements under ASC 250-10. In this regard, tell us how the recognition of tax benefits in previous years based upon potentially fraudulent information did not constitute an oversight or misuse of facts. Conversely, also tell us how you determined the recognition of tax benefits and the reversal thereof represents a change in estimate.

Response: The Company recorded tax credits of $10.0 million in 2016 and 2017, respectively. There were no tax credits recorded in 2018, and there have been no tax credits recorded in 2019. As described in our prior response, the Company recognized total expense of $76.7 million ($74.3 million during the first six months of 2019).

As described below, it was not until the second quarter of 2019 that the Company learned of information concerning the nature and extent of the fraudulent scheme as it applied to the Company's previously recognized tax credits. Management evaluated this new information under the guidance in ASC 250-10 and concluded that the derecognition of the tax position should be accounted for as a change in estimate rather than the correction of an error.

As explained in our prior response, these tax positions are based on the Company's investments in legal entities (“Funds”) that purchased mobile solar generators (“MSGs”) from DC Solar. The Funds hold title to the MSGs. In order to qualify for federal renewable energy tax credits, the MSGs owned by the Funds generally must have been (1) manufactured, (2) placed in service and (3) appropriately valued.

Upon initiation of the investments and upon the recognition of the related tax benefits in the years ended 2011 to 2017, the Company reasonably relied on expert and qualified information such as legal opinions, tax opinions, accounting and tax representatio