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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-4851
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THE SHERWIN-WILLIAMS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-0526850
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
101 PROSPECT AVENUE, N.W., CLEVELAND, OHIO 44115-1075
(Address of principal executive offices) (Zip Code)
(216) 566-2000
Registrant's telephone number, including area code
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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9.875% Debentures due 2016 New York Stock Exchange
6.25% Convertible Subordinated Debentures due 1995 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
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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. [ ]
As of January 31, 1995, 84,983,104 shares of the Registrant's Common Stock,
with a par value of $1.00 each, were outstanding, net of treasury shares. The
aggregate market value of such voting stock held by non-affiliates of the
Registrant as of that date was $2,823,238,061.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement dated March 15, 1995, as regards the information
required to be disclosed in Part III.
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THE SHERWIN-WILLIAMS COMPANY
AND CONSOLIDATED SUBSIDIARIES
As used in this Form 10-K, the terms "Company" and "Registrant" mean The
Sherwin-Williams Company and its consolidated subsidiaries, taken as a whole,
unless the context indicates otherwise.
TABLE OF CONTENTS
ITEM NO. PAGE NO.
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Part I
1. Business Segment Information
a. General Development of Business 1
b. Narrative Description of Business 1
c. Financial Information About Business Segments 6
d. Foreign and Domestic Operations and Export Sales 6
2. Description of Property 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 8
Executive Officers of the Registrant 8
Part II
5. Market for Common Equity and Related Stockholder Matters 10
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements on Accounting and Financial Disclosure 17
Part III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and Management 18
13. Certain Relationships and Related Transactions 18
Part IV
14. Financial Statement Schedule, Reports on Form 8-K and Exhibits
a. Financial Statements, Financial Statement Schedule and Exhibits 19
b. Reports on Form 8-K 19
Signatures 37
Consent of Independent Auditors 43
NOTE ON INCORPORATION BY REFERENCE
In Part III of this Form 10-K, various information and data are
incorporated by reference from the Company's Definitive Proxy Statement dated
March 15, 1995 ("Proxy Statement"). Any reference in this Form 10-K to
disclosures in the Proxy Statement shall constitute incorporation by reference
only of that specific information and data into this Form 10-K.
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PART I
ITEM 1. BUSINESS SEGMENT INFORMATION
GENERAL DEVELOPMENT OF BUSINESS
The Sherwin-Williams Company, which was first incorporated under the laws
of the State of Ohio eighteen years after its founding in 1866, is engaged in
the manufacture, distribution and sale of coatings and related products to
professional, industrial, commercial and retail customers throughout North
America.
PAINT STORES SEGMENT
The Paint Stores Segment exclusively distributes Sherwin-Williams(R)
branded architectural coatings, industrial maintenance products, industrial
finishes and related items produced by the Coatings Segment of the Company and
others. Paint, wallcoverings, floorcoverings, window treatments, spray
equipment and otherassociated products are marketed by store personnel and
direct sale representatives to the do-it-yourself customer, professional
painter, contractor, industrial and commercial maintenance customer, property
manager, architect and manufacturer of products requiring a factory finish.
Competitors of the Segment are other paint and wallpaper stores, mass
merchandisers, home centers, independent hardware stores, hardware chains and
manufacturer-operated outlets. Product quality, service and price determine
the competitive advantage in the highly fragmented paint product market. The
loss of any single customer would not have a material adverse effect on the
business of the Segment.
During 1994, the Company launched an extensive national advertising
campaign, highlighting the many superior products available, including its
revolutionary new product called EverClean(TM). Led by EverClean(TM), our new
product introductions during 1994 exceeded expectations. In our continuing
efforts to be AMERICA'S PAINT COMPANY, the Company became an official sponsor of
major league baseball with exclusive rights in the paint category. The
sponsorship includes regular advertising on the new baseball network, a joint
venture between ABC and NBC. Baseball stadiums across the country have selected
Sherwin-Williams to be their coatings supplier. New ballparks such as Jacobs
Field in Cleveland, Ohio and The Ballpark in Arlington, Arlington, Texas used
Sherwin-Williams' products during their construction. These and many other
ballparks use a wide variety of Sherwin-Williams' products for ongoing touch-up
and maintenance needs. In addition to these national efforts, advertising
programs with many of the individual baseball teams were also implemented. Among
other items, local sponsorship may include prominent stadium signage and
extensive radio, television and print advertising.
In 1995, in addition to the continued advertising campaigns, new product
introductions and re-merchandising of paint stores, customer satisfaction and
employee productivity will be enhanced by the configuration of an in-store
computer network. This network will allow for the compilation of, and access to,
store operations data by management. It will also seek to improve color accuracy
and enhance inventory management by increasing the number of inventory turns and
product availability while reducing obsolescence.
COATINGS SEGMENT
The five divisions within the Coatings Segment (Coatings, Consumer Brands,
Automotive, Transportation Services and Specialty) participate in the
manufacture, distribution or sale of coatings and related products. During 1994,
the Segment's former International Group was realigned to allow the Segment's
domestic expertise in the areas of manufacturing, product development, personnel
and marketing to be applied to its international operations in efforts to better
serve its customers.
The Segment has sales to certain customers that, individually, may be a
significant portion of its revenues. However, the loss of any single customer
would not have a material adverse effect on the overall business of the Segment.
All technical expenditures are sponsored by the Company and occur
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in the Coatings Segment. The expenditures for research and development appear on
page 24 of this report.
COATINGS DIVISION
The Coatings Division manufactures paint and paint-related products for the
do-it-yourselfer, professional painter, contractor, industrial and commercial
maintenance account and manufacturer of factory finished products.
Sherwin-Williams(R) branded architectural and industrial finishes are
manufactured exclusively for the Paint Stores Segment. Labels, color cards,
traffic paint, adhesives, private label and other branded products are
manufactured for the Paint Stores Segment, the Consumer Brands Division and
others. Competitive factors for the Division are product innovation,
manufactured product quality, service, distribution and price. Domestic
competitors of the Division consist of other coatings manufacturers located
throughout the United States. There are approximately 800 such manufacturers at
the regional and national levels. As part of the realignment of the former
International Group, the Coatings Division integrated the international
operations which concentrated predominantly in the architectural paint business
into their Division. There are many competitors in each of the foreign markets
served as the Division sells its products around the world through subsidiaries
and joint ventures and licenses technology, trademarks and trade names to
foreign companies. At December 31, 1994, the Division had 44 licensing
agreements in 36 foreign countries. The majority of the licensees' sales are in
South America, the strongest market. New licensing agreements were signed in
Bahamas, Belgium, Cyprus, India and Peoples Republic of China in 1994. New
business development will take place following a predetermined regional approach
for the establishment of subsidiaries, joint ventures and licensees in selected
countries. The Coatings Division continues to strive to be the lowest cost
producer of high quality coatings to gain an advantage over its competitors.
During 1994, in conjunction with the Consumer Brands Division, the Coatings
Division continued its commitment to customer service as evidenced by the
installation of a toll-free telephone service established to receive customer
comments and inquiries. The Division's emphasis on delivering high-quality
products to its customers also continued in 1994 through the development of
regional technical labs which have led to a reduction in product development
cycle time.
In 1995, the Coatings Division will concentrate on quality improvement
projects and processes, focusing primarily on manufacturing consistency,
production planning and process technology. Modifications within the
manufacturing process that will improve service, increase effective capacity,
enhance quality and reduce costs will be continually sought at each facility.
CONSUMER BRANDS DIVISION
The Consumer Brands Division is responsible for the sales and marketing of
branded and private label products by a direct sales staff to unaffiliated home
centers, mass merchandisers, independent dealers and distributors. Many of the
country's leading retailers are among the Division's regional and national
customers. The Division's competition for sales to these leading retailers comes
from over 500 regional and national wholesale distributors of branded and
private label paint and associated products. The competitive factors that will
set the leaders apart from the rest are service, brand recognition, distribution
and price.
In 1994, the Consumer Brands Division launched its largest promotion of
Dutch Boy(R) Paints ever. In conjunction with the National Basketball
Association (NBA), USA Today and Healthy Families America, a non-profit child
abuse prevention group, Dutch Boy(R) sponsored promotion of an "In The Paint"
player of the week throughout the NBA season. The players selected were
invited to join the Healthy Families Team to act as spokespeople in their
local communities on behalf of Healthy Families America. Publication of the
player selected was announced in the Tuesday edition of USA Today and on all
Turner Network Television (TNT) NBA broadcasts. The campaign was well received
by retailers and many provided additional support by matching our 50 cent per
gallon donation for each gallon of Kid's Room(TM) Paint sold at their outlets.
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During 1995, the Consumer Brands Division will continue expansion of its
branded paint and stain products with strategic placement of premium products
supported by award-winning point of sale materials and demographically-targeted
marketing programs. In addition to traditional forms of brand promotion,
including continued ventures with the NBA, TNT, American Telephone and
Telegraph, USA Today and others, Dutch Boy(R) Paints will also sponsor and
produce its own nationally-broadcast cable television show on decorating called
Room by Room(TM). The show will air on the new Home and Garden Television
Network on which Dutch Boy(R) has become a charter sponsor. Also,
Martin-Senour(R) will, for the first time, introduce a celebrity spokesperson,
Chi Chi Rodriguez, to promote its product line.
AUTOMOTIVE DIVISION
The Automotive Division develops and manufactures motor vehicle finish and
refinish products which are marketed under the Sherwin-Williams(R) and other
branded labels in the United States and Canada through its network of 139
company-operated branches. The branches are supported by a direct sales staff
and products are also marketed through jobbers and wholesale distributors. The
Division is the sole distributor of Standox(R) branded vehicle refinishing
paints in the United States and Canada for American Standox, Inc., its joint
venture with Herberts GmbH of Wuppertal, Germany. The Division sells directly to
independent automotive body shops, automotive dealerships, fleet owners and
refinishers, production shops, body builders and manufacturers requiring a
factory finish (OEM). The Automotive Division has numerous competitors in its
domestic and foreign markets with broad product offerings and several others
with niche products. In the last several years, certain foreign competitors have
entered the perceived lucrative U.S. automotive aftermarket. The Division
assumed additional international responsibilities related to the
automotive-related factory finish business in 1994 due to the former
International Group's realignment within the Segment. A consolidated foreign
subsidiary in Jamaica generally markets a full line of products. Products
manufactured in Kingston, Jamaica are sold through 9 stores and other dealers
and by a direct sales force to independent dealers, painters, contractors,
automotive body shops and industrial and commercial maintenance accounts in
Jamaica. A portion of the income for the Division comes from the licensing of
technology, trademarks and trade names to foreign companies. The Division has 15
licensees in 14 foreign countries, including a new agreement signed in Syria in
1994. Key competitive factors for the Automotive Division are distribution,
product quality, technology and service. Strong distribution and high quality
products have been the Division's greatest competitive advantages.
During 1994, the Automotive Division continued to strive to improve product
quality and customer service, as servicing the Division's customers and meeting
their objectives remains the highest priority. Evidencing the commitment to
quality, ISO 9002 certification was achieved at the Richmond, Kentucky plant
during the year. ISO standards now represent the Division's quality benchmark
for the future. Reduction of order cycle times has led to better customer
service and more efficient inventory management.
The Division's plans for 1995 call for opening a new state-of-the-art
distribution center in Richmond, Kentucky. This facility will enhance customer
service capabilities while allowing for more efficient inventory and freight
management. The ISO certification program will be expanded to additional
facilities in 1995. Additionally, the Division plans to introduce the 3.5
Volatile Organic Compound (VOC) Single Stage Urethane System for vehicle
refinishing. This new product significantly reduces the VOC contaminants to the
environment and has been designed for the Vehicle Refinish and Fleet/OEM market
segments.
TRANSPORTATION SERVICES DIVISION
The Transportation Services Division provides warehousing, truckload
freight, pool assembly, freight brokerage and consolidation services primarily
for the Company and for certain external manufacturers, distributors and
retailers throughout the United States. This Division provides the Company with
total logistics service support which allows increased delivery schedules, lower
field inventory levels and fewer out-of-stocks.
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The Transportation Services Division has many different and diverse
competitors. In the trucking industry, there are a few large carriers having
small or moderate market share while thousands of other carriers compete for the
balance of the market. The warehousing and distribution service market is
characterized by a large number of competitors with none having dominant share.
Since the primary business of the Division is to provide services for the
Company's other divisions, gaining market share is not of major significance.
During 1994, testing and installation of an automated transportation
planning system was completed at the Effingham distribution center. This
technology improves the efficiency of routing and shipping procedures.
Installation of the automated system is planned for all sites in 1995. ISO 9003
certification was achieved at three additional facilities in 1994 and the
Division will continue to pursue this certification at the remaining centers in
1995.
During 1995, the Division will expand its mission to the Company by
consolidating the distribution and transportation requirements of the Specialty
Division into its operations. Additional 1995 plans call for the opening of a
new full-service distribution facility in Fredericksburg, Pennsylvania that will
allow for consolidation of existing activity, leading to more efficient customer
service in the surrounding region.
SPECIALTY DIVISION
The Specialty Division competes in three areas: custom and industrial
aerosols; paint applicators; and retail and wholesale consumer aerosols. The
Division participates in the retail and wholesale paint, automotive, homecare
products, institutional, insecticide and industrial markets. A wide variety of
aerosol products are filled, packaged and distributed to regional and national
customers. Approximately 8.2 percent of the Division's total sales represent
aerosols and paint applicators sold to the Paint Stores Segment. The remaining
products are marketed through mass merchandisers, home centers, automotive
chains and maintenance distribution channels. There are various primary
competitors in each of the Division's product lines. The main competitive
factors are technical know-how, quality, service and price. The Specialty
Division has superior quality products, more efficient manufacturing and
distribution, frequent customer contact and better customer service at
competitive prices which distinguish it from its competitors.
In 1994, the Specialty Division completed construction of the Dayton
Valley, Nevada distribution center. This center is a state-of-the-art, safety
compliant facility for aerosol products. In efforts to provide more efficient
service to our customers, the responsibility for operation of this and other
Specialty Division distribution centers will be assumed by the Transportation
Services Division in 1995. In addition, in conjunction with the realignment of
the former International Group in 1994, the Division assumed responsibility for
exports and any potential international operations or licensees related to its
product lines.
During 1995, the Division will introduce Rust Tough(R) Latex for Metal
under the Krylon(R) label. It will be our first latex rust preventative
product offered to the retail market. The Division plans to promote this
product through advertising programs aimed at retail customers.
OTHER SEGMENT
The Other Segment is responsible for the acquisition, development, leasing
and management of properties for use by the Company and others. 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 centers. This segment has many competitors consisting of other real
estate owners, developers and managers in certain states where we currently hold
property. The main competitive factors are the availability of property and
price.
At the end of 1994, the Retail Properties Division owned or leased 209
properties, representing over 1,700,000 square feet of space, which are
conducive to the sale of paint and associated products. Such properties include
127 freestanding buildings, for exclusive use by the Paint Stores Segment, and
82 multi-tenant properties, utilized when the basic needs of the paint store can
be met and where
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external rental opportunities can be profitably operated. The paint store must
be easily accessible to professional painters and contractors with sufficient
access to pickup and delivery areas. 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.
In 1995, the Division anticipates continued growth in the number of retail
properties needed by the Paint Stores Segment. Two freestanding locations
currently under construction will be completed and one additional freestanding
location will be developed. The occupancy rate for external space was 82.2
percent at December 31, 1994.
The Non-Retail Properties Division owned or leased 19 properties
approximating 2.6 million square feet. These properties consisted primarily of
office buildings, manufacturing facilities and distribution centers at the end
of 1994. Occasionally, such properties are acquired or developed to provide the
lowest cost alternative for distribution or manufacturing expansion. Locations
that have been utilized profitably in the past which can no longer contribute to
the Company's future plans are currently offered for sale or lease. Locations
that can continue to operate efficiently and achieve the desired rate of return
will continue to be held by this segment.
RAW MATERIALS AND PRODUCTS PURCHASED FOR RESALE
With respect to the Paint Stores Segment, there are sufficient suppliers of
each product purchased for resale that the Segment does not anticipate any
significant sourcing problems. For the Coatings Segment, raw materials and fuel
supplies are generally available from various sources in sufficient quantities
that the Segment does not anticipate any significant sourcing problems during
1995.
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(TM), Glas-Clad(R), Perma-Clad(R) and Old Quaker(R). The Coatings
Segment employs a variety of trade names and trademarks in marketing its
products, such as Sherwin-Williams(R), Dutch Boy(R), Kem-Tone(R),
Martin-Senour(R), Cuprinol(R), Old Quaker(R), Acme(R), Krylon(R), Color
Works(R), Illinois Bronze(R), Rust Tough(R), Rubberset(R) and Dupli-Color(R).
PATENTS
Although patents and licenses are not of material importance to the
business of the Company as a whole, the Automotive and Coatings Divisions'
international operations derive a substantial part 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 products through 1995.
EMPLOYEES
The Company employed approximately 17,900 persons at December 31, 1994.
ENVIRONMENTAL COMPLIANCE
See Management's Discussion and Analysis of Financial Condition and Results
of Operations, on pages 10 through 15 of this report, for further details on
environmental compliance.
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BUSINESS SEGMENTS
(MILLIONS OF DOLLARS) 1994 1993 1992
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NET EXTERNAL SALES
Paint Stores $1,986 $1,830 $1,682
Coatings 1,100 1,105 1,052
Other 14 14 14
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Segment totals $3,100 $2,949 $2,748
INTERSEGMENT TRANSFERS
Coatings $ 720 $ 655 $ 598
Other 18 17 16
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Segment totals $ 738 $ 672 $ 614
OPERATING PROFITS
Paint Stores $ 141 $ 117 $ 91
Coatings 201 194 174
Other 8 5 6
Corporate expenses -- net (51) (52) (45)
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Income from continuing operations before income taxes and
cumulative effects of changes in accounting methods $ 299 $ 264 $ 226
IDENTIFIABLE ASSETS
Paint Stores $ 517 $ 494 $ 464
Coatings 757 730 719
Other 44 51 58
Corporate 644 640 489
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Consolidated totals $1,962 $1,915 $1,730
CAPITAL EXPENDITURES
Paint Stores $ 26 $ 29 $ 23
Coatings 46 28 40
Other 1 1 1
Corporate 6 5 5
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Consolidated totals $ 79 $ 63 $ 69
DEPRECIATION
Paint Stores $ 23 $ 21 $ 19
Coatings 30 27 26
Other 3 3 2
Corporate 5 4 4
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Consolidated totals $ 61 $ 55 $ 51
NOTES TO SEGMENT TABLES
Operating profit is total revenue, including realized profit on
intersegment transfers, less operating costs and expenses. Intersegment
transfers are accounted for at values comparable to normal unaffiliated customer
sales. 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
or allocable to 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.
Export sales, sales of foreign subsidiaries and sales to any individual
customer were each less than 10% of consolidated sales to unaffiliated customers
during all years presented.
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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.
Leased Leased
Manufacturing facilities or Owned Distribution facilities or Owned
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Anaheim, California Owned Bedford Heights, Ohio Leased
Baltimore, Maryland Owned Buford, Georgia Leased
Bedford Heights, Ohio Owned Dayton Valley, Nevada Owned
Chicago, Illinois Owned Effingham, Illinois Leased
Coffeyville, Kansas Owned Greencastle, Indiana Owned
Columbus, Ohio Owned Hunt Valley, Maryland Leased
Crisfield, Maryland Leased Lagrange, Georgia Owned
Deshler, Ohio Owned Reno, Nevada Leased
Elk Grove, Illinois Owned Sparks, Nevada Leased
Emeryville, California Owned Waco, Texas Leased
Fort Wayne, Indiana Leased Winter Haven, Florida Owned
Fountain Inn, South Carolina Owned York, Pennsylvania Owned
Garland, Texas Owned Calgary, Alberta, Canada Leased
Greensboro, North Carolina Owned Mississauga, Ontario, Canada Leased
Holland, Michigan Owned Richmond Hill, Ontario, Canada Leased
Morrow, Georgia Owned Scarborough, Ontario, Canada Owned
Newark, New Jersey Owned San Juan, Puerto Rico Leased
Orlando, Florida Owned
Richmond, Kentucky Owned
Victorville, California Owned
Kingston, Jamaica Owned
In addition, the Coatings Segment operates 139 company-operated automotive
branches, of which 1 is owned, in the United States and Canada and 9 leased
stores in Jamaica.
There were 2,046 company-operated paint stores in the forty-eight
contiguous states, Canada and Puerto Rico which constitute the entire operations
of the Paint Stores Segment. All stores are leased locations with 209 being
leased from the Company's Retail Properties Division in the Other Segment. At
the end of 1994, the Segment was comprised of four separate operating geographic
divisions: the Mid Western Division with 576 stores primarily located in the
midwestern and upper west coast states and western Canada; the Eastern Division
which has 436 stores along the upper east coast and New England states and
eastern Canada; the Southeastern Division which has 525 stores principally
covering the lower east and gulf coast states and Puerto Rico; and the South
Western Division with 509 stores in the plains and the lower west coast states.
The Paint Stores Segment opened 35 new stores in 1994, closed 19,
re-merchandised 492, and relocated 55.
All property within the Other Segment is owned by the Company except for 2
land leases in the Retail Properties Division.
ITEM 3. LEGAL PROCEEDINGS
As previously reported in the Company's Quarterly Report for the period
ended June 30, 1993, on July 16, 1993, the United States Department of Justice,
on behalf of the United States Environmental
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Protection Agency, filed a complaint against the Company in the United States
District Court for the Northern District of Illinois. The complaint alleges
violations under various environmental statutes concerning the Company's
operations at its southeast Chicago facility. The relief sought demands an
undetermined amount of civil penalties and further demands certain, unspecified
corrective action be taken to clean up the site.
On September 27, 1994, the United States Environmental Protection Agency
instituted a civil administrative action against the Company alleging violations
of the Emergency Planning and Community Right-to-Know Act (EPCRA). The action is
pending before the Administrator of the EPA and was brought in response to
voluntary disclosures made by the Company regarding its possible failure to
submit certain reporting forms required by EPCRA. The relief sought by the EPA
includes corrective measures and civil penalties, which, taking into effect the
voluntary nature of the disclosures made by the Company, is reasonably expected
to be less than $200,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the current Executive
Officers, the positions and offices with the Company held by them as of February
28, 1995 and the date when each was first elected or appointed an Executive
Officer:
Date When
First Elected
Name Age Present Position or Appointed
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John G. Breen 60 Chairman and Chief Executive 1979
Officer, Director
Thomas A. Commes 52 President and Chief Operating 1979
Officer, Director
John L. Ault 49 Vice President -- Corporate 1987
Controller
Frank E. Butler 59 President & General Manager, 1994
Coatings Division
Christopher M. Connor 38 President & General Manager, 1994
Specialty Division
Conway G. Ivy 53 Vice President -- Corporate 1979
Planning and Development
T. Scott King 42 President & General Manager, 1994
Consumer Brands Division
Thomas Kroeger 46 Vice President -- Human Resources 1987
John C. Macatee 43 President, Paint Stores Group 1994
Larry J. Pitorak 48 Senior Vice President -- Finance, 1978
Treasurer and Chief Financial
Officer
Joseph M. Scaminace 41 President & General Manager, 1994
Automotive Division
Louis E. Stellato 44 Vice President, General Counsel and 1989
Secretary
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Following is a brief account of each Executive Officer's business
experience with the Company during the last five year period:
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. Ault has served as Vice President -- Corporate Controller since January
1987.
Mr. Butler has served as President & General Manager, Coatings Division
since February 1992 prior to which he served as President & General Manager,
Consumer Division commencing May 1984.
Mr. Connor has served as President & General Manager, Specialty Division
since April 1994 prior to which he served as Senior Vice President -- Marketing,
Paint Stores Group commencing September 1992. From June 1986 to September 1992,
Mr. Connor served as President & General Manager, Western Division, Paint Stores
Group.
Mr. Ivy has served as Vice President -- Corporate Planning and Development
since April 1992 prior to which he served as Vice President and Treasurer
commencing January 1989.
Mr. King has served as President & General Manager, Consumer Brands
Division since February 1992 prior to which he served as Vice President,
Director of Sales and Marketing, Consumer Division commencing June 1987.
Mr. Kroeger has served as Vice President -- Human Resources since October
1987.
Mr. Macatee has served as President, Paint Stores Group since September
1992 prior to which he served as President & General Manager, South Central
Division, Paint Stores Group commencing June 1986.
Mr. Pitorak has served as Senior Vice President -- Finance, Treasurer and
Chief Financial Officer since April 1992 prior to which he served as Senior Vice
President -- Finance and Chief Financial Officer commencing July 1991. From
February 1988 to July 1991, Mr. Pitorak served as Vice President, General
Counsel and Secretary.
Mr. Scaminace has served as President & General Manager, Automotive
Division since April 1994 prior to which he served as President & General
Manager, Specialty Division commencing September 1985.
Mr. Stellato has served as Vice President, General Counsel and Secretary
since July 1991 prior to which he served as Assistant Secretary and Corporate
Director of Taxes commencing December 1989.
There are no family relationships between any of the persons named.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Sherwin-Williams Common Stock is listed on the New York Stock Exchange and
traded under the symbol SHW.
QUARTERLY STOCK PRICES AND DIVIDENDS
Quarter High Low Dividend
--------------------------------------------
1994 1ST $35.750 $31.250 $ .14
2ND 32.500 29.500 .14
3RD 34.125 30.250 .14
4TH 33.375 29.750 .14
1993 1st $34.250 $30.000 $ .125
2nd 34.375 30.125 .125
3rd 36.125 29.875 .125
4th 37.500 32.750 .125
The number of shareholders of record for Sherwin-Williams Common Stock, par
value $1.00 each, as of January 31, 1995 was 12,312. The closing market value
per share as listed on the New York Stock Exchange as of the close of business
January 31, 1995 was $33.500.
ITEM 6. SELECTED FINANCIAL DATA
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------
OPERATIONS
Net Sales $3,100 $2,949 $2,748 $2,541 $2,267
Income before cumulative effects of changes
in accounting methods 187 165 145* 128 123
FINANCIAL POSITION
Total assets $1,962 $1,915 $1,730 $1,612 $1,504
Long-term debt 20 38 60 72 138
PER COMMON SHARE DATA
Income before cumulative effects of changes
in accounting methods $ 2.15 $ 1.85 $ 1.63* $ 1.45 $ 1.41
Cash dividends .56 .50 .44 .42 .38
* Includes a reduction, beginning January 1, 1992, for the additional expense of
accruing postretirement benefits. (See Note 6, page 29). Such additional
expense was $5.7 million after income taxes ($.06 per share) in 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION -- 1994
During 1994, the Company generated more than $250.5 million in cash flow
from operations. This cash flow provided the opportunity to reduce long-term
debt by repurchasing certain outstanding debentures, to purchase over four
million shares of the Company's common stock for treasury and to
10
13
increase the annual dividend to shareholders. The Statements of Consolidated
Cash Flows, on page 22 of this report, present more detailed cash flow
information. Cash and short-term investments decreased $18.4 million from 1993
levels to $251.4 million. Increases and decreases in other components of working
capital occurred primarily due to increased sales and the related increase in
manufacturing activity. Current year reductions in long-term debt and growth in
shareholders' equity lowered the debt-to-capitalization ratio to 2.0 percent at
the end of 1994. Total assets, valued at over $1.9 billion, grew by $47.4
million during 1994. The current ratio decreased to 2.0 at December 31, 1994
from 2.1 at the end of 1993 primarily due to the decrease in cash and short-term
investments.
Net property, plant and equipment increased $15.1 million from 1993.
Capital expenditures of $78.7 million were offset by depreciation expense of
$60.6 million and certain retirements of assets. Capital expenditures in 1994
were principally for the opening, remodeling or relocating of paint stores and
the construction and upgrade of facilities and equipment at manufacturing,
distribution and research sites. In the Coatings Segment, capital expenditures
were higher primarily due to expanding the manufacturing capacity at the
Garland, Texas facility and the completion of a 180,000 square-foot distribution
center in Dayton Valley, Nevada for use by the Transportation Services Division
in consolidating certain distribution facilities on the west coast. There have
been no significant acquisitions of property, plant and equipment during the
past three years. In 1995, the most significant capital expenditures planned are
the construction of a 1,000,000 square-foot distribution center in
Fredericksburg, Pennsylvania and a 263,000 square-foot automotive products
distribution center in Richmond, Kentucky. We plan to continue investing
strategically in new facilities, improving or expanding existing facilities and
in upgrading equipment. We do not anticipate the need for any external financing
to specifically support our capital programs.
Changes in intangible and other noncurrent assets during 1994 resulted
primarily from the amortization of intangible assets associated with prior
acquisitions totaling $13.2 million. The $226.0 million of deferred pension
assets represents the excess fair market value of the assets of the defined
benefit pension trusts. As of December 31, 1994, the assumed discount rate was
raised to 8.25 percent from 7.25 percent, decreasing the projected benefit
obligation and the unrecognized net loss. The higher interest rate environment
during 1994 caused the actual return on plan assets in the defined benefit
pension trusts to be less than the 8.5 percent assumption used in the actuarial
calculation, even though the returns realized on the fixed income portfolios
exceeded comparable benchmark indices. This shortfall in the actual return
increased the net amortization and deferral component of the net pension credit
and the unrecognized net loss at December 31, 1994. The unrecognized net loss is
an accumulation of actuarial gains and losses which is amortized over the
average remaining service lives of the plan participants beginning in the period
after the change or difference occurred. Thus, the net pension credit in 1995
will be reduced by approximately $3.2 million from the increasing amount of
unrecognized net loss. See Note 5, on page 27 of this report, for further
clarification of the excess pension assets, unrecognized items and the
components of the net pension credit.
Long-term debt was reduced during 1994 when the Company acquired $13.1
million principal of certain outstanding 9.875 percent debentures in addition to
normal maturities. As more fully explained in Note 7, on page 30 of this report,
if a significant advantageous investing opportunity should arise, we have in
place additional financing flexibility. We did not utilize any of our short-term
borrowing capacity during 1994. Sufficient cash flows should be generated from
operations to avoid any short-term borrowings in 1995.
The current year change in the liability for postretirement benefits other
than pensions resulted from the excess of the net postretirement benefit
expense, as required by Statement of Financial Accounting Standards No. 106,
less the costs for benefit claims incurred. The current portion of the
postretirement benefits liability, amounting to $8.2 million, is included in
other accruals. As of December 31, 1994, the assumed discount rate used to
calculate the present value of the postretirement benefit plan obligation was
raised to 8.25 percent from 7.25 percent, similar to the change in the
assumption for determining the defined benefit pension plan liability. This
change decreased the accumulated postretirement benefit obligation and the
unrecognized net loss at
11
14
December 31, 1994. Because the resulting unrecognized net loss is within the
boundaries of the amortization "corridor", the impact on future annual
postretirement benefit expense is negligible. Plan amendments made January 1,
1993 significantly reduced the accumulated postretirement benefit obligation,
creating an unrecognized prior service credit. The reduction of the annual
postretirement benefit expense for these amendments began in 1993 and will
continue through 2004. See Note 6, on page 29 of this report, for additional
information concerning the Company's postretirement benefit obligations.
Other long-term liabilities include accruals for environmental-related
matters and other unrelated non-current liabilities. The decrease in the total
accrual to $119.1 million was primarily due to the resolution of certain
obligations sooner than anticipated and the reclassification of certain amounts
to current liabilities.
The Company and certain other companies were named 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 with similar allegations. The various existing lawsuits seek
damages for personal injuries and property damages, along with costs incurred to
abate the lead related paint from buildings. 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 our
industry, are subject to various federal, state and local environmental laws and
regulations. These laws and regulations not only govern our 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 our industry in the future. The Company believes it
conducts its operations in compliance with applicable environmental laws and
regulations and has implemented various programs designed to protect the
environment and ensure continued compliance.
The Company is involved with environmental compliance and remediation
activities at some of its current and former sites. 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.
Capital expenditures and expenses for ongoing compliance measures are
included in the normal operating expenses of conducting business. The Company's
capital expenditures and other expenses for ongoing compliance measures were not
material to the Company's financial condition or net income during 1994, 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 accrues for certain environmental remediation 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 activities with respect to its
past operations and third-party sites. Any potential liability ultimately
determined to be attributable to the Company, however, is subject to a number of
uncertainties including, among others, the number 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, and the method and extent of remediation. The
Company's environmental-related accruals are adjusted as information becomes
available upon which more accurate costs can be reasonably estimated.
12
15
The Company is a defendant in a lawsuit filed by the United States
Department of Justice, on behalf of the United States Environmental Protection
Agency, regarding the Company's operations at its southeast Chicago facility.
The lawsuit, which alleges violations under various environmental statutes,
seeks an undeterminable amount of civil penalties and further demands that
certain, unspecified, corrective action be taken to clean up the site. The
Company is also a defendant in a lawsuit brought by PMC, Inc. regarding one of
the Company's former Chemical Division's manufacturing facilities. This facility
is located adjacent to the Company's southeast Chicago facility referenced above
and was sold to PMC, Inc. in 1985. 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 Company is vigorously
defending both of these lawsuits.
With respect to the Company's southeast Chicago facility and its former
manufacturing facility adjacent thereto, both referenced above, 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.
In the opinion of the Company's management, any potential liability
ultimately attributed to the Company for its environmental-related matters will
not have a material adverse effect on the Company's financial condition,
liquidity or cash flow. See Note 9, on page 31 of this report, for discussion of
the environmental-related accruals included in the Company's consolidated
balance sheets.
Shareholders' equity increased $20.2 million during 1994 due primarily to
current year net income partially offset by dividends paid to shareholders and
the purchase of treasury stock. The Company acquired 4,013,800 shares of its
common stock and additional shares were received in exchange for certain other
stock issued in accordance with the Company's stock plans. From time to time in
the future, depending on our cash position and market conditions, we may acquire
additional Company stock for general corporate purposes. At December 31, 1994,
the Company had unfulfilled Board authorization to purchase up to 5,194,000
additional shares for treasury purposes. See the Statements of Consolidated
Shareholders' Equity, on page 23 of this report, and Note 10, on page 32 of this
report, for equity and capital stock detail.
At a meeting held February 15, 1995, the Board of Directors increased the
quarterly dividend to $.16 per share. This represents the sixteenth consecutive
increase and a compounded rate of increase of 30.2 percent since the dividend
was reinstated in the fourth quarter of 1979. The 1994 annual dividend of $.56
per share marked the fifteenth consecutive year that the dividend approximated
our payout ratio target of 30 percent of the prior year's earnings.
RESULTS OF OPERATIONS -- 1994 VS 1993
Consolidated net sales increased in 1994 by $150.8 million to $3.1 billion,
an increase of 5.1 percent. The growth in sales was driven primarily by gains in
the Paint Stores Segment.
The Paint Stores Segment realized an 8.5 percent sales increase, despite
continued sluggish retail sales, as all operating divisions achieved sales
results better than the results of 1993. Comparable-store sales increased 7.8
percent. Strong emphasis was placed on store-level pricing discipline, however,
continued competitive pressures allowed the implementation of only selective
price increases during the year. Most of the Segment's sales increase resulted
from increased paint gallons sold to wholesale customers, complemented by
wholesale sales increases in most other major product lines. Wholesale customers
include professional painters, contractors and industrial and commercial
maintenance customers.
Sales of the Coatings Segment were essentially flat for 1994. Reduced
demand by certain large customers as they adjusted their inventories downward
affected many of the divisions within the
13
16
Segment. The Consumer Brands Division also was impacted by the loss of a portion
of the business of a home center account. New customers added to our
distribution base during 1994 partially offset the effect of the above declines.
Improved 1994 sales for the Automotive Division resulted primarily from sales
growth in its branch distribution network and strong gains at original equipment
manufacturers. Krylon(R) branded products provided the primary impetus for the
improved sales results of the Specialty Division. Revenue for the real estate
operations in the Other Segment was also flat in comparison to 1993.
Consolidated gross profit dollars were 6.0 percent higher than last year
while gross profit as a percent of sales increased to 42.8 percent from 42.5
percent in 1993. The Paint Stores Segment's 1994 gross margin remained constant
in comparison to 1993. Despite continued sales mix shifts to lower-margin items
in the Specialty and Automotive Divisions, manufacturing efficiencies, stable
raw material costs for most of the year, cost containment and a favorable sales
mix in the Segment's other divisions led to an increase in the Coatings
Segment's 1994 gross margin.
Consolidated selling, general and administrative expenses decreased as a
percent of sales to 32.9 percent from 33.3 percent in 1993. The Paint Stores
Segment's SG&A costs as a percent of sales were below last year due primarily to
containment of selling and administrative expenses combined with the sales gain
achieved. The Coatings Segment's SG&A expenditures were approximately the same
in 1994 as in 1993. Due to this segment's flat sales, a slight increase in SG&A
costs as a percent of sales resulted.
As a result of the above, consolidated operating profits increased 14.0
percent over 1993. The Paint Stores Segment's operating profits improved 20.3
percent due primarily to volume gains and the containment of SG&A costs. Despite
sluggish sales, the Coatings Segment's operating profits increased 3.4 percent
due primarily to the favorable edge in gross margin. The operating profits of
the Other Segment increased in comparison to 1993 due primarily to reduced
interest expense on long-term debt allocable to the real estate operations of
the Segment. The reduction is the result of various debt acquisitions. Corporate
expenses, which are not directly associated with or allocable to any operating
segment, were approximately the same as 1993. Refer to pages 1 through 6 of this
report for additional Business Segment information.
Total interest expense decreased 50.1 percent from last year due to
repurchases of long-term debt and normal maturities. Correspondingly, our
interest coverage improved to 93.8 times in 1994 compared to 42.0 times in 1993.
Our fixed charge coverage, which is calculated using interest and rent expense,
improved to 4.1 times in 1994 versus 3.7 times in 1993.
Interest and net investment income increased 17.1 percent to $8.2 million
primarily as a result of increased investment yields partially offset by reduced
cash and short-term investment balances resulting primarily from the purchase of
common stock for treasury purposes during the year. Other costs and expenses
increased in 1994 primarily due to increased costs related to financing and
investing activities which are further explained in Note 3 on page 26 of this
report. As shown in Note 13, on page 33 of this report, the effective income tax
rate remained the same in 1994 as in 1993.
Net income increased 12.9 percent to $186.6 million and net income per
share increased 16.2 percent to $2.15. Approximately $.04 of the increase in net
income per share over 1993 was due to the purchase of common stock for treasury
purposes at various times throughout 1994.
RESULTS OF OPERATIONS -- 1993 VS 1992
Consolidated net sales increased 7.3 percent to $2.95 billion as all
segments improved sales during the year. The Company's consolidated market share
of gallons sold continued to increase as our gallons sold increased at a faster
rate than total gallons sold for the paint industry, according to U.S.
Government statistics.
The Paint Stores Segment, which accounted for 73.7 percent of the Company's
sales improvement, realized an 8.8 percent sales increase. Strong sales to
wholesale customers were partially offset by continued soft retail sales in the
first half of the year. Comparable-store sales increased 8.5
14
17
percent. Modest selling price increases within select product categories were
partially offset by selling price adjustments on certain non-paint products to
result in overall 1993 price levels remaining relatively constant with the prior
year. Therefore, most of the Segment's sales increase resulted from increased
paint gallons sold, complemented by volume increases in certain associated
products.
The Coatings Segment had a sales increase of 5.0 percent for 1993. The
Consumer Brands Division increased its sales volume in 1993 over the prior year
results primarily due to growth in the Dutch Boy(R) brand and increased gallons
sold to certain national customers. The Automotive Division had steady sales
growth in its domestic branches and the majority of its major product lines
resulting in an overall sales increase for 1993. The sales results of the
Specialty Division improved primarily due to growth in Krylon(R) brand products.
Revenue for the real estate operations in the Other Segment was essentially the
same as 1992.
Consolidated gross profit as a percent of sales increased to 42.5 percent
from 42.2 percent in 1992. The Paint Stores Segment's gross margin increased
slightly. An increase in the Coatings Segment's gross margin was due primarily
to continuing volume gains and the associated improvement in capacity
utilization, overall stable raw material costs and cost containment.
Consolidated selling, general and administrative expenses remained constant
at 33.3 percent when comparing 1993 to 1992. Higher dollars spent occurred in
the Coatings Segment as compared to last year due primarily to additional costs
for market penetration efforts for new customers, increased promotional expenses
associated with the introduction of new products and ongoing brand support.
Consolidated operating profits increased 11.2 percent in comparison with
1992. Operating profits of the Paint Stores Segment increased 28.5 percent due
primarily to volume gains. The Coatings Segment's operating profits increased
11.9 percent due primarily to gains in gross profit. The operating profits of
the Other Segment decreased in comparison to 1992 due primarily to various
provisions made for disposition of certain non-retail properties. Corporate
expenses increased over 1992 as a result of changes in various provisions and
other items which are not directly associated with or allocable to any operating
segment. Refer to pages 1 through 6 of this report for additional Business
Segment information.
Interest expense decreased 24.8 percent from last year due to normal
maturities and acquisitions of long-term debt and no short-term borrowings being
utilized during 1993. Correspondingly, our interest coverage improved to 42.0
times in 1993 compared to 27.4 times in 1992 (based on income before income
taxes and cumulative effects of changes in accounting methods). Our fixed charge
coverage, which is calculated using interest and rent expense, improved to 3.7
times in 1993 versus 3.4 times in 1992 (based also on income before income taxes
and cumulative effects of changes in accounting methods).
Interest and net investment income increased 48.2 percent to $7.0 million
primarily as a result of higher cash and short-term investment balances
partially offset by lower effective yields. Other costs and expenses decreased
to $7.3 million primarily due to reductions in the net adjustments to prior
accruals relating to the disposition and termination of operations and in the
provisions for environmental remediation. See Notes 3 and 4, on page 26 of this
report, for further detail of other costs and expenses. The effective income tax
rate increased in 1993 as compared to 1992, as shown in Note 13, on page 33 of
this report, primarily due to an increase in the federal income tax rate
legislated by Congress in the Omnibus Budget Reconciliation Act of 1993. Income
before cumulative effects of changes in accounting methods increased 14.2
percent and income per share before cumulative effects of changes in accounting
methods increased 13.6 percent.
During 1993, the Company generated $256.0 million in cash flow from
operations. This allowed us to acquire certain outstanding debentures, acquire
additional common shares for treasury, increase the annual dividend and still
increase our cash and short-term investments by more than $100 million.
15
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1994, 1993 and
1992, and the related statements of consolidated income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. Our audits also included the financial statement schedule listed at Item
14(a)(2) on page 19. The financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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, 1994, 1993 and
1992, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, 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.
As discussed in Notes 6 and 13 to the consolidated financial statements, in
1992 the Company changed its methods of accounting for postretirement benefits
other than pensions and income taxes, respectively.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 19, 1995
16
19
REPORT OF MANAGEMENT
Shareholders
The Sherwin-Williams Company
We have prepared the accompanying consolidated financial statements and
related information included herein for the years ended December 31, 1994, 1993
and 1992. The primary responsibility for the integrity of the financial
information rests with management. This information is prepared in accordance
with generally accepted accounting principles based upon our best estimates and
judgments and giving due consideration to materiality.
The Company maintains accounting and control systems which are designed to
provide reasonable assurance that assets are safeguarded from loss or
unauthorized use and which produce records adequate for preparation of financial
information. There are limits inherent in all systems of internal control based
on the recognition that the cost of such systems should not exceed the benefits
to be derived. We believe our system provides this appropriate balance.
The Board of Directors pursues its responsibility for these financial
statements through the Audit Committee, composed exclusively of outside
directors. The Committee meets periodically with management, internal auditors
and our independent auditors to discuss the adequacy of financial controls, the
quality of financial reporting and the nature, extent and results of the audit
effort. Both the internal auditors and independent auditors have private and
confidential access to the Audit Committee at all times.
/s/ J. G. Breen /s/ L. J. Pitorak /s/ J. L. Ault
- -------------------- -------------------------- -----------------------------
J. G. Breen L. J. Pitorak J. L. Ault
Chairman and Senior Vice President -- Finance, Vice President --
Chief Executive Officer Treasurer and Chief Financial Officer Corporate Controller
FINANCIAL STATEMENTS
See "Item 14 -- Financial Statement Schedule, Reports on Form 8-K and
Exhibits" for the required Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
17
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required by Item 10 regarding Directors is contained under
the caption "Election of Directors" in the Proxy Statement which will be filed
with the Securities and Exchange Commission, pursuant to Regulation 14A, not
later than 120 days after the end of the fiscal year, which information under
such caption is incorporated herein by reference.
The information required by Item 10 regarding Executive Officers is
contained under the caption "Executive Officers of the Registrant" in Part I of
this Form 10-K which information under such caption is incorporated herein by
reference.
The information required by Item 10 regarding certain significant employees
is contained under the captions "Corporate Officers of the Company" and
"Operating Managers of the Company" (excluding the Executive Officers) in the
Proxy Statement which information under such captions is incorporated herein by
reference.
The information required by Item 10 regarding Item 405 of Regulation S-K is
contained under the caption "Section 16(a) Reporting Compliance" in the Proxy
Statement which information under such caption is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under certain captions and
tables in the Proxy Statement which information under such captions and tables
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is contained under the caption
"Security Ownership of Management" in the Proxy Statement which information
under such caption is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
18
21
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULE, REPORTS ON FORM 8-K AND EXHIBITS
(a)
(1) Financial Statements
(i) Statements of Consolidated Income for the Years Ended December 31, 1994, 1993
and 1992
(ii) Consolidated Balance Sheets at December 31, 1994, 1993 and 1992
(iii) Statements of Consolidated Cash Flows for the Years Ended December 31, 1994,
1993 and 1992
(iv) Statements of Consolidated Shareholders' Equity for the Years Ended December
31, 1994, 1993 and 1992
(v) Notes to Consolidated Financial Statements for the Years Ended December 31,
1994, 1993 and 1992
(2) Financial Statement Schedule
Financial Schedule No. II for the Years Ended December 31, 1994, 1993 and 1992
-- 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 Exhibit Index at page 39 of this report which is incorporated herein by
reference.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during
the quarter ended December 31, 1994.
19
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STATEMENTS OF CONSOLIDATED INCOME
(Thousands of Dollars Except Per Share Data)
1994 1993 1992
- ------------------------------------------------------------------------------------------
Net sales $3,100,069 $2,949,303 $2,747,843
Costs and expenses:
Cost of goods sold 1,772,671 1,696,959 1,589,430
Selling, general and administrative
expenses 1,018,470 981,268 914,660
Interest expense 3,217 6,453 8,576
Interest and net investment income (8,222) (7,020) (4,738)
Other 15,420 7,279 13,921
- ------------------------------------------------------------------------------------------
2,801,556 2,684,939 2,521,849
- ------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effects of changes in accounting methods 298,513 264,364 225,994
Income taxes 111,942 99,137 81,358
- ------------------------------------------------------------------------------------------
Income before cumulative effects of changes
in accounting methods 186,571 165,227 144,636
Cumulative effect of change in accounting
method for income taxes 18,057
Cumulative effect of change in accounting
method for postretirement benefits other
than pensions -- net of income taxes of
$62,464 (99,828)
- ------------------------------------------------------------------------------------------
Net income $ 186,571 $ 165,227 $ 62,865
===========================================================================================
Income per share:
Before cumulative effects of changes in
accounting methods $ 2.15 $ 1.85 $ 1.63
Cumulative effect of change in
accounting method for income taxes .20
Cumulative effect of change in
accounting method for postretirement
benefits other than pensions --
net of taxes (1.12)
- ------------------------------------------------------------------------------------------
Net income $ 2.15 $ 1.85 $ .71
===========================================================================================
See notes to consolidated financial statements.
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23
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
1994 1993 1992
- ------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 251,415 $ 230,092 $ 164,701
Short-term investments 39,700 3,011
Accounts receivable, less allowance 310,984 297,527 277,314
Inventories:
Finished goods 396,299 371,572 355,227
Work in process and raw materials 62,921 57,346 52,557
- ------------------------------------------------------------------------------------------
459,220 428,918 407,784
Deferred income taxes 73,956 58,705 38,536
Other current assets 93,049 96,145 96,818
- ------------------------------------------------------------------------------------------
Total current assets 1,188,624 1,151,087 988,164
Deferred pension assets 225,962 214,583 189,974
Intangibles and other assets 138,243 154,925 163,803
Property, plant and equipment:
Land 42,211 45,487 43,585
Buildings 227,390 219,395 210,157
Machinery and equipment 596,878 556,694 515,748
Construction in progress 26,074 17,178 17,393
- ------------------------------------------------------------------------------------------
892,553 838,754 786,883
Less allowances for depreciation 483,351 444,684 398,969
- ------------------------------------------------------------------------------------------
409,202 394,070 387,914
- ------------------------------------------------------------------------------------------
Total Assets $1,962,031 $1,914,665 $1,729,855
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 258,930 $ 254,997 $ 231,539
Compensation and taxes withheld 79,110 71,476 66,399
Other accruals 218,240 187,324 170,751
Accrued taxes 40,768 39,804 21,434
- ------------------------------------------------------------------------------------------
Total current liabilities 597,048 553,601 490,123
Long-term debt 20,465 37,901 60,079
Postretirement benefits other than pensions 172,114 166,025 163,104
Other long-term liabilities 119,060 123,967 110,702
Shareholders' equity:
Common stock -- $1.00 par value:
84,825,830, 88,506,337 and 88,380,906
shares outstanding at December 31,
1994, 1993 and 1992, respectively 100,370 99,994 99,374
Other capital 159,562 150,203 134,901
Retained earnings 1,096,066 957,858 828,851
Cumulative foreign currency translation
adjustment (20,006) (20,384) (18,923)
Treasury stock, at cost (282,648) (154,500) (138,356)
- ------------------------------------------------------------------------------------------
Total shareholders' equity 1,053,344 1,033,171 905,847
- ------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,962,031 $1,914,665 $1,729,855
===========================================================================================
See notes to consolidated financial statements.
21
24
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Thousands of Dollars)
1994 1993 1992
- ---------------------------------------------------------------------------------------
OPERATIONS
Net income $186,571 $165,227 $ 62,865
Non-cash adjustments:
Cumulative effect of changes in accounting
methods 81,771
Depreciation 60,571 55,063 51,308
Deferred income tax expense (18,329) (21,873) (5,202)
Provisions for disposition of operations 15,412 7,621 7,735
Provisions for environmental remediation 4,700 4,354 9,450
Amortization of intangible assets 13,153 13,753 14,960
Defined benefit pension plans net credit (11,379) (16,113) (15,896)
Net postretirement benefit plans expense 5,139 2,921 8,834
Other 11,222 16,261 7,491
Change in current items-net:
Increase in accounts receivable (11,606) (19,500) (30,185)
Decrease (increase) in inventories (28,748) (19,553) 15,405
Increase in accounts payable 3,933 23,458 27,981
Increase (decrease) in accrued taxes 964 16,697 (7,968)
Increase in accrued employee welfare costs 5,507 14,957 7,816
Other current items 22,882 13,946 (8,903)
Costs incurred for dispositions of operations (6,949) (5,767) (10,366)
Other (2,520) 4,528 (2,968)
- ---------------------------------------------------------------------------------------
Net operating cash 250,523 255,980 214,128
- ---------------------------------------------------------------------------------------
INVESTING
Capital expenditures (78,660) (62,985) (68,814)
Decrease (increase) in short-term investments 39,700 (36,689) (3,011)
Acquisitions of assets (9,215) (3,157) (2,985)
Other 6,347 (5,213) (272)
- ---------------------------------------------------------------------------------------
Net investing cash (41,828) (108,044) (75,082)
- ---------------------------------------------------------------------------------------
FINANCING
Payments of long-term debt (19,607) (33,711) (44,174)
Payments of cash dividends (48,363) (44,373) (38,759)
Proceeds from stock options exercised 6,301 9,535 13,101
Purchases of stock for treasury (128,148) (16,144) (4,349)
Other 2,445 2,148 (930)
- ---------------------------------------------------------------------------------------
Net financing cash (187,372) (82,545) (75,111)
- ---------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 21,323 65,391 63,935
Cash and cash equivalents at beginning of year 230,092 164,701 100,766
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $251,415 $230,092 $164,701
===========================================================================================
Taxes paid on income $132,573 $102,513 $ 89,297
Interest paid on debt 3,314 7,886 7,508
- ---------------------------------------------------------------------------------------
See notes to consolidated financial statements.
22
25
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Thousands of Dollars)
Cumulative
Common Other Retained Translation Treasury
Stock Capital Earnings Adjustment Stock
- -------------------------------------------------------------------------------------------------
Balance at January 1, 1992 $ 98,483 $116,683 $ 805,689 $(18,885) $(134,007)
Treasury stock acquired (678)
Stock issued 891 18,218 (3,671)
Net income 62,865
Cash dividends -- $.44 per share (38,759)
Increase in unfunded pension
losses -- net of taxes (944)
Current year translation adjustment (38)
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1992 99,374 134,901 828,851 (18,923) (138,356)
Treasury stock acquired (13,841)
Stock issued 620 15,302 (2,303)
Net income 165,227
Cash dividends -- $.50 per share (44,373)
Reduction in unfunded pension
losses -- net of taxes 8,153
Current year translation adjustment (1,461)
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1993 99,994 150,203 957,858 (20,384) (154,500)
Treasury stock acquired (126,794)
Stock issued 376 9,359 (1,354)
Net income 186,571
Cash dividends -- $.56 per share (48,363)
Current year translation adjustment 378
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $100,370 $159,562 $1,096,066 $(20,006) $(282,648)
=================================================================================================
See notes to consolidated financial statements.
23
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars Unless Otherwise Indicated)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include all significant
controlled subsidiaries. Inter-company accounts and transactions have been
eliminated.
Business segments. Business segment information appears on pages 1 through 6 of
this report.
Foreign currency translation. All consolidated 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 accumulated as a separate component of
Shareholders' Equity titled "Cumulative foreign currency translation
adjustment".
Cash flows. The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
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 value 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.
Intangibles. Intangible assets were $105,821, $115,765 and $128,222, net of
accumulated amortization of $62,744, $49,562 and $35,986, at December 31, 1994,
1993 and 1992, respectively. These assets are amortized by the straight-line
method over the expected period of benefit.
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 $16,319, $17,190 and $15,661 for 1994, 1993 and 1992, respectively.
Net income per share. Net income per share was computed based on the average
number of shares and share equivalents outstanding during the year. See
computation on page 41 of this report.
Letters of credit. The Company occasionally enters into standby letter of
credit agreements to guarantee various operating activities. These agreements,
which expire in 1995, provide credit availability to the various beneficiaries
if certain contractual events occur. Amounts outstanding under these agreements
totaled $20,091, $24,656 and $29,882 at December 31, 1994, 1993 and 1992,
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.
24
27
Investments in Securities: The Company maintains certain long-term
investments in a fund to provide for payment of health care benefits of
certain qualified employees. These investments are classified as
held-to-maturity securities with the related carrying amounts included in
Other Assets. The estimated fair values of these securities, shown below,
are based on quoted market prices.
December 31,
-----------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------
Carrying amount $37,726 $38,064 $39,027
Fair value 37,668 43,235 45,847
-----------------------------------------------------------------------------------------
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,
---------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair Carrying Fair
AMOUNT VALUE Amount Value Amount Value
---------------------------------------------------------------------------------------------
Publicly traded debt $16,077 $17,643 $29,235 $37,071 $49,260 $55,538
Non-traded debt 5,083 3,243 10,084 7,446 23,722 19,931
---------------------------------------------------------------------------------------------
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 of 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. All fair value amounts shown represent a
liability position at the respective date.
December 31,
-----------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------
Carrying amount $ 1,802 $ 2,309 $ 2,773
Fair value 1,996 1,094 2,722
Notional amount 9,446 35,009 85,421
Number of agreements outstanding 1 2 4
-----------------------------------------------------------------------------------------
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 $18,829, $25,778 and $21,431 at December 31, 1994, 1993 and
1992, respectively, represent the Company's best estimate of current
economic values of these investments.
Reclassification. Certain amounts in the 1993 and 1992 financial statements
have been reclassified to conform with the 1994 presentation.
25
28
NOTE 2 -- 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 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.
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Percentage of total inventories on LIFO 97% 97% 97%
Excess of FIFO and average cost over LIFO $80,199 $80,094 $83,505
Increase (decrease) in net income due to LIFO (68) 2,217 (174)
Increase in net income per share due to LIFO -- .02 --
- -----------------------------------------------------------------------------------------------
NOTE 3 -- OTHER COSTS AND EXPENSES
A summary of significant items included in other costs and expenses is as
follows:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Dividend and royalty income $(7,500) $(5,445) $(6,934)
Net expense of financing and investing activities 12,660 4,155 2,323
Provisions for environmental remediation 4,700 4,354 9,450
Provisions for disposition and termination of operations
(see Note 4) 1,812 2,621 7,310
Miscellaneous 3,748 1,594 1,772
- -----------------------------------------------------------------------------------------------
$15,420 $ 7,279 $13,921
===============================================================================================
The net expense of financing and investing activities represents the
realized gains or losses associated with disposing of fixed assets, the net gain
or loss associated with the investment of certain long-term asset funds, the
premium associated with the retirement or acquisition of certain outstanding
9.875 percent debentures and, in 1994, the net pre-tax expense associated with
the Company's investment in broad-based corporate owned life insurance.
During the three years ended December 31, 1994, provisions for
environmental remediation reflect the increased estimated costs of environmental
remediation at operating facilities, idle facilities and Superfund sites.
NOTE 4 -- 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 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 the estimated related costs of severance pay,
environmental-related matters and other shutdown expenses and future operating
losses to disposal date. The expenses associated with the related closing cost
provisions are included in cost of goods sold. Adjustments to all previous
accruals, as disposition occurs, are included in other costs and expenses. A
portion of the ending accruals represents estimated expenditures for
environmental-related matters which are anticipated to
26
29
occur beyond one year. Accordingly, that portion of the ending accruals has been
classified as a long-term liability (see Note 9) with the remaining amount
included in other current liabilities.
The provisions made in 1994 represent additional estimated environmental
remediation costs for property adjacent to a site closing and the costs
associated with closing certain warehouses which are to be replaced by larger,
more efficient facilities during 1995. In 1993, provisions were made for the
closing of certain warehouses, small manufacturing facilities and selected
unprofitable retail paint stores as part of production and distribution
consolidations. In 1992, the provisions represented primarily the estimated
increased operational losses to disposal date of closed facilities.
A summary of the financial data related to the closing or sale of the
facilities is as follows:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Beginning accruals -- January 1 $45,060 $43,206 $45,837
Provisions included in cost of goods sold 13,600 5,000 425
Provisions and adjustments to prior accruals included in
costs and expenses -- other 1,812 2,621 7,310
- -----------------------------------------------------------------------------------------------
Total provision 15,412 7,621 7,735
Actual costs incurred (6,949) (5,767) (10,366)
- -----------------------------------------------------------------------------------------------
Ending accruals -- December 31 $53,523 $45,060 $43,206
===============================================================================================
Net after-tax provision $10,018 $ 4,954 $ 5,105
Net after-tax provision per share $ .12 $ .05 $ .06
- -----------------------------------------------------------------------------------------------
NOTE 5 -- PENSION BENEFITS
Substantially all employees of the Company participate in noncontributory
defined benefit or defined contribution pension plans. Defined benefit plans
covering salaried employees provide benefits that are based primarily on years
of service and employees' compensation. The defined benefit plan covering hourly
employees generally provides benefits of stated amounts for each year of
service. Multi-employer plans are primarily defined benefit plans which provide
benefits of stated amounts for union employees. Plan assets consist primarily of
cash, equity and fixed-income securities. There were 969,400 shares of the
Company's stock included in these assets at December 31, 1994, 1993 and 1992,
respectively.
On December 31, 1993, the hourly defined benefit pension plan was merged
with a frozen participation salaried defined benefit pension plan associated
with previously discontinued operations. The plan assets of the resulting merged
plan, known as the Employees' Retirement Plan, exceed the projected benefit
obligation. The Company's funding policy for defined benefit pension plans is to
fund at least the minimum annual contribution required by applicable
regulations.
Due to increased rates of high quality long-term investments, the assumed
discount rate was changed December 31, 1994, decreasing the projected benefit
obligation. The increased interest rates during 1994 negatively impacted the
return on plan assets in the defined benefit pension trusts. The effect of the
change in the assumed discount rate and the reduced earnings on plan assets
resulted in a net increase in the unrecognized net loss which will be amortized
beginning in 1995. Changes in the assumed discount rate and rate of return on
plan assets at December 31, 1993 previously increased the unrecognized net loss
whose 1994 amortization reduced the net pension credit.
27
30
The net pension credit for defined benefit plans and its components was as
follows:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Service cost $ 2,800 $ 2,489 $ 2,620
Interest cost 8,402 8,299 8,167
Actual return on plan assets 7,418 (25,731) (16,903)
Net amortization and deferral (29,999) (1,170) (9,780)
- -----------------------------------------------------------------------------------------------
Net pension credit $ (11,379) $ (16,113) $ (15,896)
===============================================================================================
Based on the latest actuarial information available, the following table
sets forth the funded status and amounts recognized in the Company's
consolidated balance sheets for the defined benefit pension plans:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(103,860) $(105,530) $ (92,720)
Accumulated benefit obligation $(105,480) $(107,530) $ (94,580)
Projected benefit obligation $(111,650) $(117,970) $(102,480)
Plan assets at fair value:
Salaried employees' plan(s) $ 196,911 $ 203,222 $ 219,391
Employees' Retirement Plan 80,930 89,854 55,588
- -----------------------------------------------------------------------------------------------
277,841 293,076 274,979
Plan assets in excess of (less than) projected
benefit obligation:
Salaried employees' plan(s) 157,661 166,622 181,011
Employees' Retirement Plan 8,530 8,484 (8,512)
- -----------------------------------------------------------------------------------------------
166,191 175,106 172,499
Unrecognized net asset at January 1, 1986, net of
amortization (12,787) (15,708) (18,630)
Unrecognized prior service cost 441 1,201 885
Unrecognized net loss 72,117 53,984 40,621
Adjustment required to recognize minimum liability
for the Employees' Retirement Plan (13,515)
- -----------------------------------------------------------------------------------------------
Net pension assets $ 225,962 $ 214,583 $ 181,860
===============================================================================================
Net pension assets recognized in the consolidated
balance sheets:
Deferred pension assets $ 225,962 $ 214,583 $ 189,974
Minimum liability included in long-term
liabilities (6,489)
Accrued pension liability included in current
liabilities (1,625)
- -----------------------------------------------------------------------------------------------
Net pension assets $ 225,962 $ 214,583 $ 181,860
===============================================================================================
Assumptions used in determining actuarial present
value of benefit obligations:
Discount rate 8.25% 7.25% 8.50%
Weighted-average rate of increase in future
compensation levels 5.00% 5.00% 5.00%
Long-term rate of return on plan assets 8.50% 8.50% 10.00%
- -----------------------------------------------------------------------------------------------
The Company's annual contribution for its defined contribution pension
plans, which is based on a level percentage of compensation for covered
employees, offset the pension credit by $20,193 for
28
31
1994, $19,809 for 1993 and $17,110 for 1992. The cost of multiemployer and
foreign plans charged to income was immaterial for the three years ended
December 31, 1994.
NOTE 6 -- BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits under company-sponsored plans for active
and retired employees. The health care plans are contributory and contain
cost-sharing features such as deductibles and coinsurance. Certain provisions of
the plans concerning deductibles, coinsurance and eligibility were amended as of
January 1, 1993. There were 14,160, 13,883 and 13,741 active employees entitled
to receive benefits under these plans as of December 31, 1994, 1993 and 1992,
respectively. The cost of these benefits for active employees is recognized as
claims are incurred and amounted to $32,694, $35,597 and $35,047 for 1994, 1993
and 1992, respectively. The Company has a fund to provide for payment of health
care benefits of certain qualified employees. Distributions from the fund
amounted to $4,662 in 1994, $5,719 in 1993 and $35,447 in 1992. The Company last
contributed to the fund in 1992 and does not intend to make any further
contributions.
Substantially all employees of the Company who are not members of a
collective bargaining unit are eligible for certain health care and life
insurance benefits upon retirement. There were 4,093, 4,126 and 4,201 retired
employees entitled to receive benefits as of December 31, 1994, 1993 and 1992,
respectively. The health care and life insurance plan amendments decreased the
accumulated postretirement benefit obligation resulting in a net prior service
credit which was first amortized beginning in 1993. The plans are unfunded.
During the fourth quarter of 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", effective January 1, 1992. The
Company recognized a one-time charge to consolidated income on January 1, 1992
of $99,828 ($1.12 per share) for the accumulated postretirement benefit
obligation which was not recognized by the Company prior to the adoption of SFAS
No. 106.
The assumed discount rate used in determining the actuarial present value
of the accumulated postretirement benefit obligation was 8.25%, 7.25% and 8.50%
for 1994, 1993 and 1992, respectively. Due to the increased interest rates of
high quality long-term investments, the assumed discount rate was changed
December 31, 1994 decreasing the accumulated postretirement benefit obligation,
the effect of which decreased the unrecognized net loss. The assumed
weighted-average annual rate of increase in the per capita cost of covered
benefits (i.e., the health care cost trend rate) is 9.5 percent for 1995 and
decreases gradually to 5.5 percent for 2003 and thereafter. The assumed health
care cost trend rate was lowered one percentage point at December 31, 1993 for
each year thereafter, which decreased the accumulated postretirement benefit
obligation. The health care cost trend rate has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994 by $12,174 and the
aggregate service and interest cost components of net periodic postretirement
benefit cost for 1994 by $1,064.
29
32
Based on the latest actuarial information available, the following table
sets forth the amounts recognized in the Company's consolidated balance sheets
for postretirement benefits other than pensions:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ (93,049) $ (94,000) $ (96,776)
Fully eligible active participants (14,240) (19,900) (21,156)
Other active participants (41,811) (40,680) (54,272)
- -----------------------------------------------------------------------------------------------
(149,100) (154,580) (172,204)
Effect of changes in the accumulated postretirement
benefit obligation to be amortized over future
years:
Unrecognized prior service credit (26,961) (29,655)
Unrecognized net (gain) loss (4,203) 9,110
- -----------------------------------------------------------------------------------------------
Total accrued postretirement benefit liability $(180,264) $(175,125) $(172,204)
===============================================================================================
Accrued postretirement benefit liabilities
recognized in the consolidated balance sheets:
Amount included in current liabilities $ (8,150) $ (9,100) $ (9,100)
Amount of long-term postretirement benefits
other than pensions (172,114) (166,025) (163,104)
- -----------------------------------------------------------------------------------------------
Total accrued postretirement benefit liability $(180,264) $(175,125) $(172,204)
===============================================================================================
The expense for postretirement benefit plans and
its components was as follows:
Service cost $ 3,112 $ 2,450 $ 3,938
Interest cost 11,459 11,420 13,886
Net amortization of unrecognized prior service
credit (2,693) (2,693)
Net amortization and deferral 61
- -----------------------------------------------------------------------------------------------
Net postretirement benefit expense $ 11,939 $ 11,177 $ 17,824
===============================================================================================
NOTE 7 -- LONG-TERM DEBT
Sinking Fund/Interim Payments Amount Outstanding
------------------------------------------ ---------------------------------------
Due Date Amount Commence 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
9.875% Debentures 2016 $5,000 2007 $15,900 $29,000 $49,000
8% to 12% Mortgage Notes secured by Through Varies Payable currently 3,365 4,418 6,114
certain land and buildings and 2005
other
8.5% Promissory Note 2004 Varies 1996 1,000
Floating Rate Broward County 3,994 4,374
Industrial Revenue Bond
6.25% Convertible Subordinated 1995 235 260
Debentures (Convertible into
common stock at $2.875 a share)
Other Obligations 200 254 331
- -----------------------------------------------------------------------------------------------------------------------------
$20,465 $37,901 $60,079
=============================================================================================================================
Maturities of long-term debt are as follows for the next five years: $926
in 1995; $755 in 1996; $662 in 1997; $467 in 1998; and $506 in 1999.
Interest expense on long-term debt amounted to $2,768, $6,136 and $7,438
for 1994, 1993 and 1992, respectively. There were no interest charges
capitalized during the periods presented.
30
33
The Company had the following financing arrangements available, however
there were no outstanding borrowings at December 31, 1994.
Under a credit agreement with a group of eleven banks dated June 22, 1987,
the Company may borrow up to $280,000. The termination date of the agreement is
automatically extended by one year on each anniversary date, but shall not
extend beyond the twentieth anniversary of the agreement. Amounts outstanding
under the agreement may be converted into two-year term loans at any time. The
credit agreement includes certain restrictive covenants regarding the working
capital ratio. There are no compensating balance requirements.
The Company has a commercial paper program under which $280,000 aggregate
principal amount of unsecured short-term notes can be issued.
Under a shelf registration with the Securities and Exchange Commission
covering $200,000 of unsecured debt securities with maturities ranging from nine
months to thirty years, the Company may issue securities from time to time in
one or more series and will offer the securities on terms determined at the time
of sale.
NOTE 8 -- LEASES
The Company leases stores, warehouses, 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 $93,637, $91,672 and $86,944 for 1994, 1993 and 1992, 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 $8,985
in 1994, $9,234 in 1993 and $8,215 in 1992. Certain properties are subleased
with various expiration dates. 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, 1994:
1995 $ 73,435
1996 61,982
1997 49,003
1998 36,250
1999 24,925
Later years 57,891
--------
Total minimum lease payments $303,486
========
NOTE 9 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
1994 1993 1992
- --------------------------------------------------------------------------------------------
Environmental-related $ 71,049 $ 65,755 $ 53,252
Other 48,011 58,212 57,450
- --------------------------------------------------------------------------------------------
$119,060 $123,967 $110,702
============================================================================================
The Company has provided for the estimated costs associated with
environmental remediation 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
31
34
for investigation and remediation costs regardless of fault. The Company
provides for its estimated potential 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 minimum 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 within 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 these matters will not have a material adverse effect on
the financial condition, liquidity or cash flow of the Company.
In addition to the long-term portion of environmental-related accruals
shown above, current accruals for certain environmental-related liabilities
associated with the disposition and termination of operations (see Note 4) and
those associated with other current, former and third-party sites are included
in other accruals in current liabilities on the balance sheet.
NOTE 10 -- CAPITAL STOCK
Shares Shares
in Treasury Outstanding
- -------------------------------------------------------------------------------------------
Balance at January 1, 1992 10,839,716 87,643,066
Stock issued upon:
Exercise of stock options 128,463 768,833
Conversion of 6.25% Convertible Subordinated Debentures 10,085
Cancellation of restricted stock grants (16,000)
Treasury stock acquired 25,078 (25,078)
- -------------------------------------------------------------------------------------------
Balance at December 31, 1992 10,993,257 88,380,906
Stock issued upon:
Exercise of stock options 73,224 462,736
Conversion of 6.25% Convertible Subordinated Debentures 8,695
Restricted stock grants 75,500
Treasury stock acquired 421,500 (421,500)
- -------------------------------------------------------------------------------------------
Balance at December 31, 1993 11,487,981 88,506,337
Stock issued upon:
Exercise of stock options 42,292 319,124
Conversion of 6.25% Convertible Subordinated Debentures 20,169
Cancellation of restricted stock grants (6,000)
Treasury stock acquired 4,013,800 (4,013,800)
- -------------------------------------------------------------------------------------------
Balance at December 31, 1994 15,544,073 84,825,830
==========================================================================================
An aggregate of 5,663,772, 4,087,364 and 4,707,520 shares of stock at
December 31, 1994, 1993 and 1992, respectively, were reserved for conversion of
convertible subordinated debentures, and exercise and future grants of stock
options. At December 31, 1994, there were 300,000,000 shares of common stock and
30,000,000 shares of serial preferred stock authorized for issuance.
The Company has a shareholders' rights plan which designates 1,000,000
shares of the authorized serial preferred stock as cumulative redeemable serial
preferred stock which may be issued if the Company becomes the target of
coercive and unfair takeover tactics.
32
35
NOTE 11 -- STOCK PURCHASE PLAN
As of December 31, 1994, 10,918 employees participated through regular
payroll deductions in the Company's Employee Stock Purchase and Savings Plan.
The Company's contribution charged to income amounted to $22,242, $20,658 and
$17,321 for 1994, 1993 and 1992, respectively. Additionally, the Company made
contributions on behalf of participating employees, which represent salary
reductions for income tax purposes, amounting to $11,456 in 1994, $10,335 in
1993 and $8,646 in 1992.
At December 31, 1994, there were 12,848,911 shares of the Company's stock
being held by this plan, representing 15.2 percent of the total number of shares
outstanding. Shares of company stock credited to each member's account under the
plan are voted by the trustee under confidential 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 12 -- STOCK PLAN
The Company's 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. The 1994 Stock Plan authorized an additional 2,000,000
shares to be added to authorized shares of the 1984 Stock Plan which were not
granted as of the 1984 Stock Plan's expiration date. 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 of employment
following the date of grant and generally expire ten years after the date of
grant.
Restricted stock grants, with an outstanding balance of 218,000 shares at
December 31, 1994, were awarded to certain officers and key employees which
require four years of continuous employment from the date of grant before
receiving the shares without restriction. The number of shares to be received
without restriction is based on the Company's performance relative to a peer
group of companies. Unamortized deferred compensation expense with respect to
the restricted stock amounted to $1,612 at December 31, 1994, $3,760 at December
31, 1993 and $3,456 at December 31, 1992 and is being amortized over the
four-year vesting period. Deferred compensation expense aggregated $1,416,
$3,271 and $1,366 in 1994, 1993 and 1992, respectively. No stock appreciation
rights have been granted.
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
PRICE Price Price
SHARES RANGE Shares Range Shares Range
- ---------------------------------------------------------------------------------------------------------------------------
Stock Options:
Outstanding beginning
of year 2,671,545 $ 7.72-$35.88 2,944,255 $ 7.72-$28.88 3,569,190 $ 6.63-$25.13
Granted 334,400 32.19- 35.06 327,000 30.75- 35.88 383,000 27.25- 28.88
Exercised (361,416) 7.72- 31.63 (535,960) 9.22- 28.38 (897,296) 6.63- 20.44
Canceled (38,070) 12.56- 33.25 (63,750) 10.94- 30.75 (110,639) 10.94- 28.38
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding end of year 2,606,459 $10.94-$35.88 2,671,545 $ 7.72-$35.88 2,944,255 $ 7.72-$28.88
- ---------------------------------------------------------------------------------------------------------------------------
Exercisable 1,969,569 1,579,103 1,254,890
Reserved for future grants 2,995,630 1,333,963 1,672,713
- ---------------------------------------------------------------------------------------------------------------------------
NOTE 13 -- INCOME TAXES
During 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 (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. As
of January 1, 1992, the Company recognized a one-time benefit to consolidated
income of $18,057 ($.20
33
36
per share) from the change in accounting for income taxes from the deferred
method to the liability method as required by SFAS No. 109.
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, 1994, 1993
and 1992 are as follows:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 23,829 $30,580 $32,833
Deferred employee benefit items 26,494 24,109 19,140
- -----------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 50,323 $54,689 $51,973
===============================================================================================
Deferred tax assets:
Dispositions, terminations and other similar items $ 36,076 $30,044 $28,341
Other items 77,013 65,721 46,325
- -----------------------------------------------------------------------------------------------
Total deferred tax assets $113,089 $95,765 $74,666
===============================================================================================
Significant components of the provisions for income taxes are as follows:
1994 1993 1992
- --------------------------------------------------------------------------------------------
Current:
Federal $106,132 $100,121 $72,116
Foreign 1,775 1,483 1,732
State and Local 22,364 19,406 12,712
- --------------------------------------------------------------------------------------------
Total Current 130,271 121,010 86,560
Deferred:
Federal (15,465) (18,467) (4,490)
Foreign
State and Local (2,864) (3,406) (712)
- --------------------------------------------------------------------------------------------
Total Deferred (18,329) (21,873) (5,202)
- --------------------------------------------------------------------------------------------
Total income tax expense $111,942 $ 99,137 $81,358
============================================================================================
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:
1994 1993 1992
- ---------------------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 34.0%
Effect of:
State and local taxes 4.2 3.9 3.5
Investment vehicles (2.0) (1.1) (0.6)
Other, net 0.3 (0.3) (0.9)
- ---------------------------------------------------------------------------------------------
Effective tax rate 37.5% 37.5% 36.0%
=============================================================================================
It is the Company's intention to reinvest undistributed earnings of foreign
subsidiaries; accordingly, no deferred income taxes have been provided thereon.
At December 31, 1994, such undistributed earnings amounted to $3,941.
34
37
NOTE 14 -- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
NET
NET GROSS NET INCOME
QUARTER SALES PROFIT INCOME PER SHARE
- ------------------------------------------------------------------------------------
1994 1ST $ 639,157 $ 261,890 $ 15,508 $.17
2ND 880,531 378,775 69,155 .80
3RD 876,743 377,529 71,229 .83
4TH 703,638 309,204 30,679 .36
- ------------------------------------------------------------------------------------
1993 1st $ 618,289 $ 249,561 $ 13,810 $.15
2nd 824,162 344,240 60,613 .68
3rd 838,824 361,516 64,372 .72
4th 668,028 297,027 26,432 .30
- ------------------------------------------------------------------------------------
1994
Net income for the fourth quarter was reduced $809 ($.01 per share) due to
certain year-end adjustments. A net decrease in cost of goods sold resulted from
physical inventory adjustments of $19,017 ($12,361 after-tax, $.14 per share)
which were partially offset by certain provisions for the disposition and
termination of operations of $13,600 ($8,840 after-tax, $.10 per share). A net
increase in administrative expenses due to other year-end adjustments of $2,150
($1,398 after-tax, $.01 per share) and in other costs and expenses due to the
remaining provisions for the disposition and termination of operations of $1,812
($1,178 after-tax, $.02 per share) and provisions for environmental remediation
at certain sites of $2,700 ($1,755 after-tax, $.02 per share) more than offset
the gain in cost of goods sold.
1993
Fourth quarter adjustments reduced net income by $1,219 ($.01 per share).
The effect on net income was due to a year-end decrease in cost of goods sold
for adjustments of inventory quantities and prior quarters' LIFO expense of
$15,547 ($.17 per share) primarily offset by increases in administrative and
other costs and expenses by provisions for the disposition and termination of
certain operations of $4,954 ($.05 per share), provisions for environmental
remediation at certain sites of $2,830 ($.03 per share), and other year-end
adjustments of $8,983 ($.10 per share).
35
38
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(SCHEDULE II)
Changes in the allowance for doubtful accounts are as follows:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Beginning balance $ 8,589 $ 1,983 $ 2,573
Bad debt expense 11,801 16,514 9,905
Net uncollectible accounts written off (9,570) (9,908) (10,495)
- -----------------------------------------------------------------------------------------------
Ending balance $ 10,820 $ 8,589 $ 1,983
===============================================================================================
Activity related to other assets:
1994 1993 1992
- -----------------------------------------------------------------------------------------------
Beginning balance $54,079 $40,124 $24,403
Charges to expense 20,850 13,785 15,028
Other additions 5,924 170 693
- -----------------------------------------------------------------------------------------------
Ending balance $80,853 $54,079 $40,124
===============================================================================================
Charges to expense consist primarily of amortization of intangibles and, in
1994, adjustments to reduce certain assets to their estimated net realizable
values. Other additions consist primarily of actual costs incurred and balance
sheet reclassifications.
36
39
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, in the City of
Cleveland, and State of Ohio, on the 15th day of March, 1995.
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 15, 1995.
SIGNATURE
- ----------------------------
J. G. BREEN Chairman and Chief Executive Officer,
- ---------------------------- Director
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
J. L. AULT Vice President -- Corporate Controller
- ----------------------------
J. L. Ault
J. M. BIGGAR Director
- ----------------------------
J.M. Biggar
L. CARTER Director
- ----------------------------
L. Carter
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
H. O. PETRAUSKAS Director
- ----------------------------
H. O. Petrauskas
37
40
SIGNATURE
- ----------------------------
R. E. SCHEY Director
- ----------------------------
R. E. Schey
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 15, 1995
--------------------------------
L. E. Stellato, Attorney-in-fact
38
41
EXHIBIT INDEX
2. Not applicable.
3. (a) Amended Articles of Incorporation, as amended April 28, 1993, filed as Exhibit
4(a) to Form S-8 Registration Statement No. 33-52227 dated February 10, 1994, 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 June 15, 1988,
filed as Exhibit 4(b) to Form S-3 Registration Statement Number 33-22705, dated
June 24, 1988, and incorporated herein by reference.
(b) Revolving Credit Agreement, by and among the Company and several banking
institutions, as amended and restated, effective December 15, 1993 and filed as
Exhibit 4(f) to Form S-8 Registration Statement No. 33-52227 dated February 10,
1994, and incorporated herein by reference.
(c) 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.
(d) Indenture between the Company and Central National Bank, dated March 1, 1970,
filed as Exhibit 4 to Form S-7 Registration Statement Number 2-36240, and
incorporated herein by reference.
(e) Indenture between the Company and The Cleveland Trust Company, as Trustee, dated
April 17, 1967, filed as Exhibit 2(a) to Amendment No. 1, dated April 18, 1967,
to Form S-9 Registration Statement Number 2-26295, and incorporated herein by
reference.
(f) Rights Agreement between the Company and Ameritrust Company National Association,
dated January 25, 1989, filed as Exhibit 2.1 to Form 8-A, dated January 26, 1989,
and incorporated herein by reference.
9. Not applicable.
10. *(a) Form of Director and Officer Indemnification Agreement filed as Exhibit 28(a) to
Form S-3 Registration Statement Number 33-22705 dated June 24, 1988, and
incorporated herein by reference.
*(b) Employment Agreements filed as Exhibit 28(b) to Form S-3 Registration Statement
Number 33-22705 dated June 24, 1988, and incorporated herein by reference.
*(c) Form of Severance Pay Agreements filed as Exhibit 10(c) to Form 10-K dated March
13, 1990, and incorporated herein by reference.
*(d) The Sherwin-Williams Company Deferred Compensation Savings Plan filed as Exhibit
10(d) to Form 10-K dated March 13, 1992, and incorporated herein by reference.
*(e) The Sherwin-Williams Company Key Management Deferred Compensation Plan filed as
Exhibit 28(e) to Form S-3 Registration Statement Number 33-22705 dated June 24,
1988, and incorporated herein by reference.
(f) Asset Purchase Agreement, dated July 17, 1990, as amended, between the Company
and DeSoto, Inc., for the purchase of certain assets of DeSoto, Inc.'s U.S.
Consumer Paint Business filed as Exhibit 10(g) to Form 10-K dated March 15, 1991,
and incorporated herein by reference.
*(g) Form of Executive Disability Income Plan filed as Exhibit 10(g) to Form 10-K
dated March 13, 1992, and incorporated herein by reference.
*(h) Form of Executive Life Insurance Plan filed as Exhibit 10(h) to Form 10-K dated
March 13, 1992, and incorporated herein by reference.
39
42
*(i) Form of Directors' Deferred Fee Plan filed as Exhibit 10(i) to Form 10-K dated
March 13, 1992, and incorporated herein by reference.
(j) License Agreement, dated February 1, 1991, as amended, between the Company and
SWIMC, Inc. filed as Exhibit 10(j) to Form 10-K dated March 15, 1993, and
incorporated herein by reference.
(k) License Agreement, dated February 1, 1991, as amended, between the Company and
DIMC, Inc. filed as Exhibit 10(k) to Form 10-K dated March 15, 1993, and
incorporated herein by reference.
*(l) Form of The Sherwin-Williams Company Management Compensation Program (filed
herewith).
*(m) The Sherwin-Williams Company 1994 Stock Plan, as amended and restated in its
entirety, effective April 27, 1994, filed as Exhibit 4(d) to Form S-8
Registration Statement No. 33-52227 dated February 10, 1994, and incorporated
herein by reference.
11. Computation of Net Income Per Share -- Page 41.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Subsidiaries -- Page 42.
22. Not applicable.
23. Consent of Independent Auditors -- Page 43.
24. Powers of Attorney (filed herewith).
27. Financial Data Schedule.
28. Not applicable.
99. Not applicable.
*Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
40