<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period Ended March 31, 1995
--------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ------------------- to ---------------------
Commission file number 1-4851
------
THE SHERWIN-WILLIAMS COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0526850
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Prospect Avenue, N.W., Cleveland, Ohio 44115-1075
- ------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
(216) 566-2000
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.00 Par Value -- 85,154,748 shares as of April 30, 1995.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Thousands of Dollars, except per share data.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 716,796 $ 639,157
Cost and expenses:
Cost of goods sold 424,237 377,267
Selling, general and administrative expenses 264,625 237,882
Interest expense 647 987
Interest and net investment income (2,584) (1,818)
Other 135 (378)
- --------------------------------------------------------------------------------
687,060 613,940
- --------------------------------------------------------------------------------
Income before taxes 29,736 25,217
Income taxes 11,003 9,709
- --------------------------------------------------------------------------------
Net income $ 18,733 $ 15,508
================================================================================
Net income per share $ 0.22 $ 0.17
================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars.
<TABLE>
<CAPTION>
MARCH 31, Dec. 31, March 31,
1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 137,995 $ 251,415 $ 115,880
Short-term investments 0 0 18,000
Accounts receivable, less allowance 378,346 310,984 346,507
Inventories:
Finished goods 452,272 396,299 415,083
Work in process and raw materials 66,823 62,921 60,115
- ------------------------------------------------------------------------------------------------------------------------------
519,095 459,220 475,198
Other current assets 173,217 167,005 167,345
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,208,653 1,188,624 1,122,930
Deferred pension assets 227,714 225,962 217,602
Other assets 151,960 138,243 157,807
Property, plant and equipment 913,318 892,553 855,490
Less allowances for depreciation and
amortization 498,706 483,351 457,565
- ------------------------------------------------------------------------------------------------------------------------------
414,612 409,202 397,925
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $2,002,939 $1,962,031 $1,896,264
==============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 301,087 $ 258,930 $ 248,896
Compensation and taxes withheld 58,883 79,110 53,431
Other accruals 254,829 218,240 231,342
Accrued taxes 36,577 40,768 35,512
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 651,376 597,048 569,181
Long-term debt 20,752 20,465 36,713
Postretirement benefits other than pensions 173,164 172,114 166,625
Other long-term liabilities 96,049 119,060 108,150
Shareholders' equity
Common stock - $1.00 par value:
85,119,519, 84,825,830 and 87,917,714
shares outstanding at March 31, 1995,
December 31, 1994 and March 31, 1994,
respectively 100,698 100,370 100,113
Other capital 163,303 159,562 152,603
Retained earnings 1,101,191 1,096,066 961,076
Cumulative foreign currency translation
adjustment (19,794) (20,006) (20,635)
Treasury stock, at cost (283,800) (282,648) (177,562)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,061,598 1,053,344 1,015,595
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,002,939 $1,962,031 $1,896,264
==============================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 4
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of Dollars
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 18,733 $ 15,508
Non-cash adjustments:
Depreciation and amortization 15,039 14,110
Amortization of intangible assets 3,475 3,228
Increase in deferred pension assets (1,752) (3,019)
Other 7,465 2,450
Change in current assets and liabilities-net (99,457) (106,251)
Other (4,249) (1,264)
- --------------------------------------------------------------------------------
Net operating cash (60,746) (75,238)
INVESTING
Capital expenditures (22,097) (17,971)
Short-term investments 0 21,700
Acquisition of assets (7,935) (525)
Other (11,183) (6,885)
- --------------------------------------------------------------------------------
Net investing cash (41,215) (3,681)
FINANCING
Payments of cash dividends (13,610) (12,291)
Treasury stock acquired (1,152) (23,062)
Proceeds from stock options exercised 3,143 1,894
Other 160 (1,834)
- --------------------------------------------------------------------------------
Net financing cash (11,459) (35,293)
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Net decrease in cash and cash equivalents (113,420) (114,212)
Cash and cash equivalents at beginning of year 251,415 230,092
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of quarter $ 137,995 $ 115,880
================================================================================
Taxes paid on income $ 14,604 $ 16,461
Interest paid on debt 335 550
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 5
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended March 31, 1995 and 1994
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal year ended
December 31, 1994. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated results for the three months ended March 31,
1995 are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 1995.
NOTE B--DIVIDENDS
Dividends paid on common stock during the first quarter of 1995 and 1994 were
$.16 per share and $.14 per share, respectively.
NOTE C--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.
NOTE D--OTHER COSTS AND EXPENSES
Significant items included in other costs and expenses are as follows:
<TABLE>
<CAPTION>
Three months ended
-------------------------
Thousands of dollars. MARCH 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
Dividend and royalty income $ 6,547 $ 1,512
Net expense of financing and
investing activities (1,704) (447)
Provisions for environmental remediation (3,000)
Provisions for disposition and termination of operations (1,500)
</TABLE>
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 and the net
pre-tax expense associated with the Company's investment in broad-based
corporate owned life insurance.
NOTE E--RECLASSIFICATION
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1994 presentation.
<PAGE> 6
NOTE F--COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended
-------------------------
Thousands of dollars, except per share data. MARCH 31, March 31,
1995 1994
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<S> <C> <C>
Fully Diluted
Average shares outstanding 85,057,930 88,323,196
Options - treasury stock method 532,865 661,660
Assumed conversion of 6.25% convertible
subordinated debentures 15,884 78,957
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Average fully diluted shares 85,606,679 89,063,813
========== ==========
Net income $ 18,733 $ 15,508
Add 6.25% Convertible Subordinated Debentures
interest-net of tax 3
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Net income applicable to fully diluted shares $ 18,733 $ 15,511
========== ==========
Net income per share $ 0.22 $ 0.17
========== ==========
Primary
Average shares outstanding 85,057,930 88,323,196
Options - treasury stock method 527,925 654,857
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Average shares and equivalents 85,585,855 88,978,053
========== ==========
Net income $ 18,733 $ 15,508
========== ==========
Net income per share $ 0.22 $ 0.17
========== ==========
</TABLE>
All 6.25% Convertible Subordinated Debentures outstanding at December 31, 1994
were converted to common stock during the first quarter of 1995 without
incurring further interest.
<PAGE> 7
NOTE G--BUSINESS SEGMENTS
Net External Sales/Operating Profit (Loss)
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<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------------------------
Thousands of dollars. 1995 1994
------------------------- -------------------------
NET OPERATING Net Operating
EXTERNAL PROFIT External Profit
SALES (LOSS) Sales (Loss)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Paint Stores $ 444,031 $ 725 $ 391,891 $ (942)
Coatings 269,338 37,913 243,757 35,416
Other 3,427 2,784 3,509 1,468
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Segment totals $ 716,796 41,422 $ 639,157 35,942
========== ==========
Corporate expenses - net (11,686) (10,725)
----------- -----------
Income before income taxes $ 29,736 $ 25,217
=========== ===========
=====================================================================================================
</TABLE>
Intersegment Transfers
- ----------------------
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
Thousands of dollars. 1995 1994
----------- ----------
<S> <C> <C>
Coatings $ 150,022 $ 143,827
Other 4,466 4,265
----------- ----------
Segment totals $ 154,488 $ 148,092
=========== ==========
=====================================================================================================
</TABLE>
Operating profit is total revenue, including realized profit on intersegment
transfers, less operating costs and expenses.
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 periods presented.
Intersegment transfers are accounted for at values comparable to normal
unaffiliated customer sales.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Consolidated net sales increased to $716,796,000 during the first quarter of
1995, improving 12.1 percent over last year. Sales in all operating regions of
the Paint Stores Segment exceeded last year, leading to an overall increase of
13.3 percent for this Segment in the first quarter. Sales to wholesale
customers, which include professional, contractor, industrial and commercial
maintenance accounts, remained strong. Sales in the Coatings Segment increased
10.5 percent over last year. Improvements were generated from increased volume
related to new business obtained during 1994, as well as sales increases in the
automotive branches and several specialty product lines. Revenue generated by
real estate operations in the Other Segment decreased 2.3 percent from 1994.
Consolidated gross profit as a percent of sales decreased in the quarter to
40.8 percent from last year's 41.0 percent. Margins in the Paint Stores
Segment decreased from last year due to difficulties in implementing selling
price increases. The Coatings Segment's gross margins increased over 1994's
first quarter primarily due to successful implementation of selective selling
price increases combined with the realization of manufacturing efficiencies,
which lessened the effect of increased raw materials costs.
Consolidated selling, general and administrative expenses as a percent of sales
for the first quarter were lower than last year. The Paint Stores Segment's
SG&A percentage was favorable to last year due to the increased sales combined
with lower-than-planned spending. In the Coatings Segment, SG&A expenses as a
percent of sales were higher than last year due primarily to increased market
penetration costs incurred by the Consumer Brands Division in pursuit of new
business, offset somewhat by lower-than-planned spending in the Specialty and
Automotive Divisions.
Interest expense decreased by 34.5 percent from the first quarter of 1994 due
to the normal maturities of long-term debt and the acquisition of certain
outstanding long-term 9.875% debentures during the second quarter of 1994. Net
investment income was above last year primarily due to increased yields.
Royalty income increased significantly over the first quarter of 1994 due to
the receipt of a dividend from an unconsolidated subsidiary. This was offset,
however, by an increase in the net expense of financing and investing
activities, as well as increased provisions for disposition and termination of
operations and for environmental remediation.
Net income for the first quarter of 1995 increased to $18,733,000 or $.22 per
share from $15,508,000 or $.17 per share in 1994. The increase in earnings
per share was partially due to a lower number of average shares outstanding
caused by significant treasury stock purchases made during 1994.
FINANCIAL CONDITION
- -------------------
The Company remains in a strong financial position at the end of the first
quarter of 1995. Working capital as a percent of sales decreased to 18.8
percent from 19.3 percent last year. Cash and cash equivalents decreased $113.4
million since year end due primarily to capital expenditures of $22.1 million,
cash dividends of $13.6 million and normal operating needs for seasonally
higher accounts receivable and inventories. A decrease in the current ratio to
1.86 from 1.97 at March 31, 1994 occurred primarily due to an increase in
accounts payable and other accruals.
<PAGE> 9
Since March 31, 1994, cash and cash equivalents increased $22.1 million,
primarily due to cash generated by operations of $265 million offset by
treasury stock acquisitions of $106.2 million, capital expenditures of $82.8
million, payments of cash dividends totaling $49.7 million, a reduction in
long-term debt of $19.2 million, acquisitions of assets of $16.6 million and
normal working capital needs. Short-term borrowings were not utilized during
the first quarter of 1995. The Company believes that sufficient cash flows
should be generated from operations to remain in an investment position for the
remainder of 1995.
Capital expenditures during the first quarter of 1995 represented primarily the
cost of remerchandising, remodeling or relocating paint stores, the
construction or expansion of distribution centers and the continued upgrade at
manufacturing and research facilities. We do not anticipate the need for any
external financing to support our capital programs.
During the first quarter of 1995, approximately 34,700 shares of our own stock
were received in exchange from the exercise of stock options. We did not
acquire any of our own stock through open market purchases during this time
period. We acquire our own stock from time to time for general corporate
purposes and, depending upon our cash position and market conditions, we may
acquire shares of our own stock in the future.
The Company and certain other companies are defendants in 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 damage, which include in several cases the 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 which may ultimately be 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 potential liability on the Company for past
operations which were conducted utilizing practices and procedures that were
considered acceptable under the laws and regulations existing at that time.
The Company expects the 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.
In general, these laws provide that potentially responsible parties may be held
jointly and severally liable for investigation and remediation costs regardless
of fault. The Company may be similarly designated with respect to additional
third-party sites in the future.
Although 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 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 has accrued 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. These environmental-related accruals are adjusted as information
<PAGE> 10
becomes available upon which more accurate costs can be reasonably estimated.
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
(11) Computation of Net Income Per Share - See Note F to
Condensed Consolidated Financial Statements (Unaudited).
(27) Financial Data Schedule for the period ended March 31,
1995.
(b) Reports on Form 8-K
None.
SIGNATURES
----------
Pursuant to the requirements 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.
THE SHERWIN-WILLIAMS COMPANY
May 5, 1995 By: /s/ J.L. Ault
--------------------------------
J.L. Ault
Vice President-
Corporate Controller
May 5, 1995 By: /s/ L.E. Stellato
--------------------------------
L.E. Stellato
Vice President, General
Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MAR. 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000089800
<NAME> THE SHERWIN-WILLIAMS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> 3-MOS
<CASH> 137,995
<SECURITIES> 0
<RECEIVABLES> 390,898
<ALLOWANCES> 12,552
<INVENTORY> 519,095
<CURRENT-ASSETS> 1,208,653
<PP&E> 913,318
<DEPRECIATION> 498,706
<TOTAL-ASSETS> 2,002,939
<CURRENT-LIABILITIES> 651,376
<BONDS> 20,752
0
0
<COMMON> 100,698
<OTHER-SE> 960,900
<TOTAL-LIABILITY-AND-EQUITY> 2,002,939
<SALES> 716,796
<TOTAL-REVENUES> 716,796
<CGS> 424,237
<TOTAL-COSTS> 424,237
<OTHER-EXPENSES> 135
<LOSS-PROVISION> 2,411
<INTEREST-EXPENSE> 647
<INCOME-PRETAX> 29,736
<INCOME-TAX> 11,003
<INCOME-CONTINUING> 18,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,733
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
