SecProbe.io

CORRESP
1
filename1.htm

corresp

The
Sherwin-Williams Company

101 Prospect Avenue, N.W.

Cleveland, Ohio 44115

Phone: (216) 566-2573

    Sean P. Hennessy

    Senior Vice President – Finance and

Chief
Financial Officer

    November 30, 2006

By EDGAR and U.S. MAIL

Mr. Rufus Decker

Branch Chief

United States Securities and Exchange Commission

Division of Corporation Finance, Mail Stop 7010

100 F Street, N.E.

Washington, D.C. 20549-7010

    Re:

    THE SHERWIN-WILLIAMS COMPANY (“Registrant”)

    Form 10-K for the Fiscal Year ended December 31, 2005

    Forms 10-Q for the Fiscal Quarters ended March 31, 2006, June 30, 2006 and September
30, 2006

    File No. 1-4851

Dear Mr. Decker:

The following responses by the Registrant are being provided to address the comments set forth in
your letter dated November 15, 2006 regarding your review of the Registrant’s responses to the
Staff’s prior comments. Each comment has been restated below followed by the Registrant’s
response.

Form 10-K for the year ended December 31, 2005

General

    1.

    Comment: Where a comment below requests additional disclosures or other revisions to
be made, please show us in your response what the revisions will look like. These revisions
should be included in your future filings, including your interim filings where applicable.

    Response: Where a comment requests additional disclosures or other revisions, the
Registrant’s response will include an example of what the revisions will look like. The

Mr. Rufus Decker

November 30, 2006

Page 2

    Registrant will include such additional disclosures or other revisions, in its future
filings, including interim filings where applicable.

Financial Statements

Note 12 – Other Expense – net, page 66

    2.

    Comment: We have reviewed your response to comment 9. The expenses included within
the Other Expense-net line item include both operating and non-operating expenses.
Non-operating expenses, such as dividend and royalty income, net expense of financing and
investing activities, foreign currency related losses and other non-operating income and
expense items may be presented where they are currently shown in the Other Expense-net line
item in your statements of income. Operating expenses, such as the provisions for
environmental matters-net, the (gain) loss on disposition of assets and the loss on
disposition of joint venture investment (assuming it was consolidated), would be better
presented where your other operating expenses, such as selling, general and administrative
expenses and goodwill impairment are shown in your statements of income. Please refer to Rule
5-03 of Regulation S-X.

    Response: The Registrant will present the provisions for environmental matters-net,
the (gain) loss on disposition of assets and the loss on disposition of joint venture
investment in a separate line item where selling, general and administrative expenses and
goodwill impairment are shown in the statements of income. The Registrant will continue to
present dividend and royalty income, net expense of financing and investing activities,
foreign currency related losses and other income and expense on the Other expense-net line
item in the statements of income. The Registrant will continue to fully disclose detail of
the respective line items in a footnote to the financial statements. The following is a
partial example of a revised statement of income to be included in the Registrant’s future
filings, including interim filings where applicable:

    2005

    Gross profit

    3,080,365

    Percent to net sales

    42.8
    %

    Selling, general and administrative expenses

    2,326,220

    Percent to net sales

    32.4
    %

    Other general expense — net

    29,157

    Goodwill impairment

    22,000

    Interest expense

    49,586

    Interest and net investment income

    (4,595
    )

    Other expense — net

    1,782

    Income before income taxes and minority interest

    656,215

    The following is an example of a revised footnote to be included in the Registrant’s
future filings, including interim filings where applicable:

Mr. Rufus Decker

November 30, 2006

Page 3

    NOTE X — OTHER GENERAL EXPENSE-NET AND OTHER EXPENSE-NET

    Included in the Other general expense-net caption of the Statements of
Consolidated Income were the following:

    2005

    (Gain) loss on disposition of assets

    $
    (3,621
    )

    Loss on disposition of joint venture investment

    7,858

    Provisions for environmental
matters-net

    24,920

    Total

    $
    29,157

    The (gain) loss on disposition of assets represents realized gains or losses
associated with the disposal of fixed assets.

    The loss on disposition of joint venture investment represents a realized loss
resulting from the sale at less than carrying value of the Company’s majority
ownership of Kinlita, a joint venture in China included in the Global Group.

    Provisions for environmental matters–net represent site specific increases or
decreases to environmental-related accruals as information becomes available upon
which more accurate costs can be reasonably estimated and as additional accounting
guidelines are issued. Environmental-related accruals are not recorded net of
insurance proceeds in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 39. See Note K for further details on the Company’s
environmental-related activities.

    Included in the Other expense-net caption of the Statements of Consolidated Income
were the following:

    2005

    Dividend and royalty income

    $
    (3,329
    )

    Net expense from financing
and investing activities

    5,762

    Foreign currency related losses

    1,354

    Other income

    (4,794
    )

    Other expense

    2,789

    Total

    $
    1,782

    The net expense from financing and investing activities includes the net gain or loss
relating to the change in the Company’s investment in certain long-term asset funds
and financing fees.

    Foreign currency related losses included foreign currency transaction gains and
losses and realized and unrealized gains and losses from foreign currency option and
forward contracts.

    Other income and Other expense included items of revenue, gains, expenses and losses
that were unrelated to revenues associated with the primary business purpose of the
Company.

    Each individual item within the other income or other expense caption was immaterial;
no single category of items exceeded $1,000.

Mr. Rufus Decker

November 30, 2006

Page 4

Note 17 – Reportable Segment Information, page 69

    3.

    Comment: Please revise your intersegment transfer disclosure to clearly disclose in a
tabular format the intersegment sales each segment has, the intersegment expenses each segment
has and the net result of those sales and purchases on each segment’s profit (loss). If there
is a markup on intersegment sales over actual cost, please also disclose in Note 1 the line
item, such as administrative, where the reversal of the markup is included in each segment’s
profit (loss) is included in the reconciliation to your consolidated income before income
taxes and minority interest. Please refer to SFAS 131.

    Response: The Registrant will revise its intersegment transfer disclosure to a
tabular format as shown below. As disclosed in Note 17 on page 70, the majority of intersegment transfers are valued
at approximate manufactured, delivered cost. Intersegment transfers that are not valued at
cost are accounted for at values comparable to normal unaffiliated customer sales. The
Registrant supplementally advises the staff that any profits realized on intersegment
transfers, adjusted for intersegment transfers held in inventory, are retained in each
respective segment. The adjustments relating to intersegment transfers held in inventory
were insignificant. The following is an example of the tabular format to be included in the
Registrant’s future filings, including interim filings where applicable for each period
presented in the financial statements:

    (Millions of Dollars)

    2005

    Administrative

    Consolidated

    Paint Stores Group

    Consumer Group

    Global Group

    and Eliminations

    Totals

    Net external sales

    $
    4,352

    $
    1,391

    $
    1,440

    $
    8

    $
    7,191

    Intersegment transfers

    1,474

    119

    (1,593
    )

    Net sales

    4,352

    2,865

    1,559

    (1,585
    )

    7,191

    Segment profit (1)

    569

    171

    103

    843

    Interest expense

    (50
    )

    (50
    )

    Corporate expenses and other

    (137
    )

    (137
    )

    Income before income taxes
and
minority interest

    $
    569

    $
    171

    $
    103

    $
    (187
    )

    $
    656

    Operating segment margins

    13.1
    %

    6.0
    %

    6.6
    %

    Identifiable assets

    $
    1,287

    $
    1,602

    $
    726

    $
    754

    $
    4,369

    Capital expenditures

    48

    62

    16

    17

    143

    Depreciation

    46

    34

    26

    14

    120

    (1)

    Segment profit includes $24 in the Consumer Group and $4 in
the Global Group of mark-up on intersegment transfers realized as a
result of external sales by the Paint Stores Group.

Form 10-Q for the period ended September 30, 2006

General

    4.

    Comment: Please address the comments above in your interim filings as well.

    Response: The Registrant will address the comments above, in its future interim
filings where applicable.

Mr. Rufus Decker

November 30, 2006

Page 5

Financial Statements

Note P – Litigation, page 16

    5.

    Comment: We have reviewed your response to comment 13. We understand that the scope
of the unfavorable jury verdict has not been determined and that it may not be possible to
estimate the range of loss. However, based on the unfavorable jury verdict it appears that it
may be probable that a loss has been incurred. Although it may be difficult to estimate the
potential range of loss, it appears that the minimum loss as a result of this unfavorable jury
verdict is unlikely to be zero and that at least the minimum amount of loss should be
recorded. Please refer to paragraph 3 of FIN 14 and to SFAS 5. In addition, under paragraph
166 of SOP 96-1, entities are encouraged to disclose the estimated time frame for the
resolution of the uncertainty as to the amount of the loss.

    Response: Paragraph 8 of SFAS 5 requires that the estimated loss from a loss
contingency be recorded if (a) it is probable that one or more future events will occur
confirming the fact of the loss and (b) the amount of the loss can be reasonably estimated.
The Registrant believes that neither of these conditions have been met with respect to the
Rhode Island lead pigment litigation. The February 22, 2006 unfavorable jury verdict has
not yet been set forth in a judgment by the Rhode Island Court. As stated in the
Registrant’s initial response, considering the various post-trial motions and other matters
remaining before the Rhode Island Court and the potential appealable issues arising from the
proceedings, the Registrant has determined that it is not likely that one or more future
events will occur that confirm the loss. Further, due to the various uncertainties
surrounding the Rhode Island lead pigment litigation, including the Registrant’s ultimate
liabilities regarding this litigation and the scope and manner of any abatement remedy, the
Registrant cannot reasonably estimate any potential range of loss or reasonably estimate any
potential minimum loss. Since the Registrant believes that the conditions in paragraph 8 of
SFAS 5 have not been met, it cannot record a minimum amount of loss in accordance with
paragraph 3 of FIN 14 nor disclose an estimated time frame of such loss in accordance with
paragraph 166 of SOP 96-1. In accordance with paragraph 10 of SFAS 5, the Registrant
continues to disclose the nature of this loss contingency and that an estimate cannot be
made.

The Registrant and its management recognize that they are in possession of all facts relating to
disclosure and are responsible for the accuracy and adequacy of the disclosures made. The
Registrant and its management believe that they have provided all information required under the
Securities and Exchange Act of 1934 and provided all information investors require for an informed
decision.

In connection with responding to the Staff’s comments, the Registrant and its management
acknowledge that:

    •

    the Registrant is responsible for the adequacy and accuracy of the disclosures of its
filings;

Mr. Rufus Decker

November 30, 2006

Page 6

    •

    staff comments or changes to disclosures in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and

    •

    the Registrant may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States.

We understand that the Division of Enforcement has access to all information we have provided to
the Staff of the Division of Corporation Finance as part of its review of our filing and responses
to your comments on our filings.

If the Staff has any questions regarding our responses or if the Staff has any additional comments
to raise, please contact the undersigned.

    Very truly yours,

    /s/ Sean P. Hennessy

    Sean P. Hennessy

    Senior Vice President – Finance and

Chief Financial Officer

    cc:

    Gus Rodriguez

    United States Securities and Exchange Commission

    Christopher M. Connor

    Chairman and Chief Executive Officer

    The Sherwin-Williams Company

    Louis E. Stellato

    Vice President, General Counsel and Secretary

    The Sherwin-Williams Company

    John L. Ault

    Vice President – Corporate Controller

    The Sherwin-Williams Company