-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NJEo1IB7dO2Ors7J4I2aDYVgwgtGD90yzT39v3DN1wXpHkD+Z3bBP4WiRkixLPA6 S9j0F0/+e9BLkAp1P0Pv6Q== 0000950152-99-001793.txt : 19990311 0000950152-99-001793.hdr.sgml : 19990311 ACCESSION NUMBER: 0000950152-99-001793 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHERWIN WILLIAMS CO CENTRAL INDEX KEY: 0000089800 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 340526850 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04851 FILM NUMBER: 99561727 BUSINESS ADDRESS: STREET 1: 101 PROSPECT AVE NW CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2165662200 10-K 1 THE SHERWIN WILLIAMS COMPANY FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 1-4851 ---------------------------- THE SHERWIN-WILLIAMS COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO (State or other jurisdiction of incorporation or organization) 34-0526850 (I.R.S. Employer Identification No.) 101 PROSPECT AVENUE, N.W., CLEVELAND, OHIO (Address of principal executive offices) 44115-1075 (Zip Code) (216) 566-2000 Registrant's telephone number, including area code ------------------------------------------------------ Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED ------------------- ------------------------------------ 9.875% Debentures due 2016 New York Stock Exchange Common Stock, Par Value $1.00 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At January 31, 1999, 170,621,431 shares of common stock were outstanding, net of treasury shares. The aggregate market value of such voting stock held by non-affiliates on January 31, 1999 was $4,338,266,811. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1998 ("1998 Annual Report") are incorporated by reference into Parts I, II and IV of this report. Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders ("Proxy Statement") are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS The Sherwin-Williams Company, founded in 1866 and incorporated in 1884, is engaged in the manufacture, distribution and sale of coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America. As used in this report, the terms "Sherwin-Williams", "Company" and "Registrant" mean The Sherwin-Williams Company and its consolidated subsidiaries unless the context indicates otherwise. BASIS OF REPORTABLE SEGMENTS Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information", was adopted by the Company effective December 31, 1998. SFAS No. 131 requires an enterprise to report segment information utilizing an approach referred to as the "management approach" which is based on reporting segment information in the same way that management internally organizes its business for assessing performance and making decisions regarding allocation of resources. One of the characteristics identified by SFAS No. 131 that must be considered in the determination of reportable segments is the regular review of performance by the enterprise's chief operating decision maker. The Company's chief operating decision maker has been identified as the Chief Executive Officer because he has final authority over performance assessment and resource allocation decisions. Each reportable segment identified by the Company meets the SFAS No. 131 characteristic for the management approach as well as other SFAS No. 131 characteristics of earning revenue and incurring expenses in carrying out a business activity and making discrete financial information about the business component available to the chief operating decision maker. Because of the global, diverse operations of the Company, the chief operating decision maker regularly receives discrete financial information about each operating segment as well as a significant amount of additional financial information about certain aggregated divisions, operating units and subsidiaries of the Company. The chief operating decision maker uses all such financial information for performance assessment and resource allocation decisions. In accordance with the objective of SFAS No. 131, the Company has determined that it is organized as three reportable segments -- Paint Stores, Coatings and Other -- each described in further detail below. Factors considered in determining the three operating segments of the Company include the nature of the business activity, existence of managers responsible for the operating activities and information presented to the Board of Directors. Information about net sales, operating profits and assets attributable to the United States and to all foreign consolidated subsidiaries can be found on pages 10 and 11 of the 1998 Annual Report, which is incorporated herein by reference. Revenues and operating profits attributable to any individual country outside the United States are not material. In addition to the three operating segments, the Company and certain consolidated subsidiaries have corporate headquarters which are not considered an operating segment. Corporate expenses include administrative expenses of the headquarters sites, interest expense which is unrelated to real estate leasing activities, investment income, certain foreign currency transaction losses related to dollar-denominated debt and other financing activities, certain provisions for disposition and environmental-related matters, and other expenses which are not directly associated with any operating segment. Corporate assets consist primarily of cash, investments, deferred pension assets and headquarters property, plant and equipment. These Corporate expenses and assets reconcile operating segment data to total consolidated income before income taxes, identifiable assets, capital expenditures and depreciation. The Company evaluates the performance of operating segments and allocates resources based on profit or loss from operations before income taxes, excluding Corporate expenses and financing gains and losses. Intersegment transfers are accounted for at values comparable to normal unaffiliated customer sales. Operating profit includes realized profit on intersegment transfers. The accounting policies of the reportable segments are the same as those described in Note 1 -- Significant Accounting Policies on page 24 of the 1998 Annual Report, which is incorporated herein by reference. The adoption of SFAS No. 131 did not change the composition of the 1 3 reportable segments of the Company. Therefore, no restatements of comparative information for earlier periods is required to reflect the current presentation. PAINT STORES SEGMENT The Paint Stores Segment consists of four geographically divided divisions -- Eastern, Southeastern, Mid Western and South Western -- each having the same business activity of selling identical national and similar regional products through company-operated specialty paint stores to the same types of customers. The Segment consisted of 2,254 stores in the United States, Canada and Puerto Rico on December 31, 1998. A map on the inside back cover of the 1998 Annual Report shows the approximate geographical separation of each division and the number of paint stores in each state, province and Puerto Rico. The Paint Stores Segment is the exclusive North American marketer and seller of Sherwin-Williams(R) branded architectural coatings, industrial maintenance and marine products, industrial original equipment manufacturer (OEM) product finishes and related items produced by the Coatings Segment. In addition, this Segment markets and sells Con-Lux(R), Old Quaker(TM), Mercury(TM), Brod Dugan(TM), Pro-Line(R), SeaGuard(R), JetGlo(R), AcryGlo(R), other control-branded coatings, and related products also manufactured by the Coatings Segment. Complementary coatings and associated products manufactured by third parties are sold through the Paint Stores Segment to complete its product offering. Paint, applicators, wallcoverings, floorcoverings, spray equipment and associated products are marketed and sold by store personnel and direct sales representatives to the do-it-yourself customer, professional painting contractor, home builder, property manager, industrial maintenance and marine customer, aviation market, OEM customer, and product finishing job shop customer. The loss of any single customer would not have a material adverse effect on the business of this Segment. During 1998, the Segment opened 59 net new stores, remodeled 67 and relocated 40. There were 39 net new stores opened in 1997 and 23 in 1996. Many new national and regional architectural products, industrial maintenance and marine products and industrial OEM product finishes were introduced by this Segment in 1998. This Segment was successful in obtaining thousands of new customers and contracts in 1998. The stores were technologically enhanced in 1998 with the completion of a satellite network which electronically links all stores. Stores now have the capability of sharing perpetual inventory information for better product availability and consistent pricing for national and regional customers. Over $27.9 million in capital expenditures were made in 1998 by the Paint Stores Segment to open new stores, remodel existing facilities, purchase productivity improving equipment and complete the satellite network project. In 1999, the Segment plans to open approximately 65 net new stores, continue to introduce new technologically leading products and capture further enhancements from the satellite network project. Upgraded computers will improve the color matching and tinting processes, improving customer service. Expanded use of the Internet at the Segment's new web site, www.sherwin-williams.com, will enable customers and vendors to get information and conduct business electronically. A new architectural product under the brand Duration(TM) will be introduced in the spring of 1999. This will be the Paint Stores Segment's finest exterior latex house paint and will provide exceptional durability and protection against peeling and cracking. To further extend the WoodClassics(TM) interior wood finishing system, a low odor, fast drying, waterborne varnish is being added to this line. Two additional primers are being added to the highly successful Preprite(TM) family of primers. Low Temp 35(TM) primer and caulk will also be added and provide extensions to the leading low temperature technology product line. In all, over 50 new products will be introduced into the market this year by this Segment. A new advertising campaign has been developed and will begin airing in the second quarter of 1999. This campaign capitalizes on the strong brand name recognition and quality perception inherent in the Sherwin-Williams name. It will focus on the store rather than any individual product, be more attractive to female customers who are the primary paint buying decision makers, and be skewed to a younger audience who comprise the highest percentage of do-it-yourself customers. The campaign theme is "Ask How, Ask Now, Ask Sherwin- Williams". This advertising campaign continues the successful "Ask Sherwin-Williams" theme introduced 16 years ago. 2 4 COATINGS SEGMENT The Coatings Segment consists of domestic operating units and foreign operations. Each domestic and foreign operating unit manufactures, distributes and sells coatings and other similar products to the same types of customers. At December 31, 1998, the Segment consisted of a network of 119 company-operated wholesale automotive branches in the United States and 144 foreign stores and branches in Canada, Mexico, Jamaica, Chile and Brazil. A map on the inside back cover of the 1998 Annual Report shows the geographical demographics and the number of stores and branches in each state, province or country. The Coatings Segment develops, manufactures and distributes architectural paint, stains, varnishes, industrial maintenance products, product finishes, marine coatings, aviation coatings, wood finishing products, paint applicators, motor vehicle finish, refinish and touch-up products, corrosion inhibitors, and paint-related products worldwide. In addition, a wide variety of cleaning products and custom, industrial and automotive aerosols are filled, packaged, distributed and sold by this Segment throughout the world. The Coatings Segment employs a wide variety of trade names and trademarks worldwide in pursuit of its business. Sherwin-Williams(R), Dutch Boy(R), Krylon(R), Minwax(R), Ronseal(TM), Cuprinol(R), Thompson's(R), Formby's(R), Red Devil(R), Kem-Tone(R), Martin Senour(R), Pratt & Lambert(R), H&C(R), White Lightning(R), Western(R), Dupli-Color(R), Rust Tough(R), Rubberset(R), Sprayon(R), Moly-White(R), Cello(R), Tri-Flow(TM), Colorgin(TM), Globo(TM), Andina(TM), Lazzuril(TM), Excelo(TM), and Marson(TM) are some of the trade names and trademarks that have high national and international customer recognition and collectively contribute significantly to the internal and external sales of the Coatings Segment. In North America, Sherwin-Williams(R) branded and other control-branded architectural coatings, stains, varnishes, industrial maintenance products, wood finishing products, product finishes, marine coatings, aviation coatings, paint applicators, aerosols, adhesives and related products are manufactured solely for the Paint Stores Segment. Approximately 35 percent of the total sales of the Coatings Segment in 1998 represented products sold through the Paint Stores Segment. Sherwin-Williams(R) branded and other control-branded automotive finish and refinish products are distributed throughout North America solely by the Coatings Segment through its network of wholesale automotive branches. Some other branded and private label coatings, stains, varnishes, wood finishing products, motor vehicle finish, refinish and touch-up products, paint applicators, aerosols and related products are manufactured for and distributed through many of the leading regional, national and international mass merchandisers, home centers, independent dealers, automotive chains, automotive jobbers, industrial maintenance distributors, independent jobbers, wholesale distributors, automotive body shops, automotive dealerships, fleet owners and refinishers, production shops, body builders and manufacturers requiring a factory-applied finished product. Sales and marketing of these branded and private label products is performed by a direct sales staff. The products distributed through these third party customers are intended for purchase by the ultimate end-user of the product, such as the do-it-yourself customer, professional painter, contractor, and industrial and commercial maintenance account. Cleaning products and custom, industrial and automotive aerosols produced by this Segment are distributed through the homecare products, institutional, insecticide and industrial markets. Outside North America, coatings, motor vehicle refinish products, paint applicators, aerosols, adhesives and related products are manufactured under a number of different brands and sold through various marketing channels. The Coatings Segment manufactures, distributes and sells its products through wholly-owned subsidiaries, joint ventures and licensees of technology, trademarks and trade names. At December 31, 1998, this Segment included 23 foreign wholly-owned subsidiaries in 12 foreign countries, three foreign joint ventures and 16 licensing agreements in 15 foreign countries. The majority of the sales from licensees and subsidiaries is in South America, the Segment's most important international market. The Coatings Segment has sales to certain customers that, individually, may be a significant portion of an operating unit's revenues. However, the loss of any single customer would not have a material adverse effect on the overall business of the Segment. All of the Company's technical expenditures occurred in the Coatings Segment. A brief description of technical expenditures and amounts spent for research and development appear on page 24 of the 1998 Annual Report, which is incorporated herein by reference. Most of the Company's capital expenditures related to ongoing environmental compliance measures are incurred by this Segment. 3 5 During 1998, the Coatings Segment's operations and administration was affected by the consolidation of the Consumer Brands, Coatings, Transportation Services and Diversified Brands Divisions. The consolidation was precipitated from customer expectations for improved service, the necessity to lower operating costs, the need to invest in additional advertising/promotional support for high market share brands and the need for additional field service personnel to support the customers' business. The majority of the consolidation effort was completed by year-end and a new sales and marketing organization has been established to provide proper focus to the key brands as well as this Segment's large, diverse customer base. The Coatings Segment performed below expectations in 1998 in its Dutch Boy(R) and Thompsons(R) retail brands although certain other brands and markets performed well. The Minwax(R) brand met expectations and the automotive products sold directly to body shop customers exceeded expectations. The automotive topcoat business expanded its original equipment manufacturer presence, particularly in the in-mold coatings and the interior coatings business, with the Hydro-One(TM) and Hydro-Swade(TM) product lines. Quality and service improvements in the product finishes business unit translated into improved financial results for 1998. The business climate throughout South America was difficult in 1998 causing business rationalization of certain operations to occur. Consolidation of production from facilities acquired in 1997 to previously existing manufacturing facilities occurred in Chile. A resin plant for emulsions was put into operation at the Sao Paulo, Brazil manufacturing site to reduce the costs of selected raw materials. Portions of other Brazilian manufacturing facilities were closed temporarily to contain production costs until the economies begin to improve and previous production capacity needs are once again required. In spite of the harsh economic climate, most foreign operations managed to increase market share and solidify their market positions. In 1999, new products will be introduced to improve market penetration at our core customers. A new line of waterbase interior stains and an aerosol stain will be introduced under the Minwax(R) brand. Automotive aerosol products will be added such as truck bed, hi-heat and engine enamel products. The Segment will increase advertising and promotional support for the Thompson's(R) brand wood protector, stains and toners. All paint category products under the Dutch Boy(R) private label and licensed brands will receive added support and commitment from the field service/merchandising organization. The Coatings Segment plans to improve its penetration and support at certain customers with increased service and plans to pursue new distribution with focused direct advertising initiatives of brands and product categories. The Segment will continue to pursue and develop new international business in order to better compete on a global basis and to continue to grow market share. Genesis(TM) high solids urethane systems for heavy truck and bus application for original equipment manufacturers will be launched during the second quarter of 1999. Internationally in 1999, the less-than-favorable economic conditions in South America are expected to continue, making cost reductions a focal point of the business. Selling prices will be increased where it makes sense and where our competitive position will not be compromised. Additionally, new product introductions, repositioning of product lines, entry into new markets and a broadening of distribution will be necessary to achieve planned goals. Further reduction of manufacturing and administrative costs in Brazil and Chile is necessary. Consolidation of manufacturing and administrative functions of acquired businesses in these two countries will help reduce costs. OTHER SEGMENT The Other Segment is responsible for the acquisition, development, leasing and management of properties for use by the Company and others, generally within the United States. Obtaining real estate in the proper location, at the appropriate cost, is a critical component for achieving the desired operating success, particularly for paint stores and distribution service centers. Sales are represented by external leasing revenue and intersegment transfers which are accounted for at values comparable to normal unaffiliated customer leasing rates. At the end of 1998, there were 221 retail properties owned or leased by this Segment, representing over 1,859,000 square feet of space, of which 218 locations were leased to the Paint Stores Segment. Retail properties which are conducive to the sale of paint and associated products and where external rental opportunities can be profitably operated are maintained by this Segment. Such properties include 135 freestanding buildings, for 4 6 exclusive use by the Paint Stores Segment, and 86 multi-tenant properties. Multi-tenant properties are usually smaller "strip" shopping centers with adequate parking and, generally, the paint store will be located at the end of the shopping area for the most convenient access. The paint store must be easily accessible to professional painters and contractors with sufficient access to pickup and delivery areas. In 1999, the Segment does not anticipate significant growth in the number of owned retail properties needed by the Paint Stores Segment. The occupancy rate for external retail space was 80.5 percent at December 31, 1998. In addition to the Segment's retail properties, at the end of 1998 there were 22 owned and 2 leased non-retail properties consisting of office buildings, distribution service centers, idle manufacturing facilities and vacant land. Occasionally, such properties are acquired or developed to provide the lowest cost alternative for expansion of distribution operations by the Coatings Segment. Locations that have been utilized profitably in the past which can no longer contribute to the Company's future plans are offered for sale or lease. If a location is no longer in usable condition, all buildings on the property are razed and the vacant land is then offered for sale or lease. During 1998, buildings on two such properties were completely demolished and the first phase of a demolition plan was completed on a third property. Sales agreements are currently being pursued for three facilities with anticipated sale dates in 1999. Gains and losses from the sale of property is not a significant operating factor utilized by the chief operating decision maker in determining the performance of this Segment. Additional facilities will become part of the Other Segment's assets in 1999 as manufacturing ceases. The occupancy rate for external non-retail office space was 91.2 percent at December 31, 1998. RAW MATERIALS AND PRODUCTS PURCHASED FOR RESALE Raw materials and fuel supplies are generally available from various sources in sufficient quantities that the Coatings Segment does not anticipate any significant sourcing problems during 1999. There are sufficient suppliers of each product purchased for resale that the Paint Stores Segment and the Coatings Segment do not anticipate any significant sourcing problems during 1999. SEASONALITY The majority of the sales for the Paint Stores Segment and Coatings Segment traditionally occur during the second and third quarters. There is no significant seasonality in sales for the Other Segment. TRADEMARKS AND TRADE NAMES Customer recognition of trademarks and trade names collectively contribute significantly to the sales of the Company. The Paint Stores Segment is identified with names such as Sherwin-Williams(R), SuperPaint(R), Pro Mar(R), EverClean(R), Glas-Clad(R), Perma-Clad(R), Old Quaker(TM), Pro-Line(R), SeaGuard(R), JetGlo(R), AcryGlo(R), Con-Lux(R), Mercury(TM) and Brod-Dugan(TM). The Coatings Segment employs a variety of trade names and trademarks in marketing its products, such as Sherwin-Williams(R), Thompson's(R), Dutch Boy(R), Kem-Tone(R), Martin Senour(R), Cuprinol(R), Pratt & Lambert(R), Globo(TM), Andina(TM), H&C(R), Lazzuril(TM), Excelo(TM), Western(R), Colorgin(TM), Rubberset(R), Dupli-Color(R), Rust Tough(R), Sprayon(R), Minwax(R), White Lightning(R), Krylon(R), Cello(R), Moly-White(R), Formby's(R), Red Devil(R), Tri-Flow(TM), Marson(TM) and Ronseal(TM). PATENTS Although patents and licenses are not of material importance to the business of the Company as a whole, the international operations of the Coatings Segment derive a portion of their income from the license of technology, trademarks and trade names to foreign companies. BACKLOG AND PRODUCTIVE CAPACITY Backlog orders are not significant in the business of any Segment. Sufficient productive capacity currently exists to fulfill the Company's needs for paint and coatings products through 1999. 5 7 COMPETITION The Company experiences competition from many local, regional, national and international competitors of various sizes in the manufacture, distribution and sale of its coatings and related products. The Company is a leading manufacturer and retailer of coatings and related products to professional, industrial, commercial and retail customers, however, the Company's competitive position varies for its different products and markets. In the Paint Stores Segment, competitors include other paint and wallpaper stores, mass merchandisers, home centers, independent hardware stores, hardware chains and manufacturer-operated direct outlets. Product quality, service and price determine the competitive advantage for this Segment. In the Coatings Segment, competitors include manufacturers and distributors of branded and private labeled coatings products. Technology, product quality, product innovation, breadth of product line, technical expertise, distribution, service and price are the key competitive factors for this Segment. EMPLOYEES The Company employed 24,822 persons at December 31, 1998. ENVIRONMENTAL COMPLIANCE For additional information regarding environmental matters, see pages 13 and 14 of the 1998 Annual Report under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 1, 4 and 9 of the Notes to Consolidated Financial Statements on pages 24, 26 and 29, respectively, of the 1998 Annual Report, which is incorporated herein by reference. SEGMENT INFORMATION AND FOREIGN OPERATIONS For additional information regarding the Company's reportable segments and foreign operations, see the financial table and the notes thereto on pages 10 and 11 of the 1998 Annual Report, which is incorporated herein by reference. Additional information regarding risks attendant to foreign operations is set forth on pages 14 and 16 of the 1998 Annual Report under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference. FORWARD-LOOKING STATEMENTS Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Reportable Segment Information" and elsewhere in this report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon management's expectations and beliefs concerning future events and discuss, among other things, anticipated future performance and revenues, expected growth and future business plans. Words and phrases such as "expects", "anticipates", "believes", "will likely result", "will continue", "plans to" and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements. These uncertainties and other factors include such things as: general business conditions, strengths of retail economies and the growth in the coatings industry; competitive factors, including pricing pressures and product innovation and quality; raw material availability and pricing; changes in the Company's relationships with customers and suppliers; the ability of the Company to successfully integrate recent and future acquisitions into its existing operations; changes in general domestic economic conditions such as inflation rates, interest rates and tax rates; risks and uncertainties associated with the Company's expansion into foreign markets, including inflation rates, recessions, foreign currency exchange rates, foreign investment and repatriation restrictions and other external economic and political factors; increasingly stringent domestic and foreign governmental regulations including those affecting the environment; inherent uncertainties involved in assessing the Company's potential liability for environmental remediation-related activities; the impact of the Year 2000; the outcome of pending and future litigation and other claims; and unusual weather conditions. 6 8 Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. ITEM 2. DESCRIPTION OF PROPERTY The Company's corporate headquarters are located in Cleveland, Ohio. The Company's principal manufacturing and distribution facilities operated by the Coatings Segment are located as set forth below. The Company believes its manufacturing and distribution facilities are well-maintained and are suitable and adequate, and have sufficient productive capacity, to meet its current needs. Manufacturing facilities - ------------------------ Arlington, Texas Owned Memphis, Tennessee Leased Baltimore, Maryland Owned Memphis, Tennessee Owned Bedford Heights, Ohio Owned Morrow, Georgia Owned Chicago, Illinois Owned Olive Branch, Mississippi Owned Clifton, New Jersey Owned Ontario, California Leased Coffeyville, Kansas Owned Orlando, Florida Owned Columbus, Ohio Owned Richmond, Kentucky Owned Crisfield, Maryland Leased Rockford, Illinois Leased Deshler, Ohio Owned San Diego, California Leased Edison, New Jersey Owned Spartanburg, South Carolina Leased Elk Grove, Illinois Owned Victorville, California Owned Emeryville, California Owned Wichita, Kansas Owned Ennis, Texas Leased Arica, Chile Owned Flora, Illinois Owned Buenos Aires, Argentina Owned Fort Wayne, Indiana Leased Fort Erie, Ontario, Canada Owned Fountain Inn, South Carolina Owned Kingston, Jamaica Owned Garland, Texas Owned Mexico City, Mexico Owned Greensboro, North Carolina (2) Owned Quilpue, Chile Leased Harrisburg, Pennsylvania Leased Santiago, Chile (2) Owned Havre de Grace, Maryland Owned Sao Paulo, Brazil (5) Owned Holland, Michigan Owned Sheffield, England Owned Lawrenceville, Georgia Owned Texcocco, Mexico Owned Distribution facilities - --------------------- Bedford Heights, Ohio Leased Buenos Aires, Argentina Owned Buford, Georgia Leased Kingston, Jamaica Owned Cranberry Run, Maryland Leased Mexico City, Mexico Owned Dayton Valley, Nevada Owned Moncton, Nova Scotia, Canada Leased Effingham, Illinois Leased Montreal, Quebec, Canada Owned Fredericksburg, Pennsylvania Owned San Juan, Puerto Rico Leased Indianapolis, Indiana Leased Santiago, Chile Leased Reno, Nevada Leased Santiago, Chile (2) Owned Reno, Nevada Owned Sao Paulo, Brazil (5) Owned Richmond, Kentucky Owned Scarborough, Ontario, Canada Owned Waco, Texas Leased Vaughan, Ontario, Canada Leased Winter Haven, Florida Owned Zaragoza, Mexico Owned
7 9 In addition, the Coatings Segment included 119 company-operated wholesale automotive branches, of which one was owned, in the United States and 144 leased company-operated stores and branches in Canada, Mexico, Chile, Brazil and Jamaica at December 31, 1998. The operations of the Paint Stores Segment included 2,254 company-operated stores in the United States, Canada and Puerto Rico at December 31, 1998. All stores are leased locations with 218 being leased from the Company's Other Segment. The Paint Stores Segment is divided into four separate operating divisions, each of which is responsible for the stores located within its geographical region. At the end of 1998, the Mid Western Division operated 628 stores primarily located in the midwestern and upper west coast states and western Canada, the Eastern Division operated 468 stores along the upper east coast and New England states and eastern Canada, the Southeastern Division operated 603 stores principally covering the lower east and gulf coast states and Puerto Rico, and the South Western Division operated 555 stores in the plains and the lower west coast states. The Paint Stores Segment opened 59 net new stores in 1998 and relocated 40. All property within the Other Segment is owned by the Company except for four land leases and two warehouse leases. For additional information regarding real property leases, see Note 8 of the Notes to Consolidated Financial Statements on page 29 of the 1998 Annual Report, which is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS For information regarding environmental matters and other legal proceedings, see pages 13 and 14 of the 1998 Annual Report under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 1, 4 and 9 of the Notes to Consolidated Financial Statements on pages 24, 26 and 29, respectively, of the 1998 Annual Report, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1998. EXECUTIVE OFFICERS OF THE REGISTRANT The following is information regarding the Executive Officers at February 28, 1999.
Name Age Present Position ---- --- ---------------- John G. Breen 64 Chairman and Chief Executive Officer, Director Thomas A. Commes 56 President and Chief Operating Officer, Director Larry J. Pitorak 52 Senior Vice President -- Finance, Treasurer and Chief Financial Officer John L. Ault 53 Vice President -- Corporate Controller Christopher M. Connor 42 President, Paint Stores Group Michael A. Galasso 51 President & General Manager, Automotive Division Thomas E. Hopkins 41 Vice President -- Human Resources Conway G. Ivy 57 Vice President -- Corporate Planning and Development Joseph M. Scaminace 45 President, Consumer Group Louis E. Stellato 48 Vice President, General Counsel and Secretary
Mr. Breen has served as Chairman and Chief Executive Officer since June 1986 and has served as a Director since April 1979. Mr. Commes has served as President and Chief Operating Officer since June 1986 and has served as a Director since April 1980. Mr. Commes intends to retire on March 16, 1999. 8 10 Mr. Pitorak has served as Senior Vice President -- Finance, Treasurer and Chief Financial Officer since April 1992. Mr. Ault has served as Vice President -- Corporate Controller since January 1987. Mr. Connor has served as President, Paint Stores Group since August 1997 prior to which he served as President & General Manager, Diversified Brands Division commencing April 1994. From September 1992 to April 1994, Mr. Connor served as Senior Vice President -- Marketing, Paint Stores Group. Mr. Galasso has served as President & General Manager, Automotive Division since June 1997 prior to which he served as Vice President & Director -- Operations, Automotive Division commencing May 1992. Mr. Hopkins has served as Vice President -- Human Resources since August 1997 prior to which he served as Vice President -- Human Resources, Paint Stores Group commencing February 1996. From November 1989 to February 1996, Mr. Hopkins served as Director of Human Resources, Paint Stores Group. Mr. Ivy has served as Vice President -- Corporate Planning and Development since April 1992. Mr. Scaminace has served as President, Consumer Group since July 1998 prior to which he served as President & General Manager, Coatings Division commencing June 1997. From April 1994 to June 1997, Mr. Scaminace served as President & General Manager, Automotive Division prior to which he served as President & General Manager, Diversified Brands Division commencing September 1985. Mr. Stellato has served as Vice President, General Counsel and Secretary since July 1991. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Sherwin-Williams common stock is listed on the New York Stock Exchange and traded under the symbol SHW. The number of shareholders of record at January 31, 1999 was 11,858. Information regarding market prices and dividend information with respect to Sherwin-Williams common stock is set forth on page 35 of the 1998 Annual Report under the caption entitled "Quarterly Stock Prices and Dividends," which is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA (Millions of Dollars, except per share data)
1998 1997 1996(a) 1995(b) 1994(b) - --------------------------------------------------------------------------------- OPERATIONS Net Sales $4,934 $4,881 $ 4,133 $ 3,274 $ 3,100 Net Income 273 261 229 201 187 FINANCIAL POSITION Total assets $4,065 $4,036 $ 2,995 $ 2,141 $ 1,962 Long-term debt 730 844 143 24 20 PER COMMON SHARE DATA Net income -- basic(c) $ 1.58 $ 1.51 $ 1.34 $ 1.18 $ 1.08 Net income -- diluted(c) 1.57 1.50 1.33 1.17 1.07 Cash dividends .45 .40 .35 .32 .28
(a) Pre-acquisition amounts for Thompson Minwax Holding Corp., acquired on January 7, 1997 using the purchase method of accounting, are not included. Therefore, amounts are not comparable to 1997 and beyond. See Note 2 of the Notes to Consolidated Financial Statements on page 25 of the 1998 Annual Report, which is incorporated herein by reference, for further acquisition and merger information. (b) Pre-acquisition amounts for Thompson Minwax Holding Corp. and Pratt & Lambert United, Inc., acquired on January 7, 1997 and January 10, 1996, respectively, using the purchase method of accounting, are not included. Therefore, amounts are not comparable to 1996 and beyond. See Note 2 of the Notes to 9 11 Consolidated Financial Statements on page 25 of the 1998 Annual Report, which is incorporated herein by reference, for further acquisition and merger information. (c) Amounts reflect adoption of Statement of Financial Accounting Standards No. 128, "Earnings Per Share", effective December 31, 1997. All amounts shown for periods prior to adoption have been restated. See Note 1 and Note 15 of the Notes to Consolidated Financial Statements on pages 24 and 33, respectively, of the 1998 Annual Report, which are incorporated herein by reference, for further per share information. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth on pages 12 through 17 of the 1998 Annual Report under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information required by this item is set forth on page 14 of the 1998 Annual Report under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 1 of the Notes to Consolidated Financial Statements on page 24 of the 1998 Annual Report, which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is set forth on pages 20 through 33 of the 1998 Annual Report under the captions entitled "Statements of Consolidated Income," "Consolidated Balance Sheets," "Statements of Consolidated Cash Flows," "Statements of Consolidated Shareholders' Equity," and "Notes to Consolidated Financial Statements," which is incorporated herein by reference. Unaudited quarterly data is set forth in Note 14 of the Notes to Consolidated Financial Statements on pages 32 and 33 of the 1998 Annual Report, which is incorporated herein by reference. The Report of Independent Auditors is set forth on page 12 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding Directors is set forth under the caption entitled "Election of Directors" in the Proxy Statement, which is incorporated herein by reference. The information regarding Executive Officers is set forth under the caption entitled "Executive Officers of the Registrant" in Part I of this report, which is incorporated herein by reference. The information regarding certain significant employees is set forth under the captions entitled "Corporate Officers" and "Operating Managers" in the Proxy Statement, which is incorporated herein by reference. The information regarding compliance with Section 16 of the Securities Exchange Act of 1934 is set forth under the caption entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement, which is incorporated herein by reference. 10 12 ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth on pages 7 through 17 of the Proxy Statement and under the captions entitled "Compensation of Directors" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under the captions entitled "Security Ownership of Management" and "Security Ownership of Certain Beneficial Owners" in the Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements The following consolidated financial statements of the Company included in the 1998 Annual Report are incorporated by reference in Item 8. The Report of Independent Auditors is set forth on page 12 of this report. (i) Statements of Consolidated Income for the years ended December 31, 1998, 1997 and 1996 (page 20 of the 1998 Annual Report) (ii) Consolidated Balance Sheets at December 31, 1998, 1997 and 1996 (page 21 of the 1998 Annual Report) (iii) Statements of Consolidated Cash Flows for the years ended December 31, 1998, 1997 and 1996 (page 22 of the 1998 Annual Report) (iv) Statements of Consolidated Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 (page 23 of the 1998 Annual Report) (v) Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1997 and 1996 (pages 24 through 33 of the 1998 Annual Report) (2) Financial Statement Schedule Schedule No. II -- Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1998, 1997 and 1996 is set forth on page 12 of this report. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (3) Exhibits See the Exhibit Index on page 15 of this report.
(b) Reports on Form 8-K -- The Company filed a Current Report on Form 8-K, dated November 6, 1998, reporting under Item 5 that T.A. Commes, President and Chief Operating Officer and a member of the Board of Directors of the Company, intends to retire in the spring of 1999. 11 13 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors The Sherwin-Williams Company Cleveland, Ohio We have audited the accompanying consolidated balance sheets of The Sherwin-Williams Company and subsidiaries as of December 31, 1998, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Sherwin-Williams Company and subsidiaries at December 31, 1998, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Ernst & Young LLP Cleveland, Ohio January 25, 1999 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (SCHEDULE II) Changes in the allowance for doubtful accounts are as follows:
1998 1997 1996 - -------------------------------------------------------------------------------------------- Beginning balance $ 26,891 $ 22,631 $ 15,154 Bad debt expense 15,176 15,741 19,095 Net uncollectible accounts written off (16,674) (11,481) (11,618) - -------------------------------------------------------------------------------------------- Ending balance $ 25,393 $ 26,891 $ 22,631 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Activity related to other asset reserves: 1998 1997 1996 - -------------------------------------------------------------------------------------------- Beginning balance $153,580 $111,921 $ 83,897 Charges to expense 52,103 49,499 28,838 Other additions (deductions) (2,077) (7,840) (814) - -------------------------------------------------------------------------------------------- Ending balance $203,606 $153,580 $111,921 - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
Charges to expense consist primarily of amortization of goodwill and intangibles. Other additions (deductions) consist primarily of actual costs incurred and balance sheet reclassifications and, in 1997, removal of fully-amortized items. 12 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of March, 1999. THE SHERWIN-WILLIAMS COMPANY By: /s/ L. E. STELLATO --------------------------------- L. E. Stellato, Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on March 10, 1999. * J. G. BREEN Chairman and Chief Executive Officer, - ----------------------------------------------------------- Director (Principal Executive Officer) J. G. Breen * T. A. COMMES President and Chief Operating Officer, - ----------------------------------------------------------- Director T. A. Commes * L. J. PITORAK Senior Vice President -- Finance, - ----------------------------------------------------------- Treasurer and Chief Financial Officer L. J. Pitorak (Principal Financial Officer) * J. L. AULT Vice President -- Corporate Controller - ----------------------------------------------------------- (Principal Accounting Officer) J. L. Ault * J. M. BIGGAR Director - ----------------------------------------------------------- J. M. Biggar * J. C. BOLAND Director - ----------------------------------------------------------- J. C. Boland * D. E. COLLINS Director - ----------------------------------------------------------- D. E. Collins * D. E. EVANS Director - ----------------------------------------------------------- D. E. Evans * R. W. MAHONEY Director - ----------------------------------------------------------- R. W. Mahoney * W. G. MITCHELL Director - ----------------------------------------------------------- W. G. Mitchell * A. M. MIXON, III Director - ----------------------------------------------------------- A. M. Mixon, III * C. E. MOLL Director - ----------------------------------------------------------- C. E. Moll
13 15 * H. O. PETRAUSKAS Director - ----------------------------------------------------------- H. O. Petrauskas * R. K. SMUCKER Director - ----------------------------------------------------------- R. K. Smucker
* The undersigned, by signing his name hereto, does sign this report on behalf of the designated Officers and Directors of The Sherwin-Williams Company pursuant to Powers of Attorney executed on behalf of each such Officer and Director. By: /s/ L. E. STELLATO March 10, 1999 - ----------------------------------------------------------- L. E. Stellato, Attorney-in-fact
14 16 EXHIBIT INDEX 3. (a) Amended Articles of Incorporation, as amended April 25, 1997, filed as Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997, and incorporated herein by reference. (b) Regulations of the Company, as amended, dated April 27, 1988, filed as Exhibit 4(b) to Post-Effective Amendment No. 1, dated April 29, 1988, to Form S-8 Registration Statement Number 2-91401, and incorporated herein by reference. 4. (a) Indenture between the Company and Chemical Bank, as Trustee, dated as of February 1, 1996, filed as Exhibit 4(a) to Form S-3 Registration Statement 333-01093, dated February 20, 1996, and incorporated herein by reference. (b) 364-Day Revolving Credit Agreement, dated January 3, 1997, between the Company, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank, as Competitive Advance Facility Agent, and the financial institutions which are signatories thereto, filed as Exhibit 99.2 to Form 8-K, dated January 7, 1997, and incorporated herein by reference. (c) Amendment No. 2 to 364-Day Revolving Credit Agreement, dated January 1, 1999, between the Company, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank, as Competitive Advance Facility Agent, and the financial institutions which are signatories thereto (filed herewith). (d) Five Year Revolving Credit Agreement, dated January 3, 1997, between the Company, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank, as Competitive Advance Facility Agent, and the financial institutions which are signatories thereto, filed as Exhibit 99.1 to Form 8-K, dated January 7, 1997, and incorporated herein by reference. (e) Amendment No. 2 to Five Year Revolving Credit Agreement, dated January 3, 1999, between the Company, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank, as Competitive Advance Facility Agent, and the financial institutions which are signatories thereto (filed herewith). (f) Indenture between Sherwin-Williams Development Corporation, as issuer, the Company, as guarantor, and Harris Trust and Savings Bank, as Trustee, dated June 15, 1986, filed as Exhibit 4(b) to Form S-3 Registration Statement Number 33-6626, dated June 20, 1986, and incorporated herein by reference. (g) Rights Agreement between the Company and The Bank of New York, as successor Rights Agent to KeyBank National Association, dated April 23, 1997, filed as Exhibit 1 to Form 8-A, dated April 24, 1997, and incorporated herein by reference. 10. *(a) Form of Director and Corporate Officer Indemnity Agreement filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference. *(b) Employment Agreements with J.G. Breen, T.A. Commes and C.G. Ivy filed as Exhibit 28(b) to Form S-3 Registration Statement Number 33-22705, dated June 24, 1988, and incorporated herein by reference. *(c) Amendments to Employment Agreements with J.G. Breen, T.A. Commes and C.G. Ivy filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference. *(d) Agreement (covenant not to compete), dated November 13, 1999, between the Company and T.A. Commes (filed herewith).
15 17 *(e) Forms of Severance Pay Agreements, filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference. *(f) Schedule of Certain Executive Officers who are Parties to the Severance Pay Agreements in the forms referred to in Exhibit 10(e) filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, and incorporated herein by reference. *(g) The Sherwin-Williams Company Deferred Compensation Savings Plan filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by reference. *(h) Amendment No. 1 to The Sherwin-Williams Company Deferred Compensation Savings Plan filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference. *(i) The Sherwin-Williams Company Key Management Deferred Compensation Plan (1994 Amendment and Restatement) filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference. *(j) Form of Executive Disability Income Plan filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by reference. *(k) Form of Executive Life Insurance Plan filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by reference. *(l) Form of The Sherwin-Williams Company Management Compensation Program filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference. *(m) The Sherwin-Williams Company 1994 Stock Plan, as amended and restated in its entirety, effective April 23, 1997, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997, and incorporated herein by reference. *(n) The Sherwin-Williams Company 1997 Stock Plan for Nonemployee Directors, dated April 23, 1997, filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997, and incorporated herein by reference. *(o) The Sherwin-Williams Company Director Deferred Fee Plan (1997 Amendment and Restatement), dated April 23, 1997, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference. *(p) Split-Dollar Agreement, dated March 25, 1996, among the Company, National City Bank and John G. and Mary Breen filed as Exhibit 10(q) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference. *(q) The Sherwin-Williams Company Estate Protection Plan Trust, dated November 15, 1996, between the Company and National City Bank filed as Exhibit 10(r) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference. 13. Portions of the 1998 Annual Report to Shareholders incorporated herein by reference (filed herewith). 21. Subsidiaries (filed herewith). 23. Consent of Ernst & Young LLP, Independent Auditors (filed herewith). 24. Powers of Attorney (filed herewith). 27. Financial Data Schedule. *Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
16 EX-4.C 2 EXHIBIT 4(C) 1 EXHIBIT 4(c) AMENDMENT NO. 2 TO 364-DAY REVOLVING CREDIT AGREEMENT This Amendment No. 2 to 364-Day Revolving Credit Agreement ("Amendment") is made and entered into as of this 1st day of January, 1999, by and among The Sherwin-Williams Company ("Company"), whose principal place of business is located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas Commerce Bank National Association ("TCB"), as Administrative Agent, The Chase Manhattan Bank ("Chase"), as the Competitive Advance Facility Agent, and the financial institutions listed on Schedule A hereto together with each of their successors and assigns (collectively referred to as the "Lenders" and individually a "Lender"). W I T N E S S E T H: -------------------- WHEREAS, the Company, TCB, Chase, the Lenders and/or certain other financial institutions entered into that certain 364-Day Revolving Credit Agreement, dated January 3, 1997 ("Agreement"), pursuant to which the Lenders and/or certain other financial institutions agreed, on the terms and subject to the conditions contained therein, to make available to the Company the principal amount of Two Hundred Ninety Million Dollars ($290,000,000) to be used by the Company as provided in the Agreement; and WHEREAS, the Agreement was amended ("Amended Agreement") on March 31, 1997; and WHEREAS, Company has been notified by the following financial institutions that were "Lenders" under the Amended Agreement that their Commitments shall terminate effective January 1, 1999: (i) The Fuji Bank Limited, (ii) The First National Bank of Boston and (iii) The Long-Term Credit Bank of Japan, Ltd.; and WHEREAS, the Company, TCB, Chase and the Lenders desire to amend the Amended Agreement to: (i) reduce the aggregate Commitments of the Lenders, and the aggregate principal amount of the Facility, to an amount not to exceed One Hundred Forty Seven Million Two Hundred Thousand and 00/100 Dollars ($147,200,000), (ii) increase or decrease, as the case may be, the Commitments of the Lenders as provided on attached Schedule A, (iii) accept the election of The Fuji Bank Limited, The First National Bank of Boston and The Long-Term Credit Bank of Japan, Ltd. to withdraw as Lenders from the Facility effective January 1, 1999, (iv) add Fifth Third Bank as a Lender, and (v) revise the list of Lenders. NOW, THEREFORE, in consideration of the mutual promises contained herein the parties agree as follows: 1. All capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings prescribed such terms in the Agreement. 2 2. The Commitments and Percentages set forth on Schedule A to the Amended Agreement shall be deleted and the Commitments and Percentages set forth on Schedule A hereto shall be substituted in lieu thereof. 3. Fifth Third Bank shall be added to the Facility as a Lender. 4. The aggregate amount of the Commitments, and the aggregate amount of the Facility, shall not exceed One Hundred Forty Seven Million Two Hundred Thousand and 00/100 Dollars ($147,200,000) unless otherwise agreed to by the parties. 5. The Company represents to each of TCB, Chase and the Lenders that there are no Loans outstanding under the Facility as of the date hereof. 6. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date indicated above. THE SHERWIN-WILLIAMS COMPANY By: /s/ ----------------------------- CYNTHIA D. BROGAN Title: VICE PRESIDENT AND ASSISTANT TREASURER The signature pages of each of TCB, Chase and the Lenders are attached hereto. 2 3 SCHEDULE A/364-DAY
AMOUNT OF PERCENTAGE OF TERMINATION INSTITUTION COMMITMENT COMMITMENT DATE - ----------- ---------- ------------- ----------- Chase Bank of Texas, N.A. $10,000,000.00 6.79% 12/31/99 First Union National Bank of North Carolina $10,000,000.00 6.79% 12/31/99 Bank of New York $10,000,000.00 6.79% 12/31/99 Bank of America $10,000,000.00 6.79% 12/31/99 Key Bank N.A. $10,000,000.00 6.79% 12/31/99 Bank One Corporation $10,000,000.00 6.79% 12/31/99 National City Bank $10,000,000.00 6.79% 12/31/99 Suntrust Bank, Atlanta $10,000,000.00 6.79% 12/31/99 ABN Amro Bank N.V. $10,000,000.00 6.79% 12/31/99 The Bank of Nova Scotia $ 7,600,000.00 5.16% 12/31/99 Royal Bank of Canada $ 7,600,000.00 5.16% 12/31/99 Wachovia Bank $ 7,600,000.00 5.16% 12/31/99 Wells Fargo Bank $ 7,600,000.00 5.16% 12/31/99 PNC Bank, N.A. $ 7,600,000.00 5.16% 12/31/99 Bank of Tokyo-Mitsubishi $ 4,800,000.00 3.26% 12/31/99 Banca Commerciale Italiana $ 4,800,000.00 3.26% 12/31/99 Fifth Third Bank $ 4,800,000.00 3.26% 12/31/99 Mellon Bank, N.A. $ 4,800,000.00 3.26% 12/31/99 Total $147,200,000.00 100%
3 4 The Chase Manhattan Bank, as the Competitive Advance Facility Agent By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Date: ---------------------------------------- The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Telephone: ----------------------------------- Facsimile: ----------------------------------- Date: ---------------------------------------- 4 5 Amount of Percentage of Commitment Commitments - ---------- ----------- $4,800,000 3.26% The Bank of Tokyo-Mitsubishi, Ltd. Chicago Branch By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Date: ---------------------------------------- The Bank of Tokyo-Mitsubishi, Ltd. Chicago Branch 227 W. Monroe St., Suite 2300 Chicago, IL 60606 Telephone: ----------------------------------- Facsimile: ----------------------------------- 5 6 Amount of Percentage of Commitment Commitments - ---------- ----------- $4,800,000 3.26% Banca Commerciale Italiana Chicago Branch By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Banca Commerciale Italiana Chicago Branch 150 N. Michigan Ave., Suite 1500 Chicago, IL 60601 Telephone: ----------------------------------- Facsimile: ----------------------------------- 6 7 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% Chase Bank of Texas, N.A. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Chase Bank of Texas, N.A. 707 Travis Street Houston, TX 77002 Telephone: ----------------------------------- Facsimile: ----------------------------------- 7 8 Amount of Percentage of Commitment Commitments - ---------- ----------- $4,800,000 3.26% Fifth Third Bank hereby agrees to each of the terms and conditions of that certain 364-Day Revolving Credit Agreement ("Agreement") dated as of January 3, 1997 as amended on March 31, 1997 and January 3, 1999, by and among The Sherwin-Williams Company ("Company"), whose principal place of business is located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank as the Competitive Advance Facility Agent, and the financial institutions listed on Schedule A to that certain amendment to the Agreement dated January 3, 1999, a copy of which has been delivered by the Company to Fifth Third Bank. Fifth Third Bank By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Telephone: ----------------------------------- Facsimile: ----------------------------------- 8 9 Amount of Percentage of Commitment Commitments - ---------- ----------- $7,600,000 5.16% PNC Bank N.A. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Telephone: ----------------------------------- Facsimile: ----------------------------------- 9 10 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% First Union National Bank of North Carolina By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- First Union National Bank of North Carolina 301 South College Street Charlotte, NC 28288 Telephone: ----------------------------------- Facsimile: ----------------------------------- 10 11 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% National City Bank By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- National City Bank 1900 E. Ninth Street Cleveland, OH 44114-3484 Telephone: ----------------------------------- Facsimile: ----------------------------------- 11 12 Amount of Percentage of Commitment Commitments - ---------- ----------- $7,600,000 5.16% Wachovia Bank of Georgia, N.A. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Wachovia Bank of Georgia, N.A. 191 Peachtree St., N.E. Atlanta, GA 30303 Telephone: ----------------------------------- Facsimile: ----------------------------------- 12 13 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% The First National Bank of Chicago By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Telephone: ----------------------------------- Facsimile: ----------------------------------- 13 14 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% The Bank of New York By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- The Bank of New York One Wall Street New York, NY 10286 Telephone: ----------------------------------- Facsimile: ----------------------------------- 14 15 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% SunTrust Bank, Atlanta By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- SunTrust Bank, Atlanta 25 Park Place Atlanta, GA 30303 Telephone: ----------------------------------- Facsimile: ----------------------------------- 15 16 Amount of Percentage of Commitment Commitments - ---------- ----------- $4,800,000 3.26% Mellon Bank, N.A. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258-0001 Telephone: ----------------------------------- Facsimile: ----------------------------------- 16 17 Amount of Percentage of Commitment Commitments - ---------- ----------- $7,600,000 5.16% The Bank of Nova Scotia By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- The Bank of Nova Scotia 600 Peachtree Street NE., Suite 2700 Atlanta, GA 30308 Telephone: ----------------------------------- Facsimile: ----------------------------------- 17 18 Amount of Percentage of Commitment Commitments - ---------- ----------- $7,600,000 5.16% Wells Fargo Bank, N.A. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Wells Fargo Bank, N.A. 707 Wilshire Blvd., 16th Floor Los Angeles, CA 90017 Telephone: ----------------------------------- Facsimile: ----------------------------------- 18 19 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% ABN AMRO Bank N.V. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- ABN Amro Bank N.V. One PPG Place, Suite 2950 Pittsburgh, PA 15222-5400 Telephone: ----------------------------------- Facsimile: ----------------------------------- 19 20 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% KeyBank National Association By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- KeyBank National Association 127 Public Square Mail Code: OH 01-27-0606 Cleveland, OH 44114-1306 Telephone: ----------------------------------- Facsimile: ----------------------------------- 20 21 Amount of Percentage of Commitment Commitments - ---------- ----------- $10,000,000 6.79% Nationsbank, N.A. By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Telephone: ----------------------------------- Facsimile: ----------------------------------- 21 22 Amount of Percentage of Commitment Commitments - ---------- ----------- $7,600,000 5.16% Royal Bank of Canada By: /s/ ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Royal Bank of Canada 1 Liberty Plaza, 5th Floor New York, NY 10006-1404 Telephone: ----------------------------------- Facsimile: ----------------------------------- 22 EX-4.E 3 EXHIBIT 4(E) 1 EXHIBIT 4(e) AMENDMENT NO. 2 TO FIVE YEAR REVOLVING CREDIT AGREEMENT This Amendment No. 2 to Five Year Revolving Credit Agreement ("Amendment") is made and entered into as of the 3rd day of January, 1999, by and among The Sherwin-Williams Company ("Company"), whose principal place of business is located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas Commerce Bank National Association ("TCB"), as Administrative Agent, The Chase Manhattan Bank ("Chase"), as the Competitive Advance Facility Agent, and the financial institutions listed on Schedule A hereto together with each of their successors and assigns (collectively referred to as the "Lenders" and individually a "Lender"). W I T N E S S E T H: WHEREAS, the Company, TCB, Chase, the Lenders and certain other financial institutions entered into that certain Five Year Revolving Credit Agreement, dated January 3, 1997 ("Agreement"), pursuant to which the Lenders and/or certain other financial institutions agreed, on the terms and subject to the conditions contained therein, to make available to the Company the principal amount of One Billion One Hundred Sixty Million Dollars ($1,160,000,000) to be used by the Company as provided in the Agreement; and WHEREAS, the Agreement was amended ("Amended Agreement") on March 31, 1997; and WHEREAS, Company has timely notified the following financial institutions that were "Lenders" under the Agreement that their Commitments have been terminated effective January 3, 1999: (i) The Fuji Bank Limited, (ii) The Long-Term Credit Bank of Japan, Ltd., (iii) the Bank of Montreal and (iv) CIBC, Inc. WHEREAS, the Company, TCB, Chase and the Lenders desire to amend the Amended Agreement to: (i) reduce the aggregate Commitments of the Participants, and the aggregate principal amount of the Facility, to an amount not to exceed Six Hundred Twelve Million Eight Hundred Thousand and 00/100 Dollars ($612,800,000), (ii) increase or decrease, as the case may be, the Commitments of certain of the Lenders as provided on attached Schedule A, (iii) reflect that the Commitments of The Fuji Bank Limited, The Long-Term Credit Bank of Japan, Ltd., the Bank of Montreal and CIBC, Inc. shall terminate effective January 3, 1999, (iv) add Fifth Third Bank as a Lender, and (v) revise the list of Lenders. 2 NOW, THEREFORE, in consideration of the mutual promises contained herein the parties agree as follows: 1. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings prescribed such terms in the Agreement. 2. The Commitments and Percentages set forth on Schedule A attached to the Amended Agreement shall be deleted and the Commitments and Percentages set forth on Schedule A attached hereto shall be substituted in lieu thereof. 3. Effective January 3, 1999, Fifth Third Bank shall be added to the Facility as a Lender. 4. The aggregate amount of the Commitments, and the aggregate amount of the Facility, shall not exceed Six Hundred Twelve Million Eight Hundred Thousand and 00/100 Dollars ($612,800,000) unless otherwise agreed to by the parties. 5. The Company represents to each of TCB, Chase and the Lenders that there are no Loans outstanding under the Facility as of the date hereof. 6. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date indicated above. THE SHERWIN-WILLIAMS COMPANY By: /s/ -------------------------------- CYNTHIA D. BROGAN Title: VICE PRESIDENT AND ASSISTANT TREASURER 2 3 SCHEDULE A/5-YEAR
AMOUNT OF PERCENTAGE OF TERMINATION INSTITUTION COMMITMENT COMMITMENT DATE - ----------- ------------ ------------- ---------- Chase Bank of Texas, N.A. $40,000,000.00 6.53% 01/03/2004 First Union National Bank of North Carolina $40,000,000.00 6.53% 01/03/2004 Bank of New York $40,000,000.00 6.53% 01/03/2004 Bank of America $40,000,000.00 6.53% 01/03/2004 Key Bank N.A. $40,000,000.00 6.53% 01/03/2004 Bank One Corporation $40,000,000.00 6.53% 01/03/2004 National City Bank $40,000,000.00 6.53% 01/03/2004 Suntrust Bank, Atlanta $40,000,000.00 6.53% 01/03/2004 ABN Amro Bank N.V. $40,000,000.00 6.53% 01/03/2004 Royal Bank of Canada $30,400,000.00 4.96% 01/03/2004 Wachovia Bank $30,400,000.00 4.96% 01/03/2004 Wells Fargo Bank $30,400,000.00 4.96% 01/03/2004 Banca Commerciale Italiana $19,200,000.00 3.13% 01/03/2004 Fifth Third Bank $19,200,000.00 3.13% 01/03/2004 Mellon Bank, N.A. $19,200,000.00 3.13% 01/03/2004 The Bank of Nova Scotia $30,400,000.00 4.96% 01/03/2003 PNC Bank, N.A. $30,400,000.00 4.96% 01/03/2003 The First National Bank of Boston $24,000,000.00 3.92% 01/03/2003 Bank of Tokyo-Mitsubishi $19,200,000.00 3.13% 01/03/2003 Total $612,800,000.00 100%
3 4 The Chase Manhattan Bank, as the Competitive Advance Facility Agent By: /s/ --------------------------------------------------- Name: --------------------------------------------------- Title: --------------------------------------------------- Date: --------------------------------------------------- The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Telephone: --------------------------------------------------- Facsimile: --------------------------------------------------- Date: --------------------------------------------------- 4 5 Amount of Percentage of Commitment Commitments - ---------- ----------- $19,200,000 3.13% The Bank of Tokyo-Mitsubishi, Ltd. Chicago Branch By: /s/ ------------------------------------------------------- Name: ---------------------------------------------------- Title: ---------------------------------------------------- Date: ---------------------------------------------------- The Bank of Tokyo-Mitsubishi, Ltd. Chicago Branch 227 W. Monroe St., Suite 2300 Chicago, IL 60606 Telephone: ------------------------------------------------ Facsimile: ------------------------------------------------ 5 6 Amount of Percentage of Commitment Commitments - ---------- ----------- $19,200,000 3.13% Banca Commerciale Italiana Chicago Branch By: /s/ ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- By: /s/ ------------------------------------------------------ Name: ---------------------------------------------------- Title: --------------------------------------------------- Banca Commerciale Italiana Chicago Branch 150 N. Michigan Ave., Suite 1500 Chicago, IL 60601 Telephone: ----------------------------------------------- Facsimile: ----------------------------------------------- 6 7 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% Chase Bank of Texas, N.A. By: /s/ ------------------------------------------------------- Name: ----------------------------------------------------- Title: ---------------------------------------------------- 7 8 Amount of Percentage of Commitment Commitments - ---------- ----------- $19,200,000 3.13% Fifth Third Bank hereby agrees to each of the terms and conditions of that certain Five Year Revolving Credit Agreement ("Agreement") dated as of January 3, 1997 as amended on March 31, 1997 and January 3, 1999, by and among The Sherwin-Williams Company ("Company"), whose principal place of business is located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas Commerce Bank National Association, as Administrative Agent, The Chase Manhattan Bank as the Competitive Advance Facility Agent, and the financial institutions listed on Schedule A to that certain amendment to the Agreement dated January 3, 1999, a copy of which has been delivered by the Company to Fifth Third Bank. Fifth Third Bank By: /s/ ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Telephone: --------------------------------- Facsimile: --------------------------------- 8 9 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,400,000 4.96% PNC Bank, National Association By: /s/ -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- PNC Bank, National Association 249 Fifth Ave., 2nd Floor Pittsburgh, PA 15222 Telephone: ------------------------------------- Facsimile: ------------------------------------- 9 10 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% First Union National Bank of North Carolina By: /s/ ------------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- First Union National Bank of North Carolina 301 South College Street Charlotte, NC 28288 Telephone: ------------------------------------ Facsimile: ------------------------------------ 10 11 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% National City Bank By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- National City Bank 1900 E. Ninth Street Cleveland, OH 44114-3484 Telephone: ------------------------------- Facsimile: ------------------------------- 11 12 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,400,000 4.96% Wachovia Bank of Georgia, N.A. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ---------------------------------- Wachovia Bank of Georgia, N.A. 191 Peachtree St., N.E. Atlanta, GA 30303 Telephone: ------------------------------- Facsimile: ------------------------------- 12 13 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% The First National Bank of Chicago By: /s/ ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- Telephone: ------------------------------- Facsimile: ------------------------------- 13 14 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% The Bank of New York By: /s/ ------------------------------------- Name: ------------------------------------ Title: ----------------------------------- The Bank of New York One Wall Street New York, NY 10286 Telephone: ------------------------------- Facsimile: ------------------------------- 14 15 Amount of Percentage of Commitment Commitments - ---------- ----------- $24,000,000 3.92% Bank Boston, N.A. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ---------------------------------- Bank Boston, N.A. 100 Federal Street, 01-09-05 Boston, MA 02110 Telephone: ------------------------------- Facsimile: ------------------------------- 15 16 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.539% SunTrust Bank, Atlanta By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- SunTrust Bank, Atlanta 25 Park Place Atlanta, GA 30303 Telephone: ------------------------------- Facsimile: ------------------------------- 16 17 Amount of Percentage of Commitment Commitments - ---------- ----------- $19,200,000 3.13% Mellon Bank, N.A. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258-0001 Telephone: -------------------------------- Facsimile: -------------------------------- 17 18 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,400,000 4.96% The Bank of Nova Scotia By: /s/ -------------------------------------- Name: ------------------------------------ Title: ---------------------------------- The Bank of Nova Scotia 600 Peachtree Street NE., Suite 2700 Atlanta, GA 30308 Telephone: ------------------------------- Facsimile: ------------------------------- 18 19 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,400,000 4.96% Wells Fargo Bank, N.A. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Wells Fargo Bank, N.A. 707 Wilshire Blvd., 16th Floor Los Angeles, CA 90017 Telephone: ------------------------------ Facsimile: ------------------------------ 19 20 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% ABN AMRO Bank N.V. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ABN Amro Bank N.V. One PPG Place, Suite 2950 Pittsburgh, PA 15222-5400 Telephone: ------------------------------- Facsimile: ------------------------------ 20 21 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% KeyBank National Association By: /s/ -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- KeyBank National Association 127 Public Square Mail Code: OH 01-27-0606 Cleveland, OH 44114-1306 Telephone: ------------------------------- Facsimile: ------------------------------ 21 22 Amount of Percentage of Commitment Commitments - ---------- ----------- $40,000,000 6.53% Nationsbank, N.A. By: /s/ -------------------------------------- Name: ------------------------------------ Title: ---------------------------------- Telephone: ------------------------------- Facsimile: ------------------------------- 22 23 Amount of Percentage of Commitment Commitments - ---------- ----------- $30,400,000 4.96% Royal Bank of Canada By: /s/ -------------------------------------- Name: ------------------------------------ Title: ---------------------------------- Royal Bank of Canada 1 Liberty Plaza, 5th Floor New York, NY 10006-1404 Telephone: ------------------------------- Facsimile: ------------------------------- 23 EX-10.D 4 EXHIBIT 10(D) 1 EXHIBIT 10(d) AGREEMENT This Agreement is entered into this 13th day of November, 1999, by and between The Sherwin-Williams Company ("Sherwin-Williams") and Thomas A. Commes (hereinafter "Commes"). RECITALS: --------- A. Commes has decided to retire from his position with Sherwin-Williams; and B. Sherwin-Williams desires to enter into a covenant not to compete with Commes and to obtain certain releases from Commes. NOW THEREFORE, in consideration of the promises set forth herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. CONSIDERATION. In consideration of Commes entering into the covenant not to compete set forth in Section 2 hereof and the releases set forth in Section 3 hereof, Sherwin-Williams agrees as follows: a. As soon as practicable following your retirement, Sherwin-Williams shall pay Commes, in a lump sum, the amount of Thirty Four Thousand and 00/100 Dollars ($34,000.00); and b. With respect to the Restricted Stock granted under the 1994 Stock Plan pursuant to the Amended and Restated Restricted Stock Grant with a Date of Vesting of January 28, 2001, the number of shares of Restricted Stock granted thereunder shall be prorated to fifty percent (50%) of such number, that being the portion of the Restriction Period completed as of the date of Commes' retirement. Thereafter, all of Commes' rights to the prorated Restricted Stock shall be determined in accordance with such Amended and Restated Restricted Stock Grant. 2. COVENANT NOT TO COMPETE. For a period of two (2) years commencing on March 17, 1999 and ending on March 16, 2001, Commes agrees that he will not, directly or indirectly, as principal, agent, employer, employee, shareholder (except ownership of less than one percent (1%) of the number of shares outstanding of any securities which are listed for trading on any securities exchange), partner, director or otherwise engage or be interested in any business engaged in the manufacture or sale of paint, coatings or other products that are intended to be marketed in competition with paint, coatings or other products manufactured and sold by Sherwin-Williams, its affiliates or subsidiaries 1 2 anywhere in the world. If Commes violates the provisions of this Section 2, Commes agrees that: (1) Sherwin-Williams shall be entitled to obtain a court order preventing Commes from continuing such violations; (2) all obligations of Sherwin-Williams pursuant to Section 1(b) above shall terminate and Sherwin-Williams shall have no obligation to deliver any shares pursuant to the Restricted Stock Grant described therein; and (3) Sherwin-Williams shall have the right to pursue all other legal and equitable remedies which may be available. The parties hereto further acknowledge and agree that the scope of this Section 2 is fair and reasonable in light of Commes' position with Sherwin-Williams and the nature and scope of Sherwin-Williams' international business operations; provided however, it is the mutual intention of the parties hereto, that if a court should determine that the scope of this Section 2 is too broad in any manner, then the court should narrow its effectiveness to the broadest extent permitted by law and enforce the provisions of this Section 2 as narrowed. 3. RELEASE. SHERWIN-WILLIAMS, ON BEHALF OF ITSELF, ITS CURRENT OR FORMER SUBSIDIARIES, THEIR DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES, AGENTS, REPRESENTATIVES, INSURERS, SUCCESSORS AND ASSIGNS AND COMMES, ON BEHALF OF HIMSELF, HIS HEIRS, AGENTS, SUCCESSORS, ASSIGNS AND REPRESENTATIVES, HEREBY MUTUALLY WAIVE, RELEASE AND DISCHARGE EACH OTHER (AND THE PERSONS AND ORGANIZATIONS PREVIOUSLY IDENTIFIED IN THIS SENTENCE), WITH RESPECT TO ANY AND ALL CAUSES OF ACTION, CLAIMS, LIABILITIES AND DEMANDS OF ANY NATURE, WHETHER KNOWN OR UNKNOWN, RESULTING FROM OR BASED UPON, DIRECTLY OR INDIRECTLY, HIS EMPLOYMENT RELATIONSHIP OR CONDUCT WITH THE ABOVE DESCRIBED PARTIES AND WITH RESPECT TO COMMES INCLUDING, BUT NOT LIMITED TO, ANY ACTIONS, CLAIMS, LIABILITIES OR DEMANDS CONCERNING, BASED UPON OR ARISING OUT OF THE EMPLOYMENT AGREEMENT BETWEEN THE PARTIES DATED MARCH 16, 1979, AS AMENDED BY THE AMENDMENT TO EMPLOYMENT AGREEMENT DATED FEBRUARY 22, 1996, ANY ALLEGED WRONGFUL TERMINATION, BREACH OF EMPLOYMENT CONTRACT, BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING, DEFAMATION, WORKERS' COMPENSATION, INTENTIONAL OR NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS, OR DISCRIMINATION BASED ON RACE, NATIONAL ORIGIN, SEX, RELIGION, AGE OR HANDICAP, (INCLUDING, WITHOUT LIMITATION, CLAIMS OR RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 AS AMENDED OR SIMILAR STATE LAWS). THIS RELEASE DOES NOT COVER ANY RIGHTS EMPLOYEE MAY HAVE TO RECEIVE BENEFITS PURSUANT TO THE TERMS AND CONDITIONS OF THE SHERWIN-WILLIAMS COMPANY SALARIED EMPLOYEES' REVISED PENSION INVESTMENT PLAN, THE SHERWIN- WILLIAMS COMPANY EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN, THE SHERWIN-WILLIAMS COMPANY DEFERRED COMPENSATION SAVINGS PLAN, THE SHERWIN-WILLIAMS COMPANY KEY MANAGEMENT DEFERRED COMPENSATION PLAN AND THE SHERWIN-WILLIAMS COMPANY PENSION INVESTMENT EQUALIZATION PLAN. 2 3 4. ENTIRETY. This Agreement embodies the entire understanding and agreement between the parties relative to the subject matter hereof. Conditions and representations, oral or written, expressed or implied, with reference to the subject matter hereof, that are inconsistent with this Agreement shall be of no force or effect unless agreed to in writing and signed by both parties hereto. 5. RIGHT TO REVIEW. Commes represents and agrees that: a. He fully understands his right to have this Agreement reviewed by and to discuss all aspects of this Agreement with his private attorney and that to the extent, if any, he desires, he has availed himself of this right; b. He has been given a period of not less than twenty-one (21) days to review and consider this Agreement and he may use as much of this twenty-one (21) day period as he desires prior to signing it; c. He is voluntarily entering into this Agreement; and d. He may revoke this agreement during the seven (7) day period immediately following the date he executes it. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. THE SHERWIN-WILLIAMS COMPANY By: /s/ T.E. Hopkins By: /s/ Thomas A Commes Title: Vice President - Human Resources Printed Name: Thomas A. Commes 3 EX-13 5 EXHIBIT 13 1 EXHIBIT 13 PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS (PAGES 10 - 17, 20 - 33, 35) NOTES TO FINANCIAL TABLE Operating profit is total revenue, including realized profit on intersegment transfers less operating costs and expenses. Corporate expenses include interest which is unrelated to real estate leasing activities, certain provisions for disposition and termination of operations and environmental remediation which are not directly associated with any operating segment, and other adjustments. Identifiable assets are those directly identified with each segment's operations. Corporate assets consist primarily of cash, investments, deferred pension assets and headquarters property, plant and equipment. The operating margin for each segment is based upon total external sales and intersegment transfers. Intersegment transfers are accounted for at values comparable to normal unaffiliated customer sales. Net external sales and operating profits of consolidated foreign subsidiaries were $521 million and $47 million, and $523 million and $55 million, respectively, for 1998 and 1997. Domestic operations account for the remaining net sales and operating profits. Long-lived assets consist of net property, plant and equipment, goodwill, and intangibles. Long-lived assets of consolidated foreign subsidiaries totaled $312 million and $320 million, respectively, at December 31, 1998 and 1997. The consolidated total of long-lived assets for the Company was $2,134 million and $2,164 million at December 31, 1998 and 1997, respectively. Corporate expenses do not include any significant foreign operations. No single geographic area outside the United States was significant relative to consolidated net external sales or operating profits. Consolidated foreign operations were not material for any year prior to 1997. Export sales and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all years presented. 10 2 ================================================================================ (Millions of Dollars)
1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- NET EXTERNAL SALES Paint Stores $ 2,786 $ 2,605 $ 2,410 $ 2,131 $ 1,986 Coatings 2,135 2,264 1,709 1,129 1,100 Other 13 12 14 14 14 ------- ------- ------- ------- ------- Segment totals $ 4,934 $ 4,881 $ 4,133 $ 3,274 $ 3,100 OPERATING PROFITS Paint Stores $ 249 $ 225 $ 206 $ 158 $ 141 Coatings 322 345 260 202 201 Other 14 12 13 13 8 Corporate expenses-net (145) (155) (104) (55) (51) ------- ------- ------- ------- ------- Income before income taxes $ 440 $ 427 $ 375 $ 318 $ 299 IDENTIFIABLE ASSETS Paint Stores $ 725 $ 689 $ 634 $ 550 $ 517 Coatings 2,699 2,711 1,764 846 757 Other 76 73 45 45 44 Corporate 565 563 552 700 644 ------- ------- ------- ------- ------- Consolidated totals $ 4,065 $ 4,036 $ 2,995 $ 2,141 $ 1,962 CAPITAL EXPENDITURES Paint Stores $ 40 $ 27 $ 40 $ 29 $ 26 Coatings 84 114 68 68 46 Other 4 9 3 4 1 Corporate 18 14 12 7 6 ------- ------- ------- ------- ------- Consolidated totals $ 146 $ 164 $ 123 $ 108 $ 79 DEPRECIATION Paint Stores $ 29 $ 28 $ 26 $ 24 $ 23 Coatings 58 52 40 31 30 Other 4 3 3 2 3 Corporate 7 7 7 6 5 ------- ------- ------- ------- ------- Consolidated totals $ 98 $ 90 $ 76 $ 63 $ 61 OPERATING MARGINS Paint Stores 8.9% $ 8.7% 8.6% 7.4% 7.1% Coatings 9.9% 10.5% 9.9% 10.5% 11.1% Other 38.9% 37.1% 38.4% 39.1% 26.2% ------- ------- ------- ------- ------- Segment totals 9.6% 9.9% 9.4% 9.1% 9.1% INTERSEGMENT TRANSFERS Coatings $ 1,125 $ 1,015 $ 924 $ 801 $ 720 Other 24 21 21 19 18 ------- ------- ------- ------- ------- Segment totals $ 1,149 $ 1,036 $ 945 $ 820 $ 738
11 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION - 1998 Net operating cash flow generated by the Company during 1998 was $478.5 million. This cash flow provided the funds to invest in property, plant and equipment, reduce total debt, acquire treasury stock, and increase the annual dividend. The Company's current ratio increased to 1.39 at December 31, 1998 from 1.37 at the end of 1997. The Company's Consolidated Balance Sheets and Statements of Consolidated Cash Flows, on pages 21 and 22 of this report, provide more detailed information on the Company's financial position and cash flows. There were no short-term borrowings outstanding at December 31, 1998. Short-term borrowings outstanding at December 31, 1997 of $106.9 million, primarily related to the Company's commercial paper program, were paid in 1998. The commercial paper program had unused borrowing availability of $1.0 billion at December 31, 1998. Borrowings under the commercial paper program are fully backed by and limited to the borrowing availability under the Company's revolving credit agreements which aggregated $760.0 million effective January 1, 1999. The increase in the current portion of long-term debt was due primarily to the reclassification of debt securities of $50.0 million, due October 15, 2027, which allow the holders to exercise a put option beginning on October 15, 1999. Inventories decreased $39.1 million due to planned reductions associated with the Coatings Segment's sales decline in 1998. Increases in other components of net working capital, which occurred during 1998, were primarily due to timing. Deferred pension assets of $304.0 million at December 31, 1998 represent the excess of the fair market value of the assets in the Company's defined benefit pension plans over the actuarially-determined projected benefit obligations. The 1998 increase in deferred pension assets of $27.9 million represents primarily the recognition of the current year net pension credit, described in Note 6 on pages 27 and 28 of this report, and the recording of a settlement of a portion of the accumulated benefit obligations in two of its defined benefit pension plans. The assumed discount rate used to compute the actuarial present value of benefit obligations was lowered to 6.75 percent at December 31, 1998 due to decreased rates of high-quality, long-term investments, thereby increasing the benefit obligations and decreasing the unrecognized net gain of the plans. The increase in the actual return on plan assets during 1998 over the assumed return of 8.5 percent was primarily the result of favorable returns on equity investments. A portion of the increase was deferred which caused an offsetting increase to the cumulative unrecognized net gain of the plans. The net effect of these deferred items, combined with an increased asset base, will increase the pension credit in 1999. Goodwill, which represents the excess of cost over the fair value of net assets acquired in purchase business combinations, decreased $38.0 million, and intangible assets, which represent items such as trademarks and patents, decreased $18.5 million from 1997. These decreases related primarily to amortization expense of $50.1 million. Balance sheet reclassifications and other adjustments to the value of assets acquired during 1997 of $6.4 million further reduced goodwill and intangible assets. The increase in other assets of $16.6 million was primarily due to the capitalization of costs incurred related to designing, developing, obtaining, and implementing internal use software in accordance with Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use". Increases in other investments, partially offset by the sale of the Company's joint venture interest in American Standox, Inc., accounted for the remaining change in other assets. Net property, plant and equipment increased $26.6 million to $718.9 million at December 31, 1998 due to capital expenditures of $146.1 million, offset by depreciation expense of $97.8 million and provisions for disposition or retirement of certain assets. Capital expenditures in 1998 represented primarily the costs of installing or upgrading customer service hardware in the paint stores, upgrading and installing other computer hardware, and the construction, capacity expansion or upgrade of manufacturing and distribution centers. The increase in capital expenditures during 1998 in the Paint Stores Segment was primarily attributable to increased new store openings and the purchase and installation of state-of-the-art satellite and communication systems used to improve customer service and merchandise management. The Coatings Segment's decrease in capital expenditures during 1998 primarily related to the volume of construction costs incurred in 1997 for three powder coatings facilities, a manufacturing facility in Brazil, and a distribution center in Nevada. These facilities were completed and placed in service in 1998. Capital expenditures in the Other Segment decreased due to reduced property refurbishing spending. In 1999, the Company expects that its most significant capital expenditures will relate to construction or acquisition of a new research and development technical lab facility, various capacity and productivity improvement projects at manufacturing facilities, and new or upgraded information systems equipment. The Company does not anticipate the need for any specific long-term external financing to support these capital programs. Long-term debt decreased $113.6 million during the year to $730.3 million at December 31, 1998, resulting primarily from principal payments and current maturities. The Company filed a new universal shelf registration statement to issue debt securities, common stock, and warrants of up to $1.5 billion. No securities have been issued pursuant to this shelf registration. The Company expects to remain in a borrowing position throughout 1999. 12 4 The increase in the Company's long-term postretirement benefit liability occurred due to the excess of the net postretirement benefit expense over the costs for benefit claims incurred. The current portion of the accrued postretirement liability, amounting to $10.0 million at December 31, 1998, is included in other accruals. The assumed discount rate used to calculate the actuarial present value of the postretirement benefit obligations was lowered to 6.75 percent at December 31, 1998 due to decreased rates of high-quality, long-term investments, thereby increasing the cumulative unrecognized net loss for the postretirement plans. The effect of this change on the net postretirement benefit expense for 1999 will be minimal as the cumulative unrecognized net loss is below the threshold for required amortization. See Note 6, on pages 27 and 28 of this report, for further information on the Company's postretirement benefit obligations. Other long-term liabilities include accruals for environmental-related liabilities and other non-current items. The increase of $18.3 million in other long-term liabilities during 1998 primarily related to additional tax liabilities partially offset by decreased accruals for environmental-related liabilities. See Note 9, on page 29 of this report, for additional information concerning the Company's other long-term liabilities. The Company and certain other companies are defendants in a number of lawsuits arising from the manufacture and sale of lead pigments and lead paints. It is possible that additional lawsuits may be filed against the Company in the future. The various existing lawsuits seek damages for personal injuries and property damages, along with costs involving the abatement of lead related paint from buildings and medical monitoring costs. The Company believes that such lawsuits are without merit and is vigorously defending them. The Company does not believe that any potential liability ultimately determined to be attributable to the Company arising out of such lawsuits will have a material adverse effect on the Company's business or financial condition. The operations of the Company, like those of other companies in its industry, are subject to various federal, state and local environmental laws and regulations. These laws and regulations not only govern its current operations and products, but also impose liability on the Company for past operations which were conducted utilizing practices and procedures considered acceptable under the laws and regulations existing at that time. The Company expects environmental laws and regulations to impose increasingly stringent requirements upon the Company and its industry in the future. The Company believes it conducts its operations in compliance with applicable environmental laws and regulations and has implemented various programs to protect the environment and promote continued compliance. Capital expenditures and other expenses related to ongoing environmental compliance measures are included in the normal operating expenses of conducting business. The Company's capital expenditures and other expenses related to ongoing environmental compliance measures were not material to the Company's financial condition or net income during 1998, and the Company does not expect such capital expenditures and other expenses to be material to the Company's financial condition or net income in the future. The Company is involved with environmental compliance and remediation activities at some of its current and former sites (including former sites which were previously owned and/or operated by businesses acquired by the Company). The Company, together with other parties, has also been designated a potentially responsible party under federal and state environmental protection laws for the remediation of hazardous waste at a number of third-party sites, primarily Superfund sites. The Company may be similarly designated with respect to additional third-party sites in the future. The Company accrues for certain environmental remediation-related activities relating to its past operations and third-party sites, including Superfund sites, for which commitments or clean-up plans have been developed or for which costs or minimum costs can be reasonably estimated. The Company continuously assesses its potential liability for 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 which require changing the estimated costs or the procedure utilized in estimating such costs. Actual costs incurred may vary from these 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 attributable 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. Pursuant to a Consent Decree entered into with the United States of America, on behalf of the Environmental Protection Agency, filed in the United States District Court for the Northern District of Illinois, the Company has agreed, in part, to (i) conduct an investigation at its southeast Chicago, Illinois facility to determine the nature, extent and potential impact, if any, of environmental contamination at the facility and (ii) implement remedial action measures, if required, to address any environmental contamination identified pursuant to the investigation. The Company is currently conducting its investigation of the site. The Company is a defendant in a lawsuit brought by PMC, Inc. regarding the Company's former Chemical Division's manufacturing facility which was sold to PMC, Inc. in 1985 and is located adjacent to the Company's southeast Chicago, Illinois facility. PMC, Inc. is seeking an undisclosed amount for environmental remediation costs and other damages based upon contractual and tort theories and under various environmental laws. The United States District Court for the Northern District of Illinois conducted a trial on the environmental law and state law theories and generally held, in part, 13 5 that the Company was responsible for all future remediation costs at the facility pursuant to Section 113(f) of CERCLA. The above determination was affirmed on appeal in July 1998 by the United States Court of Appeals for the Seventh Circuit. The Company continues to vigorously defend the remaining contractual and tort theories in this lawsuit. With respect to the Company's southeast Chicago, Illinois facility and its former Chemical Division's manufacturing facility adjacent thereto, the Company has evaluated its potential liability and, based upon its preliminary evaluation, has accrued an appropriate amount. However, due to the uncertainties surrounding these facilities, the Company's ultimate liability may result in costs that are significantly higher than currently accrued. In such event, the recording of the liability may result in a significant impact on net income for the annual or interim period during which the additional costs are accrued. The Company 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, cash flow or, except as set forth in the preceding paragraph, net income. See Note 9, on page 29 of this report, for discussion of the environmental-related accruals included in the Company's consolidated balance sheets. Shareholders' equity increased more than $123.8 million during 1998 due primarily to the excess of current year net income over dividends paid to shareholders, partially offset by the repurchase of 3,000,000 shares of treasury stock at a cost of $85.0 million and other comprehensive losses related to foreign currency translations. The Company acquires its own stock for general corporate purposes and, depending on its future cash position and market conditions, it may acquire additional shares in the future. In April 1997, the Board of Directors authorized the Company to purchase, in the aggregate, 10,000,000 shares of common stock. At December 31, 1998, authorization remained to acquire 7,000,000 shares. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which requires reporting comprehensive income on both an accumulated and period basis. Prior to the adoption of SFAS No. 130, a company was required to report only the accumulated balances of comprehensive income. Comprehensive income is comprised of net income and the components of other comprehensive income, which include foreign currency translation, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. See Note 16, on page 33 of this report. The decrease of $11.4 million in accumulated other comprehensive income occurred due primarily to the strengthening of the U.S. dollar over the functional currencies of the Company's international subsidiaries. The Company's Mexican subsidiaries were the only foreign subsidiaries accounted for under highly inflationary accounting rules during 1998. As of January 1, 1999, the Mexican economy is not considered highly inflationary. As of that date, the Mexican Peso became the functional currency for all Mexican operations and any resulting translation adjustments will be included in Other Comprehensive Income. In January 1999, the Brazilian Central Bank eliminated its governmental policy of supporting and tightly managing the trading band of its currency, the Real, and allowed it to trade freely in the open market against other currencies. Shortly after this announcement the Real weakened significantly in trading with the U.S. dollar and other foreign currencies. As a result of the floating Real exchange rate, the Company may experience increased losses in Other Comprehensive Income from foreign currency translation of its Brazilian operations. Any such increases in losses from translation will be in addition to the weakening of any other foreign currencies in countries where we have operations. The ultimate amount of any increased losses from the floating of the Real will not be known until certain policy decisions made by the Brazilian government help stabilize the currency and improve the Brazilian economy. However, the Company does not expect the devaluation of the Brazilian Real, combined with other currency translation losses, to have a material adverse effect on operating results, financial condition or cash flows for the Company as a whole. The Company is exposed to market risk through various financial instruments, including fixed rate debt instruments and interest rate swaps. The Company does not believe that any potential loss related to these financial instruments will have a material adverse effect on the Company's financial condition or results of operations. Beginning in the fourth quarter of 1997, the Company commenced multi-year information technology projects to enhance portions of the Company's computer systems. The projects will provide efficiencies and further integration of operations within the Coatings Segment. The Company expects that full implementation of the projects will involve significant capital expenditures over the next several years, although capital expenditures in 1998 related to such projects were not material. Costs and expenses related to these projects, including amortization costs, charged to operations in 1998 were not material. Costs and expenses to be charged to operations in the future are not expected to have a material adverse effect on the Company's annual results of operations. Expenditures associated with these projects slightly impacted cash flows from operations in 1998 and will have slightly more of an impact on cash flows from operations in 1999. However, anticipated benefits beginning in 2000 are expected to reduce the impact on cash flows. 14 6 At a meeting held February 3, 1999, the Board of Directors increased the quarterly dividend to $.12 per share. This represents the twentieth consecutive annual increase and a compounded annual rate of increase of 26.0 percent since the dividend was reinstated in the fourth quarter of 1979. The 1998 annual dividend of $.45 per share marked the nineteenth consecutive year that the dividend approximated our payout ratio target of 30.0 percent of the prior year's earnings. YEAR 2000 READINESS The Company is engaged in a company-wide project to prepare its business for the change in date from the year 1999 to 2000. The Company has assembled a Year 2000 project team consisting of Company employees and third party consultants. The goal of the Year 2000 project is to assure that there are no major interruptions in the Company's business operations relating to the transition to the year 2000. The scope of the Company's Year 2000 project includes (i) identifying and taking appropriate corrective action to remedy the Company's software, hardware and embedded technology, (ii) working with certain key financial institutions, customers, suppliers and service providers, with which the Company does business electronically, to help protect such business from being adversely affected by the Year 2000, and (iii) contacting key vendors and service providers and requesting assurances that such third parties will be Year 2000 compliant. The status of the Year 2000 project is reported regularly to senior management and the Board of Directors. The Year 2000 project team has implemented a compliance process to address Year 2000 issues in the Company's software and hardware systems and embedded technology consisting of the following nine steps: (1) inventory, (2) risk assessment, (3) prioritization, (4) impact analysis, (5) remediation, (6) testing, (7) certification, (8) deployment, and (9) approval. The Company's mission critical systems have been the project team's top priority. The Company's mission critical systems include systems, which are the most essential to the Company to continue its operations without interruption. The Company believes it has completed its compliance process beyond the impact analysis phase for approximately 84 percent of its mission critical software and hardware systems, with approximately 62 percent of its mission critical software and hardware systems having been remediated and 22 percent currently being remediated. With regard to embedded technology, the Company has completed the remediation and testing phases for 39 percent of its facilities. The Company's target for completing its compliance process for all of its mission critical systems is mid-1999. The Company's target for completing its compliance process for its non-mission critical systems is the end of 1999. The Company is in contact with certain key financial institutions, customers, suppliers and service providers, with which the Company does business electronically, to address potential Year 2000 issues. The Company is directly working with certain key third parties to remediate and test affected systems where practicable. The Company sent surveys to key vendors and service providers requesting information regarding the status of their Year 2000 readiness. The Company is also in the process of reviewing the public Year 2000 disclosures of key customers. Based upon this information, the Company is in the process of identifying potential critical Year 2000 issues involving key third parties, if any, and either resolving those issues or developing contingency plans to the extent practicable. All costs and expenses incurred to address the Year 2000 issue are charged against income on a current basis. The total cost of the project is expected to be approximately $35 million, of which about $15 million has been spent since the beginning of the project through December 31, 1998. These costs include costs of internal employees and third-party consultants involved in the project and the costs of software and hardware. The Company does not expect these costs and expenses to have a material adverse effect on the Company's financial condition. While the Company continues to focus on solutions for Year 2000 issues, and expects to complete its Year 2000 project in a timely manner, the Company is in the process of identifying potential major business interruptions that could reasonably likely result from Year 2000 issues and will develop contingency plans designed to address such potential interruptions. The Company may also develop contingency plans designed to generally help protect the Company from unanticipated Year 2000 business interruptions. Contingency plans are anticipated to include, for example, the identification of alternate suppliers or service providers, increases in safety levels of raw material and finished goods inventories, and the development of alternate procedures. The Company's contingency plans will be developed and modified over time as it receives better information regarding the Year 2000 status of its systems and embedded technology and third party readiness. The most reasonably likely worst case scenario which could result from the failure of the Company or its customers, vendors or other key third parties to adequately address Year 2000 issues would include a temporary interruption or curtailment in the Company's manufacturing or distribution operations at one or more of its facilities. Such failures could also cause a delay or curtailment in the processing of orders and invoices and the collection of revenues, as well as the inability to maintain accurate accounting records, and lead to increased costs and loss of sales. If these failures would occur, depending upon their duration and severity, they could have a material adverse effect on the Company's business, results of operations and financial condition. Management's estimates regarding expected completion dates and costs involved in the Company's Year 2000 project are based upon various assumptions regarding future events, including the availability of resources, the success of third parties in addressing their Year 2000 issues, and other factors. While management believes the Company is addressing the Year 2000 issue, there is no guarantee that these estimated completion dates and costs will be achieved. In the event that the estimated completion dates and costs differ materially from the actual completion dates and costs, such could have a materially adverse effect on the Company's financial condition and results of 15 7 operations. In addition, the Company cannot reasonably estimate the impact of Year 2000 on the Company if key third parties, including financial institutions, suppliers, customers, service providers, public utilities and governments, are unsuccessful in completing their Year 2000 efforts. RESULTS OF OPERATIONS - 1998 VS 1997 Consolidated net sales increased 1.1 percent over 1997 to $4.93 billion in 1998, due to increased Paint Stores and Other Segment sales, partially offset by decreased Coatings Segment sales. The Paint Stores Segment's sales during 1998 increased 6.9 percent due primarily to increased paint gallons sold to both retail and wholesale customers, combined with sales gains in each of the remaining major product lines (wallcoverings, floorcoverings, spray equipment and associated products). Comparable-store sales were up 4.9% in 1998. The Company plans to increase the number of paint store openings in 1999 and expects sales growth in the Paint Stores Segment to continue. External sales in the Coatings Segment decreased 5.7 percent during 1998 due primarily to weak do-it-yourself coatings sales, poor market conditions in South America, and the continuing effects of the 1997 loss of certain coatings, aerosol and detergent business. The Company expects that sales from new product introductions and expansion of its presence at several retailers will result in sales growth in 1999. Reduced gallons sold to national accounts and home center customers, due to the weak do-it-yourself sales, accounted for a significant portion of the sales decline in this Segment. Reduced sales to some customers in the cleaning solutions businesses affected Coatings Segment sales of related products. External sales in the Coatings Segment's consolidated foreign subsidiaries decreased slightly during 1998 and represented 10.6 percent of the Company's consolidated net sales. Revenue generated by real estate operations in the Other Segment was higher than last year as vacated space was leased to new tenants. Consolidated gross profit as a percent of sales increased to 43.2 percent from 43.0 percent in 1997. The Paint Stores Segment's 1998 gross profit margin was slightly higher than last year due primarily to a favorable product mix. Gross profit margin in the Coatings Segment was slightly higher than last year due to selective selling price increases and the favorable effects of replacing lower margin business with more profitable sales. Provision for plant closings included in cost of goods sold and lower fixed and overhead cost absorption resulting from decreased sales volume partially offset the gross profit margin gains. Consolidated selling, general and administrative expenses as a percent of sales increased to 32.4 percent from 32.2 percent in 1997 primarily as a result of increased expenses related to Year 2000 compliance efforts. The Paint Stores Segment's SG&A expenses as a percent of sales improved slightly over last year due to effective cost containment. A slightly favorable SG&A ratio in the Coatings Segment for 1998 compared to 1997 was primarily a result of reduced promotional expenses. Consolidated operating profits increased 3.0 percent in 1998. Operating profits of the Paint Stores Segment increased 10.4 percent, due primarily to increased sales volume and gross profit, partially offset by higher selling, general and administrative expenses. The Coatings Segment's operating profits were 6.7 percent lower than last year due primarily to decreased sales volume and gross profit, partially offset by lower selling, general and administrative expenses. Operating profits of the Coatings Segment's consolidated foreign subsidiaries declined approximately $8.0 million in 1998 and represented 10.7 percent of the Company's consolidated operating profits. There are certain risks in transacting business internationally, such as changes in applicable laws and regulatory requirements, political instability, general economic and labor conditions, fluctuations in currency exchange rates and expatriation restrictions, which could adversely affect the financial condition or results of operation of the Company's consolidated foreign subsidiaries. The operating profits of the Other Segment increased in 1998 due primarily to the leasing of office space which was vacant in 1997. Corporate expenses decreased in 1998 due primarily to decreased interest expense and net losses relating to translation of certain foreign investments which are not directly associated with any individual operating segment. Refer to pages 5 through 11 of this report for additional reportable segment information. Interest expense decreased in 1998 due primarily to lower average outstanding debt balances. As a result, interest coverage increased to 7.1 times from 6.3 times in 1997. Fixed charge coverage, which is calculated using interest and rent expense, increased to 3.3 times from 3.2 times in 1997. Net interest and investment income decreased in 1998 due primarily to lower average cash and short-term investment balances and lower average yields. See Note 4, on page 26 of this report, for further detail on other costs and expenses. As shown in Note 13, on page 32 of this report, the effective income tax rate in 1998 decreased to 38%, from 39% in 1997, due to the effects of changes in tax credits from investment vehicles and other, net items. Net income increased 4.7 percent in 1998 to $272.9 million from $260.6 million in 1997. Net income per common share-diluted, calculated in accordance with SFAS No. 128, increased 4.7 percent to $1.57 from $1.50. See Note 15, on page 33 of this report for detailed computations. Although the costs and expenses of the Company's Year 2000 project and the expenses associated with the information technology project will impact operating profits and net income in 1999, the Company doesn't expect that it will have a material adverse effect on operating results, financial condition or cash flows for the Company as a whole. 16 8 RESULTS OF OPERATIONS - 1997 VS 1996 Consolidated net sales increased 18.1 percent over 1996 to $4.88 billion in 1997. Excluding incremental sales from Thompson Minwax Holding Corp. and other smaller domestic and foreign acquisitions (collectively, the 1997 Acquisitions) which occurred at various times since December 31, 1996, net sales for 1997 increased 3.7 percent. The Paint Stores Segment's sales during 1997 increased 8.1 percent, or 6.6 percent excluding the 1997 Acquisitions, due primarily to increased paint gallons sold to wholesale customers combined with wholesale volume increases in the remaining major product lines. Although volume sales to retail customers were soft in the second half of the year, overall retail sales increased in 1997 compared to 1996, thereby contributing to the sales improvement in the Paint Stores Segment. External sales in the Coatings Segment increased 32.5 percent during 1997 due primarily to incremental sales from the 1997 Acquisitions. Excluding the 1997 Acquisitions, sales declined 0.5 percent. Sales were affected by the loss of certain business due to the Company's unwillingness to match or exceed the low prices offered by our competition. Reduced gallons sold to national accounts and home center customers, which resulted from poor out-the-door sales and the loss of certain product lines at one of its customers, accounted for a slight sales decline in this Segment's consumer products after excluding the 1997 Acquisitions. Coatings Segment's automotive product sales were higher than 1996, on both an as-reported basis and excluding the 1997 Acquisitions, due primarily to sales gains in its automotive branches and at original equipment manufacturers combined with foreign sales gains resulting from increased market penetration in those areas. Coatings Segment's product sales gains in the industrial and applicator product lines were offset by reduced sales to some customers in the retail national (formerly hardware) and cleaning solutions businesses, leading to slightly lower sales excluding the 1997 Acquisitions as compared to last year. External sales in the Coatings Segment's consolidated foreign subsidiaries increased significantly during 1997 and represented 11.3 percent of the Company's consolidated net sales due primarily to the Company's acquisition activity. Revenue generated by real estate operations in the Other Segment was lower than 1996 due to the loss of a large tenant in one of its office buildings at the end of 1996. Consolidated gross profit as a percent of sales increased to 43.0 percent from 41.8 percent in 1996 due in part to the effects of the 1997 Acquisitions, although improved gross profit margins were also obtained excluding the 1997 Acquisitions. The Paint Stores Segment's 1997 gross margin excluding the 1997 Acquisitions was higher than 1996 due primarily to sales gains in its higher-margin paint and paint-related product lines. Margins in the Coatings Segment were higher than 1996 due to above-average margins realized from some of the 1997 Acquisitions' businesses combined with a favorable sales mix and favorable factory operations. Consolidated selling, general and administrative expenses as a percent of sales increased to 32.2 percent from 31.7 percent in 1996. Excluding the 1997 Acquisitions, SG&A expenses as a percent of sales were even with last year. The Paint Stores Segment's SG&A expenses as a percent of sales were favorable to 1996 on both an as-reported basis and excluding the 1997 Acquisitions due to cost containment combined with the sales gains achieved. Increased merchandising and administrative costs related to new products, new customers and improved service levels led to an unfavorable SG&A ratio in the Coatings Segment for 1997 compared to 1996. Consolidated operating profits increased 21.6 percent in 1997, or 7.2 percent excluding the 1997 Acquisitions. Operating profits of the Paint Stores Segment increased 9.3 percent, or 8.9 percent excluding the 1997 Acquisitions, due primarily to increased paint volume combined with containment of selling, general and administrative expenses. The Coatings Segment's operating profits excluding the 1997 Acquisitions were 6.6 percent higher than last year due primarily to the realization of manufacturing efficiencies in certain business units. Operating profits of the Coatings Segment's consolidated foreign subsidiaries represented 12.6 percent of the Company's consolidated operating profits due primarily to profits from the Company's acquisitions. The operating profits of the Other Segment decreased in 1997 due primarily to vacant lease space during part of the year related to the loss of a large tenant in one of its office buildings. Corporate expenses increased in 1997 due primarily to increased interest expense and net losses relating to translation of certain foreign investments which are not directly associated with or allocable to any individual operating segment. Interest expense increased significantly in 1997 due to the increases in long-term debt related to the financing of the 1997 Acquisitions. As a result, interest coverage decreased to 6.3 times from 16.3 times in 1996. Our fixed charge coverage, which is calculated using interest and rent expense, declined to 3.2 times from 3.9 times in 1996. Net interest and investment income increased in 1997 due primarily to higher average cash and short-term investment balances and higher average yields. See Note 4, on page 26 of this report, for further detail on other costs and expenses. The effective income tax rate in 1997 remained unchanged from the 1996 rate. Net income increased 13.7 percent in 1997 to $260.6 million from $229.2 million in 1996. Excluding the 1997 Acquisitions, net income increased 14.9 percent. Net income per common share-diluted, calculated in accordance with SFAS No. 128 adopted during the fourth quarter ended December 31, 1997, increased 12.8 percent to $1.50 from $1.33 (as restated to conform to SFAS No. 128). See Note 1, on page 24 of this report, for additional discussion on the Company's adoption of SFAS No. 128 and Note 15, on page 33 of this report, for detailed computations. 17 9 STATEMENTS OF CONSOLIDATED INCOME ================================================================================ (Thousands of Dollars Except Per Share Data)
Year ended December 31, ----------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Net sales $ 4,934,430 $ 4,881,103 $ 4,132,879 Costs and expenses: Cost of goods sold 2,804,459 2,784,392 2,405,178 Selling, general and administrative expenses 1,598,333 1,573,510 1,309,086 Interest expense 71,971 80,837 24,537 Interest and net investment income (6,482) (8,278) (6,819) Other 26,046 23,365 25,520 ----------- ----------- ----------- 4,494,327 4,453,826 3,757,502 ----------- ----------- ----------- Income before income taxes 440,103 427,277 375,377 Income taxes 167,239 166,663 146,220 ----------- ----------- ----------- Net income $ 272,864 $ 260,614 $ 229,157 =========== =========== =========== Net income per common share: Basic $ 1.58 $ 1.51 $ 1.34 =========== =========== =========== Diluted $ 1.57 $ 1.50 $ 1.33 =========== =========== ===========
See notes to consolidated financial statements. 20 10 CONSOLIDATED BALANCE SHEETS ================================================================================ (Thousands of Dollars)
December 31, ----------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 19,133 $ 3,530 $ 1,880 Accounts receivable, less allowance 604,516 546,314 452,421 Inventories: Finished goods 568,328 587,680 529,148 Work in process and raw materials 114,195 133,988 113,539 ----------- ----------- ----------- 682,523 721,668 642,687 Deferred income taxes 117,720 124,669 105,065 Other current assets 123,398 136,072 214,134 ----------- ----------- ----------- Total current assets 1,547,290 1,532,253 1,416,187 Goodwill 1,123,128 1,161,129 546,461 Intangible assets 291,715 310,221 104,206 Deferred pension assets 304,006 276,086 254,376 Other assets 80,466 63,854 123,969 Property, plant and equipment: Land 67,567 64,367 53,705 Buildings 422,902 383,485 312,954 Machinery and equipment 906,501 841,343 716,015 Construction in progress 43,274 68,649 51,258 ----------- ----------- ----------- 1,440,244 1,357,844 1,133,932 Less allowances for depreciation 721,387 665,586 584,541 ----------- ----------- ----------- 718,857 692,258 549,391 ----------- ----------- ----------- Total Assets $ 4,065,462 $ 4,035,801 $ 2,994,590 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 106,913 $ 168,001 Accounts payable $ 408,144 424,184 385,928 Compensation and taxes withheld 125,698 118,709 103,353 Current portion of long-term debt 118,178 53,926 2,133 Other accruals 383,149 367,392 325,635 Accrued taxes 76,804 44,539 65,957 ----------- ----------- ----------- Total current liabilities 1,111,973 1,115,663 1,051,007 Long-term debt 730,283 843,919 142,679 Postretirement benefits other than pensions 204,763 199,839 184,551 Other long-term liabilities 302,503 284,200 215,121 Shareholders' equity: Common stock - $1.00 par value: 171,033,231, 172,907,418 and 171,831,178 shares outstanding at December 31, 1998, 1997 and 1996, respectively 205,701 204,538 101,650 Other capital 143,686 119,695 203,223 Retained earnings 1,797,945 1,602,882 1,411,295 Treasury stock, at cost (386,465) (301,418) (295,954) Cumulative other comprehensive loss (44,927) (33,517) (18,982) ----------- ----------- ----------- Total shareholders' equity 1,715,940 1,592,180 1,401,232 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $ 4,065,462 $ 4,035,801 $ 2,994,590 =========== =========== ===========
See notes to consolidated financial statements. 21 11 STATEMENTS OF CONSOLIDATED CASH FLOWS ================================================================================ (Thousands of Dollars)
Year Ended December 31, ----------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- OPERATIONS Net income $ 272,864 $ 260,614 $ 229,157 Adjustments to reconcile net income to net operating cash: Depreciation 97,821 90,202 76,176 Deferred income tax expense 30,557 59,247 (13,798) Provisions for disposition of operations 23,557 4,152 17,366 Provisions for environmental-related matters 4,295 7,607 15,494 Amortization of intangible assets 50,067 49,044 27,447 Defined benefit pension plans net credit (30,851) (20,173) (15,298) Net increase in postretirement liability 5,424 5,452 3,258 Other 14,753 15,133 8,408 Change in current items-net: Increase in accounts receivable (58,202) (22,190) (20,338) Decrease (increase) in inventories 39,145 (30,940) (85,911) (Decrease) increase in accounts payable (16,040) 6,841 60,410 Increase (decrease) in accrued taxes 32,778 (24,671) 33,147 Other current items 33,211 4,398 11,869 Proceeds of insurance settlement 53,900 Increase in long-term accrued taxes 8,211 12,174 4,735 Costs incurred for environmental-related matters (14,275) (18,052) (9,400) Costs incurred for disposition of operations (14,571) (17,585) (6,993) Other (245) 4,377 3,586 ----------- ----------- ----------- Net operating cash 478,499 439,530 339,315 ----------- ----------- ----------- INVESTING Capital expenditures (146,129) (163,955) (122,720) Decrease in short-term investments 20,000 Acquisitions of assets (884,525) (670,755) (Increase) decrease in other investments (19,281) (5,633) 37,829 Other (3,264) (6,375) 9,148 ----------- ----------- ----------- Net investing cash (168,674) (1,060,488) (726,498) ----------- ----------- ----------- FINANCING Net (decrease) increase in short-term borrowings (106,913) (61,692) 134,654 Increase in long-term debt 4,559 750,653 101,792 Payments of long-term debt (54,673) (2,194) (72,426) Payments of cash dividends (77,801) (69,027) (60,029) Proceeds from stock options exercised 16,818 14,760 12,800 Treasury stock acquired (85,047) (8,437) (3,149) Other financing of acquisitions 4,542 22,000 Debt issue costs (6,050) Other 8,835 53 3,937 ----------- ----------- ----------- Net financing cash (294,222) 622,608 139,579 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 15,603 1,650 (247,604) Cash and cash equivalents at beginning of year 3,530 1,880 249,484 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 19,133 $ 3,530 $ 1,880 =========== =========== =========== Taxes paid on income $ 85,746 $ 115,801 $ 141,821 Interest paid on debt 71,970 59,572 22,950
See notes to consolidated financial statements. 22 12 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY ================================================================================ (Thousands of Dollars Except Per Share Data)
Cumulative Other Common Other Retained Treasury Comprehensive Stock Capital Earnings Stock Loss Total ---------- ---------- ------------ ---------- ---------- ------------ Balance at January 1, 1996 $ 101,110 $ 182,311 $ 1,242,167 $(292,805) $ (20,657) $ 1,212,126 Comprehensive income: Net income 229,157 229,157 Other comprehensive income 1,675 1,675 ------------ Comprehensive income 230,832 Stock issued 540 20,912 (3,149) 18,303 Cash dividends -- $.35 per share (60,029) (60,029) ---------- ---------- ------------ ---------- ---------- ------------ Balance at December 31, 1996 101,650 203,223 1,411,295 (295,954) (18,982) 1,401,232 Comprehensive income: Net income 260,614 260,614 Other comprehensive loss (14,535) (14,535) ------------ Comprehensive income 246,079 Two-for-one stock split 101,876 (101,876) Stock issued 1,012 21,321 (5,464) 16,869 Stock acquired for trust (2,973) (2,973) Cash dividends -- $.40 per share (69,027) (69,027) ---------- ---------- ------------ ---------- ---------- ------------ Balance at December 31, 1997 204,538 119,695 1,602,882 (301,418) (33,517) 1,592,180 Comprehensive income: Net income 272,864 272,864 Other comprehensive loss (11,410) (11,410) ------------ Comprehensive income 261,454 Stock issued 1,163 25,231 (85,047) (58,653) Stock acquired for trust (1,240) (1,240) Cash dividends -- $.45 per share (77,801) (77,801) ---------- ---------- ------------ ---------- ---------- ------------ Balance at December 31, 1998 $ 205,701 $ 143,686 $ 1,797,945 $(386,465) $ (44,927) $ 1,715,940 ========== ========== ============ ========== ========== ============
See notes to consolidated financial statements. 23 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ (Thousands of Dollars Unless Otherwise Indicated) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION. The consolidated financial statements include all controlled subsidiaries. Inter-company accounts and transactions have been eliminated. REPORTABLE SEGMENTS. Reportable segment information appears on pages 5 through 11 of this report. FOREIGN CURRENCY TRANSLATION. All consolidated non-highly inflationary foreign operations use the local currency of the country of operation as the functional currency and translate the local currency asset and liability accounts at year-end exchange rates while income and expense accounts are translated at average exchange rates. The resulting translation adjustments are included in "Cumulative other comprehensive income", a component of Shareholders' Equity. All consolidated highly inflationary foreign operations use the Company's currency as the functional currency. CASH FLOWS. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. NATURE OF OPERATIONS. The Company is engaged in the manufacture, distribution and sale of coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ENVIRONMENTAL MATTERS. Capital expenditures for ongoing environmental compliance measures are recorded in the consolidated balance sheets and related expenses are included in the normal operating expenses of conducting business. The Company is involved with environmental compliance and remediation activities at some of its current and former sites and at a number of third-party sites. The Company accrues for certain environmental remediation-related activities for which commitments or clean-up plans have been developed or for which costs can be reasonably estimated. All accrued amounts are recorded on an undiscounted basis. Accrued environmental remediation-related expenses include direct costs of remediation and indirect costs related to the remediation effort, such as compensation and benefits for employees directly involved in the remediation activities and fees paid to outside engineering, consulting and law firms. See Note 4 and Note 9 for discussions of the environmental remediation-related expense and accruals included in the financial statements. STOCK-BASED COMPENSATION. The Company uses the intrinsic value method of accounting for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25. See Note 12 for pro forma disclosure of net income and earnings per share under the fair value method of accounting for stock-based compensation as proscribed by SFAS No. 123, "Accounting for Stock-Based Compensation". PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated on the basis of cost. Depreciation is provided principally by the straight-line method. The major classes of assets and ranges of depreciation rates are as follows: Buildings 2% - 6-2/3% Machinery and equipment 4% - 20% Furniture and fixtures 5% - 20% Automobiles and trucks 10% - 33-1/3% INVESTMENT IN LIFE INSURANCE. The Company invests in broad-based corporate owned life insurance. The cash surrender values of the policies, net of policy loans, are included in Other Assets. The net expense associated with such investment is included in Other Costs and Expenses. Such expense is immaterial to income before income taxes. GOODWILL. Goodwill represents the cost in excess of fair value of net assets acquired in business combinations accounted for by the purchase method and is amortized on a straight-line basis over periods not exceeding 40 years. The Company evaluates the recoverability of goodwill at each balance sheet date and would record an impairment if necessary. Accumulated amortization of goodwill was $78,983, $48,596 and $18,186 at December 31, 1998, 1997 and 1996, respectively. INTANGIBLES. Accumulated amortization of intangible assets was $102,359, $85,242 and $74,450 at December 31, 1998, 1997 and 1996, respectively. These assets are amortized by the straight-line method over the expected period of benefit. The Company reviews such assets for impairment at each balance sheet date and revises the related estimated remaining lives if necessary. TECHNICAL EXPENDITURES. Total technical expenditures include research and development costs, quality control, product formulation expenditures and other similar items. Research and development costs included in technical expenditures were $20,430, $24,748 and $18,661 for 1998, 1997 and l996, respectively. ADVERTISING EXPENSES. The cost of advertising is expensed as incurred. The Company incurred $282,817, $295,942 and $212,448 in advertising costs during 1998, 1997 and 1996, respectively. EARNINGS PER SHARE. The Company adopted SFAS No. 128, "Earnings Per Share" during the quarter ended December 31, 1997. Accordingly, basic net income per share is computed based on the weighted-average number of common shares outstanding during the year, and diluted net income per share is computed based on the weighted-average number of common shares outstanding plus all potentially dilutive securities outstanding during the year. All per share amounts shown for periods prior to adoption have been restated to conform to the provisions of SFAS No. 128. See Note 15 for computation. 24 14 LETTERS OF CREDIT. The Company occasionally enters into standby letter of credit agreements to guarantee various operating activities. These agreements, which expire in 1999, provide credit availability to the various beneficiaries if certain contractual events occur. Amounts outstanding under these agreements totaled $15,042, $18,844 and $17,092 at December 31, 1998, 1997 and 1996, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate fair value. SHORT-TERM INVESTMENTS: The carrying amounts reported in the consolidated balance sheets for marketable debt and equity securities are based on quoted market prices and approximate fair value. INVESTMENTS IN SECURITIES: The Company maintains certain long-term investments, classified as available for sale securities, in a fund to provide for payment of health care benefits of certain qualified employees. The estimated fair values of these securities, included in other assets, of $25,523, $28,751 and $31,785 at December 31, 1998, 1997 and 1996, respectively, are based on quoted market prices. LONG-TERM DEBT (INCLUDING CURRENT PORTION): The fair values of the Company's publicly traded debentures, shown below, are based on quoted market prices. The fair values of the Company's non-traded debt, also shown below, are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
December 31, ----------------------------------------------------------------------------------------- 1998 1997 1996 ----------------------------- -------------------------- -------------------------- CARRYING FAIR Carrying Fair Carrying Fair AMOUNT VALUE Amount Value Amount Value ------------- ------------ ------------ ----------- ------------ ----------- Publicly traded debt $764,806 $825,989 $764,725 $826,400 $ 15,900 $ 18,670 Non-traded debt 83,559 80,929 133,012 122,354 130,460 110,295
INTEREST RATE SWAPS: The Company occasionally enters into interest rate swaps primarily to hedge against interest rate risks. These agreements generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. Counterparties to these agreements are major financial institutions. Management believes the risk of incurring losses related to credit risk is remote. The fair values for the Company's off-balance-sheet instruments, shown below, are based on pricing models or formulas using current assumptions for comparable instruments.
December 31, ----------------------------------------------------------- 1998 1997 1996 ------------- ------------- ------------ Carrying amount $ (808) Fair value $ 17 $ 443 770 Notional amount 50,000 100,000 109,669 Number of agreements outstanding 1 2 3
NON-TRADED INVESTMENTS: It was not practicable to estimate the fair value of the Company's investment in certain non-traded investments because of the lack of quoted market prices and the inability to estimate fair values without incurring excessive costs. The carrying amounts, included in other assets, of $20,034, $17,587 and $100,797 at December 31, 1998, 1997 and 1996, respectively, represent the Company's best estimate of current economic values of these investments. RECLASSIFICATION. Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform with the 1998 presentation. NOTE 2--ACQUISITION AND MERGER Effective January 7, 1997, the Company, through a wholly-owned subsidiary, acquired all shares outstanding of Thompson Minwax Holding Corp. (Thompson Minwax). The total amount of funds required to acquire the shares and pay off certain indebtedness of Thompson Minwax was approximately $830,000. The excess purchase price over the fair value of the net assets acquired is being amortized over 40 years using the straight-line method. For financial statement purposes, the acquisition was accounted for under the purchase method of accounting. Accordingly, the results of operations of Thompson Minwax since the date of acquisition are included in the Company's statements of consolidated income. Effective January 10, 1996, the Company, through a wholly-owned subsidiary, acquired all shares outstanding of Pratt & Lambert United, Inc. (Pratt & Lambert) for a total cash purchase price of approximately $400,000. The excess purchase price over the fair value of the net assets acquired is being amortized over 40 years using the straight-line method. For financial statement purposes, the acquisition was accounted for under the purchase method of accounting. Accordingly, the results of operations of Pratt & Lambert since the date of acquisition are included in the Company's statements of consolidated income. In addition, during the three-year period ended December 31, 1998, the Company purchased various domestic automotive and retail paint distributors, coatings manufacturers, and aerosol and liquid filling businesses. Various foreign architectural and automotive paint manufacturing and aerosol filling businesses located in South America were also acquired during the three-year period. 25 15 NOTE 3--INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined principally on the last-in, first-out (LIFO) method which provides a better matching of current costs and revenues. The following presents the effect on inventories, net income and net income per basic share had the Company used the first-in, first-out (FIFO) and average cost methods of inventory valuation adjusted for income taxes at the statutory rate and assuming no other adjustments. This information is presented to enable the reader to make comparisons with companies using the FIFO method of inventory valuation.
1998 1997 1996 -------------- --------------- --------------- Percentage of total inventories on LIFO 91% 93% 96% Excess of FIFO and average cost over LIFO $ 96,235 $104,637 $ 94,138 Increase (decrease) in net income due to LIFO 4,685 (3,604) 4,698 Increase (decrease) in net income per basic share due to LIFO .03 (.02) .03
NOTE 4 -- OTHER COSTS AND EXPENSES A summary of significant items included in Other Costs and Expenses is as follows:
1998 1997 1996 -------- -------- -------- Dividend and royalty income $ (3,069) $ (3,361) $ (5,127) Net expense of financing and investing activities 122 3,688 8,429 Provisions for environmental matters - net (see Note 9) 695 107 15,494 Provisions for disposition and termination of operations (see Note 5) 12,290 4,152 5,506 Foreign exchange losses 11,773 15,580 3,335 Miscellaneous 4,235 3,199 (2,117) -------- -------- -------- $ 26,046 $ 23,365 $ 25,520 ======== ======== ========
The net expense of financing and investing activities represents the net realized gains and losses from disposing of fixed assets, the net gain or loss associated with the investment of certain long-term asset funds, the net pre-tax expense associated with the Company's investment in broad-based corporate owned life insurance, and in 1998, the net gain related to the sale of the Company's joint venture interest in American Standox, Inc. The provisions for environmental matters reflect the increased estimated costs of environmental remediation at current, former and third-party sites which were partially offset by settlements with certain insurance carriers pertaining to environmental-related matters totaling $3,600, $7,500 and $56,000 during 1998, 1997 and 1996, respectively. The provisions for disposition and termination of operations reduce property, plant and equipment at closed facilities to its estimated net realizable value and adjust all previous provisions to current estimates as closure or disposition occurs. The increase in 1998 is primarily due to provisions recorded for closing four manufacturing facilities. NOTE 5--DISPOSITION AND TERMINATION OF OPERATIONS The Company is continually re-evaluating its operating facilities with regard to the long-term strategic goals established by management and the board of directors. Operating facilities which are not expected to sufficiently contribute to the Company's future plans are closed or sold. At the time of the decision to close or sell a facility, a provision is made and the expense included in Other Costs and Expenses to reduce property, plant and equipment to its estimated net realizable value. Similarly, provisions are made which reduce all other assets to their estimated net realizable values and provide for all qualified exit costs such as lease cancellation penalties, post-closure rent expenses, incremental post-closure expenses, and the estimated costs of employee termination benefits if management has approved a termination plan and communicated such plan to the affected employees. The expenses associated with the provisions for all other assets and for such exit costs and termination benefits are included in Cost of Goods Sold. Adjustments to all previous accruals, as closure or disposition occurs, are included in Other Costs and Expenses. The provisions made during 1998 provided for the reduction to net realizable value of certain assets and for the exit costs related to four redundant manufacturing facilities within the reorganized Consumer Group. There were no new provisions made in 1997. The provisions made during 1996 provided for the reduction to net realizable value of certain assets and exit costs related to one manufacturing facility and consolidations of certain redundant distribution and administrative facilities. A summary of the financial data related to the closing or sale of the facilities is as follows:
1998 1997 1996 -------- -------- ---------- Beginning accruals -- January 1 $ 47,111 $ 60,544 $ 27,545 Provisions included in cost of goods sold 11,267 11,860 Provisions and adjustments to prior accruals included in costs and expenses - other 12,290 4,152 5,506 -------- -------- ---------- Total charges 23,557 4,152 17,366 Accruals related to acquired sites 22,626 Actual expenditures (14,571) (17,585) (6,993) -------- -------- ---------- Ending accruals - December 31 $ 56,097 $ 47,111 $ 60,544 ======== ======== ======== Net after-tax charges to current operations $ 15,312 $ 2,699 $ 11,288 Net after-tax charges per basic share $ .09 $ .02 $ .07
26 16 NOTE 6 -- PENSION AND OTHER BENEFITS The Company provides pension benefits to substantially all employees through noncontributory defined benefit or defined contribution plans. In addition, certain health care and life insurance benefits are provided by company-sponsored plans for certain active and retired employees. Effective December 31, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". The disclosures required by SFAS No. 132 supersede previous disclosure requirements without affecting measurement or recognition criteria. Accordingly, all disclosures for prior periods shown below have been restated to conform to the disclosure requirements of SFAS No. 132.
Defined Benefit Pension Plans Other Postretirement Benefits ---------------------------------- ------------------------------------- 1998 1997 1996 1998 1997 1996 ---------- ---------- ---------- ----------- ----------- ----------- BENEFIT OBLIGATION: Balance at beginning of year $ 175,204 $ 158,876 $ 128,335 $ 206,007 $ 183,179 $ 171,910 Service cost 2,564 2,570 3,516 3,877 3,720 3,327 Interest cost 11,942 11,859 10,933 13,909 13,708 12,483 Actuarial (gain) loss 1,702 402 95 3,184 15,366 (2,235) Plan amendments 2,003 201 1,037 Acquisitions 19,644 26,149 5,701 Benefits paid (24,316) (18,348) (11,189) (9,350) (9,966) (8,007) ---------- ---------- ---------- ----------- ----------- ----------- Balance at end of year 169,099 175,204 158,876 217,627 206,007 183,179 PLAN ASSETS: Balance at beginning of year 446,271 391,865 323,216 Actual return on plan assets 71,188 60,143 49,923 Acquisitions 10,574 30,778 Other, net (759) 2,037 (863) Benefits paid (24,316) (18,348) (11,189) ---------- ---------- ---------- Balance at end of year 492,384 446,271 391,865 EXCESS (DEFICIENT) PLAN ASSETS 323,285 271,067 232,989 (217,627) (206,007) (183,179) Unrecognized net asset (2,792) (4,304) (6,943) Unrecognized actuarial (gain) loss (20,348) 3,195 27,472 20,171 16,784 11,288 Unrecognized prior service cost (credit) 2,330 808 858 (17,307) (20,116) (21,570) ---------- ---------- ---------- ----------- ----------- ----------- NET ASSET (LIABILITY) RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS $ 302,475 $ 270,766 $ 254,376 $ (214,763) $ (209,339) $ (193,461) ========== ========== ========== =========== =========== =========== NET ASSET (LIABILITY) RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: Prepaid benefit cost $ 304,006 $ 276,086 $ 254,376 Accrued benefit liability (1,136) $ (204,763) $ (199,839) $ (184,551) Amount included in current liabilities (1,531) (4,612) (10,000) (9,500) (8,910) Accumulated other comprehensive income, net of tax 428 ---------- ---------- ---------- ----------- ----------- ----------- $ 302,475 $ 270,766 $ 254,376 $ (214,763) $ (209,339) $ (193,461) ========== ========== ========== =========== =========== =========== WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31: Discount rate 6.75% 7.00% 7.25% 6.75% 7.00% 7.25% Expected long-term rate of return on assets 8.50% 8.50% 8.50% Rate of compensation increase 5.00% 5.00% 5.00% Health care cost trend rate 6.70% 7.20% 7.75% NET PERIODIC BENEFIT (CREDIT) COST: Service and interest cost $ 14,506 $ 14,429 $ 14,449 $ 17,786 $ 17,428 $ 15,810 Net amortization and deferral (2,524) (1,008) (145) (2,809) (2,689) (2,696) Expected return on assets (37,531) (33,594) (29,602) Settlement gain (5,302) ---------- ---------- ---------- ----------- ----------- ----------- Net periodic benefit (credit) cost $ (30,851) $ (20,173) $ (15,298) $ 14,977 $ 14,739 $ 13,114 ========== ========== ========== =========== =========== ===========
27 17 Plan assets include 1,938,800 shares of the Company's common stock at December 31, 1998. The ending market value and dividends received during the year for those shares was $56,952 and $872, respectively. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $15,612, $15,573 and $11,541, respectively, as of December 31, 1997. The Company's annual contribution for its defined contribution pension plans, which is based on a level percentage of compensation for covered employees, was $27,004 for 1998, $28,255 for 1997, and $24,730 for 1996. The health care plans are contributory and contain cost-sharing features such as deductibles and coinsurance. There were 15,894, 16,049, and 16,935 active employees entitled to receive benefits under these plans as of December 31, 1998, 1997 and 1996, respectively. The cost of these benefits for active employees is recognized as claims are incurred and amounted to $47,563, $47,484, and $44,221 for 1998, 1997, and 1996, respectively. The Company has a fund, to which it no longer intends to contribute, that provides for payment of health care benefits of certain qualified employees. Distributions from the fund amounted to $4,928 in 1998, $5,025 in 1997, and $4,618 in 1996. Employees of the Company who were hired prior to January 1, 1993 and who are not members of a collective bargaining unit, and certain groups of employees added through acquisitions, are eligible for certain health care and life insurance benefits upon retirement from active service, subject to the terms, conditions and limitations of the applicable plans. There were 4,800, 4,229, and 4,152 retired employees entitled to receive benefits as of December 31, 1998, 1997 and 1996, respectively. The plans are unfunded. The health care cost trend rate is assumed to decrease gradually to 5.5 percent for 2003 and thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 31, 1998:
ONE-PERCENTAGE-POINT ---------------------- INCREASE DECREASE -------- -------- Effect on total of service and interest cost components $ 1,300 $ 1,290 Effect on the postretirement benefit obligation $16,040 $14,870
NOTE 7--LONG-TERM DEBT
Amount Outstanding --------------------------------------------------- Due Date 1998 1997 1996 ------------------ --------------- ---------------- --------------- 6.85% Notes 2007 $ 199,742 $ 199,710 7.375% Debentures 2027 149,903 149,900 7.45% Debentures 2097 149,396 149,390 6.5% Notes 2002 99,966 99,955 6.25% Notes 2000 99,974 99,948 Floating Rate Notes 50,000 $ 100,000 5.5% Notes 2027 49,922 9.875% Debentures 2007 to 2016 15,900 15,900 15,900 6% to 9% Promissory Notes Through 2004 10,623 23,791 22,618 8% to 12% Promissory Notes partially secured by certain land and buildings and other Through 2005 3,884 4,495 3,242 4.75% Promissory Note 2000 800 800 800 Other Obligations 95 108 119 --------------- ---------------- --------------- $ 730,283 $843,919 $ 142,679 =============== ================ ===============
Maturities of long-term debt are as follows for the next five years: $118,178 in 1999; $105,958 in 2000; $4,141 in 2001; $102,960 in 2002; and $1,542 in 2003. Interest expense on long-term debt amounted to $59,137, $52,351 and $8,602 for 1998, 1997 and 1996, respectively. There were no interest charges capitalized during the periods presented. Effective January 3, 1997, the Company entered into new revolving credit agreements aggregating a maximum borrowing amount of $1,450,000. Amendments in 1997 and 1998 reduced the aggregate maximum borrowing amount under these agreements to $1,080,000 and $1,064,000, respectively. Effective January 1, 1999, the agreements were further amended to reflect the following: 1) a 364-day agreement aggregating $147,200; and 2) a five-year agreement aggregating $612,800, with $104,000 expiring January 3, 2003 and $508,800 expiring January 3, 2004. There were no outstanding borrowings under any revolving credit agreement for all periods presented. The aggregate principal amount of unsecured short-term notes that may be issued under the Company's commercial paper program was increased from $600,000 to $1,450,000 in January 1997 and subsequently decreased to $1,000,000 in May 1997. The Company uses the revolving credit agreements to satisfy this program's dollar for dollar liquidity requirement. At December 31, 1997 and 1996, outstanding borrowings under this program totaled $106,748 and $166,246, respectively, and are included in short-term borrowings on the respective balance sheets. The weighted-average interest rates related to these borrowings were 5.89% and 5.71% at December 31, 1997 and 1996, respectively. There were no outstanding borrowings under this program at December 31, 1998. Effective January 1, 1999, this program will be limited to $760,000, since the revolving credit agreements' aggregate maximum borrowing limit has fallen below this program's limit. 28 18 On February 10, 1997, the Company issued $400,000 of debt securities under its $450,000 shelf registration with the Securities and Exchange Commission consisting of $100,000 of 6.25% notes due February 1, 2000, $100,000 of 6.5% notes due February 1, 2002 and $200,000 of 6.85% notes due February 1, 2007. In addition, on February 10, 1997, the Company issued $150,000 of 7.375% debentures due February 1, 2027 and $150,000 of 7.45% debentures due February 1, 2097 in a private offering not registered under the Securities Act of 1933, as amended (Securities Act). In July 1997, the Company completed offers to exchange all of its outstanding $300,000 of debentures for an equal principal amount of newly-issued debentures containing identical terms except that the newly-issued debentures were registered under the Securities Act. The net proceeds from these borrowings were used to refinance a portion of the Company's commercial paper debt. On October 6, 1997, the Company issued the remaining $50,000 of debt securities under this shelf registration consisting of 5.5% notes, due October 15, 2027, with provisions that the holders, individually or in the aggregate, may exercise a put option which would require the Company to repay the securities at an earlier date. This option is first available to the holders on October 15, 1999, and then annually on each October 15 thereafter. Accordingly, these debt securities have been reclassified to current at December 31, 1998. The net proceeds from this borrowing were used to refinance short-term commercial paper debt. On December 24, 1997, the Company filed a shelf registration with the Securities and Exchange Commission covering $150,000 of unsecured debt securities with maturities greater than nine months from the date of issue. The Company may issue these securities from time to time in one or more series and will offer the securities on terms determined at the time of sale. There were no outstanding borrowings under this registration. On August 18, 1998, the Company filed a universal shelf registration statement with the Securities and Exchange Commission to issue debt securities, common stock and warrants up to the amount of $1,500,000. The registration was effective September 8, 1998. There were no outstanding borrowings under this registration. NOTE 8--LEASES The Company leases certain stores, warehouses, manufacturing facilities, office space and equipment. Renewal options are available on the majority of leases and, under certain conditions, options exist to purchase some properties. Rental expense for operating leases was $117,762, $113,339 and $104,894 for 1998, 1997 and 1996, respectively. Certain store leases require the payment of contingent rentals based on sales in excess of specified minimums. Contingent rentals included in rent expense were $10,329 in 1998, $10,396 in 1997 and $9,877 in 1996. Rental income, as lessor, from real estate leasing activities and sublease rental income for all years presented was not significant. Following is a schedule, by year and in the aggregate, of future minimum lease payments under noncancellable operating leases having initial or remaining terms in excess of one year at December 31, 1998: 1999 $ 89,051 2000 75,342 2001 60,610 2002 44,190 2003 27,253 Later years 84,336 ----------- Total minimum lease payments $ 380,782 ===========
NOTE 9--OTHER LONG-TERM LIABILITIES Other long-term liabilities consist of the following:
1998 1997 1996 -------- -------- -------- Environmental-related $127,613 $143,276 $139,057 Other 174,890 140,924 76,064 -------- -------- -------- $302,503 $284,200 $215,121 ======== ======== ========
The accrual for environmental-related long-term liabilities represents the Company's provisions for estimated costs associated with extended environmental remediation-related activities at some of its current and former sites. Also, the Company, together with other parties, has been designated a potentially responsible party under federal and state environmental protection laws for the remediation of 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 provides for, and includes in long-term liabilities, its estimated potential long-term liability for investigation and remediation costs with respect to such third-party sites. The Company initially provides for the estimated cost of certain environmental-related activities relating to its current, former and third-party sites when costs can be reasonably estimated. These estimates are determined based on currently available facts regarding each site. If the best estimate of costs can only be identified as a range and no specific amount within that range can be determined more likely than any other amount within the range, the minimum of the range is accrued. Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The Company believes that any additional liability in excess of amounts provided which may result from the resolution of such matters will not have a material adverse effect on the financial condition, liquidity or cash flow of the Company. The decrease in the accrual for environmental-related long-term liabilities in 1998 represents primarily the excess of current year expenditures over current year provisions and adjustments to the previous accrual resulting from the ongoing evaluation of environmental matters at certain current, former and third-party sites. In addition to the environmental-related long-term liabilities shown above, certain current environmental-related liabilities are included in other accruals on the consolidated balance sheets. 29 19 NOTE 10--STOCK PURCHASE PLAN As of December 31, 1998, 14,413 employees participated through regular payroll deductions in the Company's Employee Stock Purchase and Savings Plan. The Company's contribution charged to operations amounted to $32,679, $33,582 and $29,935 for 1998, 1997 and 1996, respectively. Additionally, the Company made contributions on behalf of participating employees, which represent salary reductions for income tax purposes, amounting to $20,250 in 1998, $18,905 in 1997 and $15,282 in 1996. At December 31, 1998, there were 24,765,710 shares of the Company's stock being held by this plan, representing 14.5 percent of the total number of voting shares outstanding. Shares of company stock credited to each member's account under the plan are voted by the trustee under instructions from each individual plan member. Shares for which no instructions are received are voted by the trustee in the same proportion as those for which instructions are received. NOTE 11--CAPITAL STOCK
Shares Shares in Treasury Outstanding ------------ ------------ Balance at January 1, 1996 31,310,828 170,909,626 Stock issued upon: Exercise of stock options 158,688 918,552 Restricted stock grants 3,000 ------------ ------------ Balance at December 31, 1996 31,469,516 171,831,178 Stock issued upon: Exercise of stock options 160,739 967,040 Restricted stock grants 109,200 ------------ ------------ Balance at December 31, 1997 31,630,255 172,907,418 Stock issued upon: Exercise of stock options 37,663 1,163,813 Restricted stock grants/(cancellations) (38,000) Treasury stock acquired 3,000,000 (3,000,000) ------------ ------------ Balance at December 31, 1998 34,667,918 171,033,231 ============ ============
An aggregate of 20,389,127, 21,594,603, and 8,686,286 shares of stock at December 31, 1998, 1997 and 1996, respectively, were reserved for future grants of restricted stock and the exercise and future grants of stock options. Shares outstanding include 159,800 and 115,000 shares of stock held in a revocable trust at December 31, 1998 and 1997, respectively. At December 31, 1998, there were 300,000,000 shares of common stock and 30,000,000 shares of serial preferred stock authorized for issuance (3,000,000 shares of the authorized serial preferred stock have been designated as cumulative redeemable serial preferred stock which may be issued pursuant to the Company's shareholders' rights plan if the Company becomes the target of coercive and unfair takeover tactics). NOTE 12--STOCK PLAN The Company's 1994 Stock Plan permits the granting of stock options, stock appreciation rights and restricted stock to eligible employees. The 1994 Stock Plan succeeded the 1984 Stock Plan which expired on February 15, 1994. Although no further grants may be made under the 1984 Stock Plan, all rights granted under such plan remain. In April 1997, the 1994 Stock Plan was amended to authorize an additional 14,000,000 shares to the shares then available for future grants. Non-qualified and incentive stock options have been granted to certain officers and key employees under the plans at prices not less than fair market value of the shares, as defined by the plans, at the date of grant. The options generally become exercisable to the extent of one-third of the optioned shares for each full year following the date of grant and generally expire ten years after the date of grant. In April 1997, the 1997 Stock Plan for Nonemployee Directors was adopted. This plan provides for the granting of stock options and restricted stock to members of the Board of Directors who are not employees of the Company. There were 400,000 shares authorized as available for grant under the 1997 Stock Plan. Grants made pursuant to the 1997 Stock Plan are authorized by the Board of Directors. The number of options and any period of service required before the options may be exercised is determined by the Board of Directors at the time of grant. No options may be exercised more than ten years from the date of grant. Restricted stock grants, which generally require four years of continuous employment from the date of grant before vesting and receiving the shares without restriction, have been awarded to certain officers and key employees under the 1994 Stock Plan. The number of shares to be received without restriction is based on the Company's performance relative to a peer group of companies. During 1997, 123,200 shares of restricted stock vested and were delivered to officers and employees. No shares vested during 1998 or 1996. At December 31, 1998, there were 323,000 shares of restricted stock outstanding. Unamortized deferred compensation expense with respect to the restricted stock grants amounted to $2,781, $5,401 and $2,962 at December 31, 1998, 1997 and 1996, respectively, and is being amortized over the four-year vesting period. Deferred compensation expense aggregated $2,090, $528 and $3,983 in 1998, 1997 and 1996, respectively. No stock appreciation rights have been granted. A summary of restricted stock granted during 1998, 1997 and 1996 is as follows:
1998 1997 1996 ------ ------ ------ Shares granted 4,000 232,500 3,000 Weighted-average fair value of restricted shares granted during year $33.06 $27.91 $20.72
30 20 The Company has elected to follow Accounting Principles Board Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", requires use of highly subjective assumptions in option valuation models. Under APBO No. 25, because the exercise price of the Company's employee stock options is not less than fair market price of the shares at the date of grant, no compensation is recognized in the financial statements. Pro forma information regarding net income and earnings per share, determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123, is required by that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for all options granted:
1998 1997 1996 ------------ -------------- -------------- Risk-free interest rate 5.14% 6.10% 5.99% Expected life of option 3 YEARS 3 years 3 years Expected dividend yield of stock 2.00% 2.00% 2.00% Expected volatility of stock 0.194 0.164 0.201
The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management's opinion that the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The amounts below represent the pro forma information calculated through use of the Black-Scholes model. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period.
1998 1997 1996 --------- --------- --------- Pro forma net income $ 269,838 $ 257,757 $ 228,126 Pro forma net income per common share: Basic $ 1.57 $ 1.50 $ 1.33 Diluted $ 1.56 $ 1.49 $ 1.32
Due to the required phase-in provisions, the effects of applying SFAS No. 123 to arrive at the above pro forma amounts are not representative of the expected effects on pro forma net income or earnings per share in future years. A summary of the Company's stock option activity, and related information for the years ended December 31, 1998, 1997 and 1996, is shown in the following table:
1998 1997 1996 ---------------------------- ---------------------------- --------------------------- WEIGHTED- Weighted- Weighted- AVERAGE Average Average OPTIONED EXERCISE Optioned Exercise Optioned Exercise SHARES PRICE Shares Price Shares Price -------------- ------------ ------------ -------------- -------------- ------------ Outstanding beginning of year 5,810,471 $18.47 5,434,596 $14.91 4,976,268 $12.35 Granted 1,867,500 29.10 1,746,500 27.93 1,648,500 20.82 Exercised (1,201,476) 14.00 (1,127,779) 12.88 (1,077,240) 11.28 Canceled (216,793) 26.68 (242,846) 22.68 (112,932) 18.36 -------------- ------------ ------------ -------------- -------------- ------------ Outstanding end of year 6,259,702 $22.89 5,810,471 $18.47 5,434,596 $14.91 ============== ============ ============ ============== ============== ============ Exercisable at end of year 3,019,873 $17.77 2,924,515 $13.96 3,011,242 $11.99 Weighted-average fair value of options granted during year $5.12 $4.53 $3.57 Reserved for future grants 14,129,425 15,784,132 3,251,686
A summary by range of exercise prices for optioned shares outstanding as of December 31, 1998 from $6.47 to $35.34 as follows:
Outstanding Exercisable ------------------------------ ------------------------------ Weighted- Weighted- Weighted- Average Average Average Remaining Range of Optioned Exercise Optioned Exercise Contractual Exercise Prices Shares Price Shares Price Life (years) ---------------------------- -------------- -------------- -------------- -------------- -------------- less than $12.00 639,175 $ 9.34 639,175 $ 9.34 1.89 $12.00 - $19.99 1,126,701 15.89 1,126,701 15.89 5.25 $20.00 - $26.00 1,276,779 21.17 762,153 20.94 7.28 greater than $26.00 3,217,047 28.72 491,844 27.19 8.82 -------------- -------------- -------------- -------------- -------------- 6,259,702 $ 22.89 3,019,873 $ 17.77 7.51 ============== ============== ============== ============== ==============
31 21 NOTE 13--INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are currently in effect. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ---------- ---------- --------- Deferred tax liabilities: Depreciation $ 51,997 $ 38,605 $ 24,393 Deferred employee benefit items 35,163 26,128 27,873 ---------- ---------- --------- Total deferred tax liabilities $ 87,160 $ 64,733 $ 52,266 ========== ========== ========= Deferred tax assets: Dispositions, environmental and other similar items $ 61,857 $ 61,537 $ 55,143 Other items (each less than 5% of total assets) 88,432 99,120 100,679 ---------- ---------- --------- Total deferred tax assets $ 150,289 $ 160,657 $ 155,822 ========== ========== =========
Significant components of the provisions for income taxes are as follows:
1998 1997 1996 ---------- ---------- --------- Current: Federal $ 106,538 $ 87,626 $ 124,847 Foreign 6,982 3,472 8,125 State and Local 23,162 16,318 27,046 ---------- ---------- --------- Total Current 136,682 107,416 160,018 Deferred: Federal 20,946 46,890 (12,169) Foreign 5,587 2,375 417 State and Local 4,024 9,982 (2,046) ---------- ---------- --------- Total Deferred 30,557 59,247 (13,798) ---------- ---------- --------- Total income tax expense $ 167,239 $ 166,663 $ 146,220 ========== ========== =========
Significant components of income before income taxes as used for income tax purposes, are as follows:
1998 1997 1996 ---------- ---------- --------- Domestic $ 382,469 $ 382,325 $ 343,445 Foreign 57,634 44,952 31,932 ---------- ---------- --------- $ 440,103 $ 427,277 $ 375,377 ========== ========== =========
A reconciliation of the statutory federal income tax rate and the effective tax rate follows:
1998 1997 1996 ---------- ---------- --------- Statutory tax rate 35.0% 35.0% 35.0% Effect of: State and local taxes 4.0 4.0 4.3 Investment vehicles (2.7) (3.3) (2.9) Other, net 1.7 3.3 2.6 ---------- ---------- --------- Effective tax rate 38.0% 39.0% 39.0% ========== ========== =========
The provision includes estimated taxes payable on that portion of retained earnings of foreign subsidiaries expected to be received by the Company. A provision was not made with respect to $6,862 of retained earnings at December 31, 1998 that have been invested by foreign subsidiaries. It is not practicable to estimate the amount of unrecognized deferred tax liability for undistributed foreign earnings. Netted against the Company's other deferred tax assets are valuation reserves of $16,703, $19,836 and $19,158 at December 31, 1998, 1997 and 1996, respectively, resulting from the uncertainty as to the realization of the tax benefits resulting from certain foreign net operating losses and other foreign assets. NOTE 14--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
1998 - ------------------------------------------------------------------------------------------------------------------------------ NET INCOME PER NET INCOME PER QUARTER NET SALES GROSS PROFIT NET INCOME SHARE - BASIC SHARE - DILUTED - -------------- ------------------ ------------------ ------------------ --------------------- --------------------- 1ST $ 1,104,147 $ 454,939 $ 25,198 $.15 $.14 2ND 1,377,785 599,465 99,450 .58 .57 3RD 1,341,431 587,902 100,748 .59 .58 4TH 1,111,067 487,665 47,468 .28 .28
Net income during the fourth quarter was increased by $883 (no per share effect) due to certain year-end adjustments. Cost of goods sold decreased by $13,962 ($9,075 after-tax, $.05 per share) as a result of physical inventory adjustments of $17,411 ($11,317 after-tax, $.06 per share) and other year-end adjustments of $7,818 ($5,082 after-tax, $.03 per share). These adjustments were partially offset by provisions for the closing costs associated with certain operations of $11,267 ($7,324 after-tax, $.04 per share). Administrative expenses increased $295 ($192 after-tax, no per share effect) due to other year-end adjustments. Other costs and expenses increased $12,785 ($8,310 after-tax, $.05 per share) due to the provision of $12,290 ($7,988 after-tax, $.05 per share) for the adjustment to net realizable value of certain net fixed assets and due to the net provisions for environmental-related matters at current, former and third-party sites of $495 ($322 after-tax, no per share effect). 32 22
1997 - ------------------------------------------------------------------------------------------------------------------------------ Net Income per Net Income per Quarter Net Sales Gross Profit Net Income Share - Basic Share - Diluted - -------------- ------------------ ------------------ ------------------ --------------------- --------------------- 1st $ 1,069,787 $ 443,614 $ 23,134 $.13 $.13 2nd 1,373,351 597,556 93,203 .54 .54 3rd 1,346,531 583,391 99,211 .58 .57 4th 1,091,434 472,150 45,066 .26 .26
Year-end adjustments during the fourth quarter slightly decreased net income with no effect on net income per share. Cost of goods sold decreased by a net of $2,998 ($1,949 after-tax, $.01 per share) as a result of physical inventory adjustments of $6,967 ($4,529 after-tax, $.03 per share) which were partially offset by various year end charges of $3,969 ($2,580 after-tax, $.02 per share). Administrative expenses were reduced $2,451 ($1,593 after-tax, $.01 per share) due to other year-end adjustments. Other costs and expenses increased $5,525 ($3,591 after-tax, $.02 per share) due to provisions for environmental-related matters at certain current, former and third-party sites of $493 ($320 after-tax, no per share effect) and increases to prior accruals for the disposition and termination of operations of $5,032 ($3,271 after-tax, $.02 per share). NOTE 15--NET INCOME PER COMMON SHARE
1998 1997 1996 ------------ ------------ ------------ BASIC Average common shares outstanding 172,162,472 172,107,459 171,117,390 ============ ============ ============ Net income $ 272,864 $ 260,614 $ 229,157 ============ ============ ============ Net income per common share $ 1.58 $ 1.51 $ 1.34 ============ ============ ============ DILUTED Average common shares outstanding 172,162,472 172,107,459 171,117,390 Non-vested restricted stock grants (see Note 12) 235,317 312,988 300,000 Stock options -- treasury stock method 1,137,890 1,611,895 1,408,386 ------------ ------------ ------------ Average common shares assuming dilution 173,535,679 174,032,342 172,825,776 ============ ============ ============ Net income $ 272,864 $ 260,614 $ 229,157 ============ ============ ============ Net income per common share $ 1.57 $ 1.50 $ 1.33 ============ ============ ============
Net income per common share has been computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 adopted during the quarter ended December 31, 1997. Net income per common share amounts shown for 1996 have been restated to conform to the provisions of SFAS No. 128. NOTE 16--COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. SFAS No. 130 requires other comprehensive income to include foreign currency translation adjustments and minimum pension liability adjustments, which prior to adoption were reported separately in shareholders' equity. The December 31, 1997 and 1996 financial statements have been reclassified to conform to the requirements of SFAS No. 130. Cumulative other comprehensive loss consists of the following components:
Foreign Minimum Cumulative Currency Pension Other Translation Liability Comprehensive Adjustments Adjustments Loss ----------- ----------- ------------- Balance at January 1, 1996 $ (20,657) $ (20,657) Other comprehensive income 1,675 1,675 ----------- ---------- Balance at December 31, 1996 (18,982) (18,982) Other comprehensive loss (14,107) $ (428) (14,535) ----------- ------- ---------- Balance at December 31, 1997 (33,089) (428) (33,517) Other comprehensive loss (11,838) 428 (11,410) ----------- ------- ---------- Balance at December 31, 1998 $ (44,927) $ 0 $ (44,927) =========== ======= ==========
33 23 QUARTERLY STOCK PRICES AND DIVIDENDS
1998 1997 -------------------------------------------- ----------------------------------------- QUARTER HIGH LOW DIVIDEND Quarter High Low Dividend --------- ---------- -------- --------- --------- --------- --------- --------- 1ST $35.625 $25.750 $.1125 1st $29.125 $25.938 $.10 2ND 37.875 30.063 .1125 2nd 32.375 24.125 .10 3RD 35.000 19.438 .1125 3rd 33.375 27.063 .10 4TH 29.813 20.563 .1125 4th 30.188 25.188 .10
35 EX-21 6 EXHIBIT 21 1 EXHIBIT 21
STATE OR JURISDICTION OF INCORPORATION OR SUBSIDIARIES ORGANIZATION ------------ --------------------- DOMESTIC SUBSIDIARIES Contract Transportation Systems Co. Delaware DIMC, Inc. Delaware Dupli-Color Products Company Delaware Sherwin-Williams Automotive Finishes Corp. Delaware SW Racing Corp. Delaware SWIMC, Inc. Delaware The Sherwin-Williams Acceptance Corporation Nevada Thompson Minwax International Corp. Delaware FOREIGN SUBSIDIARIES Compania Sherwin-Williams, S.A. de C.V. Mexico Distribuidora Excelo, S.A. de C.V. Mexico Globo Tintas Ltda. Brazil Kriesol, S.A. Uruguay Macromol, S.A. de C.V. Mexico Marson Chilena, S.A. Chile Pinturas Excelo, S.A. de C.V. Mexico Productos Quimicos y Pinturas, S.A. de C.V. Mexico Proquipsa, S.A. de C.V. Mexico Quetzal Pinturas, S.A. de C.V. Mexico Ronseal (Ireland) Limited Ireland Ronseal Limited United Kingdom Sherwin-Williams Argentina I.y C.S.A. Argentina Sherwin-Williams do Brasil Industria e Comercio Ltda. Brazil Sherwin-Williams Canada Inc. Canada Sherwin-Williams (Caribbean) N.V. Curacao Sherwin-Williams Cayman Islands Limited Cayman Islands Sherwin-Williams Chile S.A. Chile Sherwin-Williams Foreign Sales Corporation Limited U.S. Virgin Islands Sherwin-Williams Japan Co., Ltd. Japan Sherwin-Williams (West Indies) Limited Jamaica SW Paints Ltda. Brazil The Sherwin-Williams Company Resources Limited Jamaica
EX-23 7 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated January 25, 1999 included in this Annual Report (Form 10-K) of The Sherwin-Williams Company with respect to the consolidated financial statements of The Sherwin-Williams Company which are incorporated by reference in this Annual Report (Form 10-K) from the 1998 Annual Report to Shareholders of The Sherwin-Williams Company. We also consent to the incorporation by reference in the following registration statements and related prospectuses of our report dated January 25, 1999, included in this Annual Report (Form 10-K) of The Sherwin-Williams Company with respect to the consolidated financial statements of The Sherwin-Williams Company which are incorporated by reference in this Annual Report (Form 10-K) from the 1998 Annual Report to Shareholders of The Sherwin-Williams Company and schedule included in this Annual Report (Form 10-K) of The Sherwin-Williams Company:
REGISTRATION NUMBER DESCRIPTION - ------------ ----------- 333-66295 The Sherwin-Williams Company Deferred Compensation Savings Plan, The Sherwin-Williams Company Key Management Deferred Compensation Plan and The Sherwin-Williams Company Director Deferred Fee Plan Form S-8 Registration Statement 333-61735 The Sherwin-Williams Company Form S-3 Registration Statement 333-41659 The Sherwin-Williams Company Form S-3 Registration Statement 333-25671 The Sherwin-Williams Company 1997 Stock Plan for Nonemployee Directors Form S-8 Registration Statement 333-25669 The Sherwin-Williams Company 1994 Stock Plan Form S-8 Registration Statement 333-25607 The Sherwin-Williams Company S-4 Registration Statement 333-01093 The Sherwin-Williams Company Form S-3 Registration Statement 333-00725 The Sherwin-Williams Company Form S-4 Registration Statement 33-62229 The Sherwin-Williams Company Employee Stock Purchase and Savings Plan Form S-8 Registration Statement 2-80510 Post-Effective Amendment Number 5 to Form S-8 Registration Statement relating to The Sherwin-Williams Company Employee Stock Purchase and Savings Plan 33-52227 The Sherwin-Williams Company 1994 Stock Plan Form S-8 Registration Statement 33-28585 The Sherwin-Williams Company 1984 Stock Plan Form S-8 Registration Statement 33-22705 The Sherwin-Williams Company Form S-3 Registration Statement
Cleveland, Ohio March 8, 1999 ERNST & YOUNG LLP EX-24 8 EXHIBIT 24 1 EXHIBIT 24 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Officer and Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 1, 1999 /s/ J. G. Breen ------------------- ------------------------------------ J. G. Breen Chairman and Chief Executive Officer, Director 2 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Officer and Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 2, 1999 /s/ T. A. Commes ----------------------- ------------------------------------ T. A. Commes President and Chief Operating Officer, Director 3 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Officer of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 3, 1999 /s/ L. J. Pitorak ----------------------- ------------------------------------ L. J. Pitorak Senior Vice President - Finance, Treasurer and Chief Financial Officer 4 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Officer of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 3, 1999 /s/ J. L. Ault ----------------------- ------------------------------------ J. L. Ault Vice President - Corporate Controller 5 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: January 31, 1999 /s/ J. M. Biggar ----------------------- ------------------------------------ J. M. Biggar Director 6 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 3, 1999 /s/ J. C. Boland ----------------------- ------------------------------------ J. C. Boland Director 7 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: January 30, 1999 /s/ D. E. Collins ----------------------- ------------------------------------ D. E. Collins Director 8 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: January 30, 1999 /s/ D. E. Evans ----------------------- ------------------------------------ D. E. Evans Director 9 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 2, 1999 /s/ R. W. Mahoney ----------------------- ------------------------------------ R. W. Mahoney Director 10 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 3, 1999 /s/ W. G. Mitchell ----------------------- ------------------------------------ W. G. Mitchell Director 11 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 3, 1999 /s/ A. M. Mixon, III ----------------------- ------------------------------------ A. M. Mixon, III Director 12 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 1, 1999 /s/ C. E. Moll ----------------------- ------------------------------------ C. E. Moll Director 13 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: January 29, 1999 /s/ H. O. Petrauskas ----------------------- ------------------------------------ H. O. Petrauskas Director 14 POWER OF ATTORNEY THE SHERWIN-WILLIAMS COMPANY ---------------------------- The undersigned Director of The Sherwin-Williams Company, an Ohio corporation, which corporation anticipates filing with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, and any rules and regulations of the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and L.E. Stellato, or any of them, with full power of substitution and resubstitution, as attorneys or attorney to sign for me and in my name, in the capacities indicated below, said Annual Report on Form 10-K and any and all amendments, supplements, and exhibits thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission or any national securities exchange pertaining thereto, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. Executed the date set opposite my name. Date: February 3, 1999 /s/ R. K. Smucker ----------------------- ------------------------------------ R. K. Smucker Director EX-27 9 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DEC. 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000089800 THE SHERWIN-WILLIAMS COMPANY 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 19,133 0 629,909 25,393 682,523 1,547,290 1,440,244 721,387 4,065,462 1,111,973 730,283 0 0 205,701 1,510,239 4,065,462 4,934,430 4,934,430 2,804,459 2,804,459 26,046 15,176 71,971 440,103 167,239 272,864 0 0 0 272,864 1.58 1.57 Represents net income per common share - basic in accordance with SFAS No. 128. Represents net income per common share - diluted in accordance with SFAS No. 128.
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