<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 1-4851
----------------------------
THE SHERWIN-WILLIAMS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO
(State or other jurisdiction of incorporation or organization)
34-0526850
(I.R.S. Employer Identification No.)
101 PROSPECT AVENUE, N.W., CLEVELAND, OHIO
(Address of principal executive offices)
44115-1075
(Zip Code)
(216) 566-2000
Registrant's telephone number, including area code
------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
--------------------------------- ------------------------------
<S> <C>
9.875% Debentures due 2016 New York Stock Exchange
Common Stock, Par Value $1.00 New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At January 31, 1997, 172,155,968 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 at that date was $4,744,253,442. The number of shares of Common Stock
has been restated to reflect the effect of the Company's two-for-one stock split
to be distributed on or about March 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement dated March 12, 1997 relating to certain
information required to be disclosed in Part III.
================================================================================
<PAGE> 2
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
<TABLE>
<CAPTION>
ITEM NO. PAGE NO.
- --------- --------
<S> <C> <C>
Part I
1. Business Segment Information 1
2. Description of Property 9
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
Executive Officers of the Registrant 11
Part II
5. Market for Common Equity and Related Stockholder Matters 13
6. Selected Financial Data 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 21
Part III
10. Directors and Executive Officers of the Registrant 22
11. Executive Compensation 22
12. Security Ownership of Certain Beneficial Owners and
Management 22
13. Certain Relationships and Related Transactions 22
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 23
Signatures 45
Exhibit Index 47
Consent of Independent Auditors 51
</TABLE>
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 12, 1997 ("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.
PRELIMINARY NOTE
References contained in this Form 10-K to the number or value of shares of
the Company's Common Stock (including per share data) have been restated to
reflect the effect of the two-for-one stock split to be distributed on or about
March 28, 1997 to shareholders of record on March 3, 1997.
<PAGE> 3
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 in North and South
America.
PAINT STORES SEGMENT
The Paint Stores Segment is the exclusive distributor of
Sherwin-Williams(R) branded architectural coatings, industrial maintenance
products, industrial finishes and related items produced by the Coatings Segment
of the Company and others. The Paint Stores Segment is also a distributor of
similar coatings and other products manufactured by third parties. Paint,
wallcoverings, floorcoverings, window treatments, spray equipment and other
associated products are marketed by store personnel and direct sales
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 1996, the Paint Stores Segment integrated a number of acquired
businesses. The Segment obtained 27 stores as part of the Pratt & Lambert
United, Inc. (Pratt & Lambert) acquisition and also completed various other
acquisitions, including Pro-Line Paint Company, Seagrave Coatings Corporation,
Mercury Paint Company and Brod-Dugan Company. The Pro-Line and Seagrave
acquisitions provide the Segment with expanded presence in the industrial and
marine markets, while the Mercury and Brod-Dugan acquisitions add 25 stores
selling well-known and respected brands to contractors and retail customers.
The Segment's base business performed exceptionally well during 1996.
LowTemp 35(TM) Exterior Latex Paint, a high quality exterior latex paint which
can be applied in temperatures as low as 35 degrees Fahrenheit, was one of many
new products introduced during 1996. This product was selected by the editors of
"Today's Homeowner" magazine as one of the fifty best new products for 1997. The
editorial staff of the magazine conducted a yearlong search for the best new
products based on characteristics such as innovation, quality, durability, ease
of use, price, warranty and environmental friendliness. LowTemp 35(TM) exhibited
the desired attributes and was selected as the most innovative new paint
product. After receiving this same award for its EverClean(R) product line in
1995, the Segment was especially honored to receive such high recognition for
the second consecutive year.
In 1997, the Segment will continue to capitalize on its achievements and
product knowledge by further enhancement of existing products and continued
introduction of new and innovative products. Over thirty new products will be
introduced in the coming year, including a new family of interior primers under
the Prep-Rite(TM) label. These primers will have labels which will clearly
instruct the consumer to use the right primer based on the type of surface to be
painted. Advertising campaigns will highlight many of these new products while
continuing to emphasize the Segment's existing superior-quality products. In
addition, following the successful print advertising campaign in 1996 which
highlighted the Segment's increased wallcovering product selection and its
readily-accessible customer service team, advertising will be expanded in 1997
to include national television promotion of the Segment's wallcovering product
line and its low-price guarantee available at all Sherwin-Williams' stores.
1
<PAGE> 4
COATINGS SEGMENT
The five divisions within the Coatings Segment (Coatings, Consumer Brands,
Automotive, Transportation Services and Diversified Brands) participate in the
manufacture, distribution and/or sale of coatings and related products.
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 in the
Coatings Segment. The expenditures for research and development appear on page
29 of this report.
COATINGS DIVISION
In the United States, the Coatings Division manufactures paint and
paint-related products for do-it-yourself customers, professional painters,
contractors, industrial and commercial maintenance accounts, and manufacturers
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 other divisions of the Company. 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 900 such manufacturers at the regional and national levels. The
Coatings Division continues to strive to be the lowest cost producer of high
quality coatings to gain an advantage over its competitors.
Worldwide, there are many competitors in each of the foreign markets served
by the Division as it manufactures, distributes and sells its products through
wholly-owned subsidiaries, joint ventures and licensees of technology,
trademarks and trade names. During 1996, the Division assumed the management of
the architectural paints and coatings business of Globo S.A. Tintas e Pigmentos
located in Brazil and the industrial coatings portion of the Stierling Group of
companies located in the Republic of Chile, after the Company's acquisition of
such businesses. At December 31, 1996, the Division included 9 subsidiaries and
joint ventures in 8 foreign countries and 37 licensing agreements in 30 foreign
countries. The majority of the sales from licensees and subsidiaries are in
South America, the Division's strongest international market. New licensing
agreements were signed in the Dominican Republic and Vietnam in 1996. In
addition, new licensees in Argentina, China and Greece were obtained through the
Pratt & Lambert acquisition. In 1997, the Division will continue to develop new
business internationally by following a predetermined regional approach for the
establishment of subsidiaries, joint ventures and licensees in selected
countries.
During 1996, the Coatings Division focused on integrating the operations of
Pratt & Lambert and several smaller domestic acquisitions into its own
operations. The integration benefits included the consolidation and overhead
cost synergies while producing record gallon output. The Division's priorities
for foreign acquisitions were to lower the cost of production through
manufacturing efficiencies, better manufactured product quality, and improved
service and distribution. The Division also continued to expand its powder
coatings operations during 1996, completing construction of a new plant in
Harrisburg, Pennsylvania and obtaining a new plant as part of the Pratt &
Lambert transaction. The Division's first powder coatings plant in Fort Wayne,
Indiana obtained ISO 9001 certification of its quality control system.
In 1997, the Division will continue to integrate the manufacturing
facilities obtained in 1996 as well as the manufacturing facility the Division
obtained in January 1997 as part of the Thompson Minwax Holding Corp. (Thompson
Minwax) acquisition. The integration of the acquired plants into the existing
organization requires an analysis of the strategic fit of each of the Division's
facilities, acquired and existing, in relation to the total manufacturing
capability of the Division. Those facilities that do not fit well into the
strategic plan will be closed and their production transferred to more
2
<PAGE> 5
efficient, more strategically located plants. As part of the analysis of the
strategic fit of each facility, the Coatings Division will complete the closing
of certain non-strategic facilities in 1997, while increasing the capacity and
efficiency of other facilities. When the rationalization is completed, the
Division will undergo a complete logistics and product sourcing review to
further improve the efficiency of the manufacturing and distribution network.
Throughout 1997, the Division also plans to continue its heightened research and
development activities through new process developments that bring the
manufacturing of products closer to the end user and through increased support
of new product introductions.
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 400 regional and national paint manufacturers and distributors of
branded and private label paint and associated products. The competitive factors
that set the leaders apart from the rest are service, brand recognition,
distribution and price.
The acquisition of Pratt & Lambert provided the Division sales and
marketing responsibility over the Pratt & Lambert(R), Fabulon(R) and M.L.
Campbell(R) brands. In addition to expanding sales of branded products through
independently-owned paint and decorator stores, the acquisition enabled the
Division to significantly enlarge its distribution of private label products in
the mass merchandiser and home center channels. The home center channel
continues to consolidate, creating competition for the business of the best
regional and national home centers. The Division has been successful in
targeting the majority of the strong home centers. The Division's launch of the
Ralph Lauren(TM) paint line was highly successful in 1996, with distribution
through both the independent store and home center channels. The Division
created the color palette for this upscale paint line and provides the technical
expertise for the easy-to-use textural finishes that represent a breakthrough
development for the paint industry.
In 1997, the Division will introduce several new products, including the
launch of a new line of paints under the Martha Stewart(TM) label in early
spring. In addition, the acquisition of Thompson Minwax will add the full line
of Thompson's(R) exterior stains and sealants to enhance the Division's position
in the market for both wood stains and concrete coatings. These products are an
excellent balance with the Division's existing Cuprinol(R) wood stains and
H&C(R) concrete coatings lines. The acquisition of Thompson Minwax will also
assist the Division in expanding internationally, as it will add a line of
interior varnishes and exterior stains under the Ronseal(TM) brand name in the
United Kingdom and Ireland. Marketing programs for 1997 will target these new
lines in addition to continued advertising of the Division's Dutch Boy(R), Pratt
& Lambert(R) and other brands.
AUTOMOTIVE DIVISION
The Automotive Division develops, manufactures and markets motor vehicle
finish and refinish products under the Sherwin-Williams(R) and other branded
labels in the United States and Canada through its network of 135
company-operated branches at December 31, 1996. The branches are supported by a
direct sales staff. Products are also marketed through independent 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., a joint venture. 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). A 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
3
<PAGE> 6
names to foreign companies. The Division has 12 licensees in 14 foreign
countries, including a new agreement signed in Indonesia in 1996. Key
competitive factors for the Automotive Division are technology, product quality,
distribution and service. The Automotive Division has numerous competitors in
its domestic and foreign markets with broad product offerings and several others
with niche products. Strong distribution and high quality products have been the
Division's greatest competitive advantages.
The Division's international operations grew substantially in 1996.
Productos Quimicos y Pinturas, S.A. de C.V. and its affiliated companies were
acquired in January 1996, expanding the Division's presence in the Mexican
market with the highly recognized Excelo(TM) brand products. In May 1996,
Lazzuril Tintas S/A, a Brazilian automotive coatings company, was acquired. Late
in 1996, the Division assumed the management of the automotive coatings business
of the Stierling Group of companies, a leading producer of automotive coatings
in Chile. The addition of these businesses in Mexico and South America will
positively impact the Division's name recognition in these areas, providing the
opportunity for future growth.
During 1996, the Division's domestic business concentrated on continued
improvement in product quality and color matching technology, achieving much
success. The Division also increased its presence in automotive racing circuits
promoting its Ultra 7000(R) product line. The Division sponsored two
high-performance dragsters which appeared in races throughout the U.S. The
dragsters are painted to match the Ultra 7000(R) black and rainbow product
labels, providing an opportunity for the painting technicians and fans of those
racing circuits to see the Division's products.
In 1997, the Division will seek to expand its OEM business through
commercialization of new interior waterborne coatings and exterior accessory
coatings. The Division will continue to emphasize its improved color-matching
capabilities to all markets as well as its commitment to developing new
technology. Recent technological advancements have also assisted the Division in
the development of new products with lower volatile organic compound (VOC)
content to meet new regulations which will be effective in mid-1997. The
Division's sales force will receive extensive training in early 1997 on changes
in product attributes of these new VOC-compliant products and related
application techniques which they can provide to the Division's customers. This
commitment to improved products, technology and training enhances the Division's
position for continued growth.
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 and Canada. This Division provides the
Company with total logistics service support which allows increased delivery
schedules, lower field inventory levels and fewer out-of-stocks.
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 an objective.
The Division spent the majority of 1996 integrating and consolidating the
distribution centers obtained through the Pratt & Lambert acquisition into its
existing distribution network. Consolidation efforts were successful, allowing
the Division to achieve logistic and distribution synergies while continuing to
meet strong demand. In its ongoing endeavor to improve distribution efficiency,
a state-of-the-art truck routing software package was installed during 1996.
This routing package represents a computerized fleet planning device which
provides optimal loading, delivery and route information based on daily
distribution requirements, thereby lowering overall costs.
4
<PAGE> 7
In 1997, the Division will integrate the Thompson Minwax traffic functions
into the existing network and continue to strive for increased productivity and
efficiency in distribution by implementing a supply chain management system.
This system will evaluate service quality based on criteria such as timeliness,
dispatch effectiveness and service levels. When combined with the routing
software package installed in 1996, the Division will be able to more
efficiently monitor its distribution functions from start to finish. The
Division will also continue its consolidation of distribution centers into
larger regional locations. Construction of a 695,000 square foot
state-of-the-art distribution service center in Reno, Nevada is scheduled to
begin in early 1997, which will allow for the consolidation of four existing
centers in the northern Nevada area.
DIVERSIFIED BRANDS DIVISION
The Diversified Brands Division competes in the following areas: retail and
wholesale consumer aerosols; custom and industrial aerosols; paint applicators;
and cleaning products. 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, national and international customers. Products are marketed through
mass merchandisers, home centers, automotive chains and maintenance distribution
channels in the United States, Canada, Mexico and Brazil. Approximately 6.2
percent of the Division's total sales in 1996 represented aerosols and paint
applicators sold to the Paint Stores Segment. 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. Superior quality
products, excellent regulatory-complying products, technical leadership
positions in electronic commerce and strong customer relationships have enabled
the Division to distinguish itself from the competition.
In 1996, the Division added consumer, industrial and janitorial cleaning
products, with reputable brand names such as Cello(R) and Spring Fresh(R), to
its product selection in the United States through the acquisitions of the
Household and Professional Products Division of Grow Group, Inc. (Cleaning
Solutions Group) and Sunshine Quality Products, Inc. The Division capitalized on
these acquisitions by introducing a full line of industrial maintenance cleaners
under the Sprayon(R) label at the end of 1996. This line of cleaning products
represents the first full-line program of its kind to the industrial maintenance
channel and complements the Division's other product lines. The Division also
expanded internationally in 1996 through the acquisition of Industria Quimica
Elgin Ltda., a leading producer and marketer of aerosol paint under the
Colorgin(TM) brand label in Brazil. The extensive distribution network of
Industria Quimica positions the Division to benefit from the emerging aerosol
paint market in South America.
New products will continue to be an important element for growth in 1997.
Following the highly-successful 1996 introduction of Krylon(R) Living Color(R)
Latex Enamel, a latex paint in aerosol form, the Division will expand its
Krylon(R) Living Color(R) and Krylon(R) Decorator product lines in the 1997
season to include a complementary line of small-can enamels available in both
latex and alkyd formulas. Other product launches will include a Cello(R) line of
cleaning products for professional janitorial contractors and a Dupli-Color(R)
automotive bulk paint and chemical line, available in 25 colors, to be marketed
to retail customers. Efforts in 1997 will also be targeted toward the
integration of manufacturing and marketing operations of Thompson Minwax.
Product lines to be added include various interior stains and varnishes under
the Minwax(R) brand name, finishing and enamel coating products under the
Formby's(R) and Red Devil(R) brand names and specialty lubricants under the Tri-
Flow(TM) brand name.
OTHER SEGMENT
The Other Segment is responsible for the acquisition, development, leasing
and management of properties for use by the Company and others generally within
the United States. Obtaining real estate in the proper location at the
appropriate cost is a critical component for achieving the desired operating
success, particularly for paint stores and distribution service centers. This
Segment has
5
<PAGE> 8
many competitors consisting of other real estate owners, developers and managers
in areas where we currently hold property. The main competitive factors are the
availability of property and price.
At the end of 1996, the Retail Properties Division owned or leased 221
properties, representing over 1,700,000 square feet of space, which are
conducive to the sale of paint and associated products. Such properties include
140 freestanding buildings, for exclusive use by the Paint Stores Segment, and
81 multi-tenant properties, utilized when the basic needs of the paint store can
be met and where 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 1997, the Division does not anticipate significant growth
in the number of owned retail properties needed by the Paint Stores Segment. The
occupancy rate for external space was 86.6 percent at December 31, 1996.
The Non-Retail Properties Division owned or leased 29 properties at the end
of 1996 consisting of office buildings, idle manufacturing facilities,
distribution service centers and vacant land. Occasionally, such properties are
acquired or developed to provide the lowest cost alternative for expansion of
distribution operations. Locations that have been utilized profitably in the
past which can no longer contribute to the Company's future plans are offered
for sale or lease. At the end of 1996, three idle or vacant properties obtained
in the acquisition of Pratt & Lambert were under contract for sale, with
settlement to occur in early 1997. One of the Division's largest tenants
terminated its office space lease as of December 31, 1996, vacating over 300,000
square feet of office and storage space. While lease commitments have already
been obtained for over 60 percent of this space, the vacancy will adversely
impact the Non-Retail Properties Division in 1997.
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
1997.
SEASONALITY
The majority of the sales for the Paint Stores Segment and Coatings Segment
traditionally occur during the second and third quarters. There is no
significant seasonality in sales for the Other Segment.
TRADEMARKS AND TRADE NAMES
Customer recognition of trademarks and trade names collectively contribute
significantly to the sales of the Company. The Paint Stores Segment is
identified with names such as Sherwin-Williams(R), SuperPaint(R), Pro Mar(R),
EverClean(R), Glas-Clad(R), Perma-Clad(R), Old Quaker(R), Con-Lux(R),
Mercury(TM) and Brod-Dugan(TM). The Coatings Segment employs a variety of trade
names and trademarks in marketing its products, such as Sherwin-Williams(R),
Dutch Boy(R), Kem-Tone(R), Martin-Senour(R), Cuprinol(R), H&C(R), White
Lightning(R), Krylon(R), Standox(R), Rust Tough(R), Excelo(TM), Lazzuril(TM),
Colorgin(TM), Pratt & Lambert(R), Ralph Lauren(TM), 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 portion of their income from the license of
technology, trademarks and trade names to foreign companies.
6
<PAGE> 9
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 1997.
EMPLOYEES
The Company employed approximately 20,800 persons at December 31, 1996.
ENVIRONMENTAL COMPLIANCE
See Management's Discussion and Analysis of Financial Condition and Results
of Operations, on pages 14 through 19 of this report, for further details on
environmental compliance.
7
<PAGE> 10
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET EXTERNAL SALES
Paint Stores $ 2,410 $2,131 $1,986
Coatings 1,709 1,129 1,100
Other 14 14 14
- --------------------------------------------------------------------------------------------
Segment totals $ 4,133 $3,274 $3,100
INTERSEGMENT TRANSFERS
Coatings $ 924 $ 801 $ 720
Other 21 19 18
- --------------------------------------------------------------------------------------------
Segment totals $ 945 $ 820 $ 738
OPERATING PROFITS
Paint Stores $ 206 $ 158 $ 141
Coatings 260 202 201
Other 13 13 8
Corporate expenses-net (104) (55) (51)
- --------------------------------------------------------------------------------------------
Income before income taxes $ 375 $ 318 $ 299
IDENTIFIABLE ASSETS
Paint Stores $ 634 $ 550 $ 517
Coatings 1,764 846 757
Other 45 45 44
Corporate 552 700 644
- --------------------------------------------------------------------------------------------
Consolidated totals $ 2,995 $2,141 $1,962
CAPITAL EXPENDITURES
Paint Stores $ 40 $ 29 $ 26
Coatings 68 68 46
Other 3 4 1
Corporate 12 7 6
- --------------------------------------------------------------------------------------------
Consolidated totals $ 123 $ 108 $ 79
DEPRECIATION
Paint Stores $ 26 $ 24 $ 23
Coatings 40 31 30
Other 3 2 3
Corporate 7 6 5
- --------------------------------------------------------------------------------------------
Consolidated totals $ 76 $ 63 $ 61
</TABLE>
NOTES TO SEGMENT TABLE
Intersegment transfers are accounted for at values comparable to normal
unaffiliated customer sales. Operating profit is total revenue, including
realized profit on intersegment transfers, less operating costs and expenses.
Corporate expenses include interest which is unrelated to real estate leasing
activities, certain provisions for disposition and termination of operations and
environmental remediation which are not directly associated with 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.
8
<PAGE> 11
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.
<TABLE>
<CAPTION>
Leased
or
Manufacturing facilities Owned
- ---------------------------------------------
<S> <C>
Anaheim, California Owned
Baltimore, Maryland Owned
Bedford Heights, Ohio Owned
Bradenton, Florida Leased
Buffalo, New York Leased
Chicago, Illinois Owned
Coffeyville, Kansas Owned
Columbus, Ohio Owned
Crisfield, Maryland Leased
Deshler, Ohio Owned
Edison, New Jersey Owned
Elk Grove, Illinois Owned
Emeryville, California Owned
Ennis, Texas Leased
Fort Wayne, Indiana Leased
Fort Worth, Texas Owned
Fountain Inn, South Carolina Owned
Garland, Texas Owned
Greensboro, North Carolina (2) Owned
Harrisburg, Pennsylvania Leased
Havre de Grace, Maryland Owned
Holland, Michigan Owned
Indianapolis, Indiana Leased
Kankakee, Illinois Leased
Lawrenceville, Georgia Owned
Memphis, Tennessee Leased
Morrow, Georgia Owned
Newark, New Jersey Owned
Orlando, Florida Owned
Richmond, Kentucky Owned
Victorville, California Owned
Wichita, Kansas Owned
Buenos Aires, Argentina Owned
Fort Erie, Ontario, Canada Owned
Kingston, Jamaica Owned
Mexico City, Mexico Owned
Santiago, Chile Owned
Sao Bernardo, Brazil Leased
Sao Bernardo, Brazil (2) Owned
Tabao, Brazil Owned
Texcoco, Mexico Owned
</TABLE>
<TABLE>
<CAPTION>
Leased
or
Distribution facilities Owned
- ---------------------------------------------
<S> <C>
Bedford Heights, Ohio Leased
Buford, Georgia Leased
Dayton Valley, Nevada Owned
Effingham, Illinois Leased
Fredericksburg, Pennsylvania Owned
Reno, Nevada Leased
Richmond, Kentucky Owned
Sparks, Nevada Leased
Waco, Texas Leased
Winter Haven, Florida Owned
Buenos Aires, Argentina Owned
Calgary, Alberta, Canada Leased
Mexico City, Mexico Owned
Mississauga, Ontario, Canada Leased
Montreal, Quebec, Canada Owned
Richmond Hill, Ontario, Canada Leased
San Juan, Puerto Rico Leased
Santiago, Chile Owned
Sao Bernardo, Brazil (2) Owned
Scarborough, Ontario, Canada Owned
Tabao, Brazil Owned
Texcoco, Mexico Owned
</TABLE>
9
<PAGE> 12
In addition, the Coatings Segment included 135 company-operated automotive
branches, of which 1 was owned, in the United States and Canada and 9 leased
stores in Jamaica at December 31, 1996.
The operations of the Paint Stores Segment included 2,156 company-operated
specialty paint stores in the United States, Canada and Puerto Rico at December
31, 1996. All stores are leased locations with 219 being leased from the
Company's Retail Properties Division in the Other Segment. The Paint Stores
Segment is divided into four separate operating divisions, each of which is
responsible for the stores located within its geographical region. At the end of
1996, the Mid Western Division operated 598 stores primarily located in the
midwestern and upper west coast states and western Canada, the Eastern Division
operated 450 stores along the upper east coast and New England states and
eastern Canada, the Southeastern Division operated 570 stores principally
covering the lower east and gulf coast states and Puerto Rico, and the South
Western Division operated 538 stores in the plains and the lower west coast
states. The Paint Stores Segment opened 23 net new stores in 1996, added 55
stores through acquisitions (of which 11 were closed) and relocated 38.
All property within the Other Segment is owned by the Company except for 4
land leases in the Retail Properties Division and 4 warehouse leases in the
Non-Retail Properties Division.
ITEM 3. LEGAL PROCEEDINGS
On July 16, 1993, the United States Department of Justice, on behalf of the
United States Environmental Protection Agency, filed a complaint against the
Company in the United States District Court for the Northern District of
Illinois. The complaint alleged violations under various environmental statutes
concerning the Company's operations at its southeast Chicago, Illinois facility.
The complaint demanded an undetermined amount of civil penalties and further
demanded certain, unspecified corrective action be taken to clean up the site.
Pursuant to a Consent Decree entered into recently with the United States of
America, on behalf of the Administrator of the United States Environmental
Protection Agency, the Company has agreed to (i) comply with applicable
environmental laws and regulations, (ii) pay a civil penalty in the amount of
$4,700,000, (iii) spend $1,100,000 at two environmental remediation/restoration
projects located in the south side of Chicago, Illinois which are unrelated to
the Company's activities, (iv) conduct an investigation at its southeast
Chicago, Illinois facility to determine the nature, extent and potential impact,
if any, of environmental contamination at the facility, and (v) implement
selected remedial action measures, if required, to address any environmental
contamination identified pursuant to the investigation. The Consent Decree is
subject to Court approval.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE> 13
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, 1997 and the date when each was first elected or appointed an Executive
Officer.
<TABLE>
<CAPTION>
Date When
First Elected
Name Age Present Position or Appointed
- ------------------------- --- ----------------------------------- --------------
<S> <C> <C> <C>
John G. Breen 62 Chairman and Chief Executive 1979
Officer, Director
Thomas A. Commes 54 President and Chief Operating 1979
Officer, Director
John L. Ault 51 Vice President -- Corporate 1987
Controller
Frank E. Butler 61 President & General Manager, 1994
Coatings Division
Christopher M. Connor 40 President & General Manager, 1994
Diversified Brands Division
Conway G. Ivy 55 Vice President -- Corporate 1979
Planning and Development
T. Scott King 44 President & General Manager, 1994
Consumer Brands Division
Thomas Kroeger 48 Vice President -- Human Resources 1987
John C. Macatee 45 President, Paint Stores Group 1994
Larry J. Pitorak 50 Senior Vice President -- Finance, 1978
Treasurer and Chief Financial
Officer
Joseph M. Scaminace 43 President & General Manager, 1994
Automotive Division
Louis E. Stellato 46 Vice President, General Counsel and 1989
Secretary
</TABLE>
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, Diversified Brands
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.
11
<PAGE> 14
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.
Mr. Scaminace has served as President & General Manager, Automotive
Division since April 1994 prior to which he served as President & General
Manager, Diversified Brands Division commencing September 1985.
Mr. Stellato has served as Vice President, General Counsel and Secretary
since July 1991.
There are no family relationships between any of the persons named.
12
<PAGE> 15
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.
<TABLE>
<CAPTION>
QUARTERLY STOCK PRICES AND DIVIDENDS*
Quarter High Low Dividend
--------------------------------------------
<S> <C> <C> <C> <C>
1996 1ST $22.688 $19.500 $ .0875
2ND 23.500 20.938 .0875
3RD 23.563 21.125 .0875
4TH 28.875 22.813 .0875
1995 1st $17.438 $16.000 $ .08
2nd 19.000 16.688 .08
3rd 18.563 17.063 .08
4th 20.750 17.188 .08
</TABLE>
The number of shareholders of record for Sherwin-Williams Common Stock, par
value $1.00 per share, at January 31, 1997 was 11,887. The closing market value
per share as listed on the New York Stock Exchange at the close of business on
January 31, 1997 was $27.750.*
* Per share data reflects the effect of the stock split described in Note 17 to
the consolidated financial statements.
ITEM 6. SELECTED FINANCIAL DATA
(Millions of Dollars, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net Sales $4,133 $3,274 $3,100 $2,949 $2,748
Income before cumulative effects of changes
in accounting methods 229 201 187 165 145*
FINANCIAL POSITION
Total assets $2,995 $2,141 $1,962 $1,915 $1,730
Long-term debt 143 24 20 38 60
PER COMMON SHARE DATA**
Income before cumulative effects of changes
in accounting methods $ 1.33 $ 1.17 $ 1.07 $ .93 $ .82*
Cash dividends .35 .32 .28 .25 .22
</TABLE>
* Includes a reduction, beginning January 1, 1992, for the additional expense
of accruing postretirement benefits. Such additional expense was $5.7 million
after income taxes ($.03 per share**) in 1992.
** Per share data reflects the effect of the stock split described in Note 17 to
the consolidated financial statements.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION -- 1996
During 1996, the Company invested more than $670.7 million in the
acquisitions of Pratt & Lambert United, Inc. (Pratt & Lambert) in January and
many smaller domestic and foreign acquisitions that followed. These acquisitions
were financed through the use of $267.6 million of cash and cash equivalents and
short-term investments available at the beginning of 1996 plus short-term
borrowings, long-term debt and excess operating cash flow generated during the
year. Nearly $332.6 million in net operating cash flow was generated in 1996
providing the funds to invest in property, plant and equipment, to increase the
annual dividend to shareholders and to partially finance the acquisition
activity. The Company's Consolidated Balance Sheets and Statements of
Consolidated Cash Flows, on pages 25 and 26 of this report, provide more
detailed information on the Company's financial position and cash flows.
Changes in the components of working capital included an increase in
short-term borrowings incurred during the year through the use of a portion of
the Company's commercial paper program, which had unused borrowing availability
of $433.8 million at December 31, 1996. This program is fully backed by the
Company's revolving credit agreements. Other current assets increased $113.7
million, of which approximately $56.0 million is related to a settlement
receivable with certain insurance carriers pertaining to environmental-related
matters, and approximately $68.0 million is related to various assets acquired,
including the Company's investment in a subsidiary in Chile which was not
consolidated at December 31, 1996. Increased current deferred income taxes
related primarily to the tax effects of purchase accruals recorded in connection
with acquisitions. Increases in other components of working capital occurred
primarily due to the effects of the acquisitions and related increases in sales
and manufacturing activity. The Company's current ratio declined to 1.35 at
December 31, 1996. The decrease in this ratio from 2.0 at the end of 1995
occurred primarily due to the increased short-term borrowings and related
decreases in cash and cash equivalents and short-term investments.
Deferred pension assets, totaling $254.4 million at December 31, 1996,
represent the excess fair market value of the assets in the defined benefit
pension trusts over the actuarially-determined projected benefit obligations.
The 1996 increase in deferred pension assets resulted primarily from net
deferred pension assets acquired combined with the recognition of the net
pension credit further described in Note 6 on page 32 of this report. The actual
return on plan assets of the defined benefit pension plans exceeded the assumed
asset earnings rate of 8.5 percent primarily due to favorable actual returns
realized on equity investments. These excess earnings are deferred, decreasing
the cumulative unrecognized net loss. The effect of this decrease, combined with
an increased asset base, will increase the net pension credit in 1997. The
increase in goodwill of $507.7 million and the increase in intangible and other
long-term assets of $54.7 million primarily relates to acquisitions of $612.5
million offset by amortization expense of $27.4 million and other reductions in
long-term assets from 1995. Goodwill represents the excess cost over fair value
of net assets acquired in purchase business combinations, and intangible assets
represent the cost of trademarks and other intangibles acquired.
Net property, plant and equipment increased $93.0 million during 1996
primarily due to capital expenditures of $122.7 million and net fixed assets
acquired of $55.6 million, offset partially by depreciation expense of $76.2
million and dispositions or retirements of certain assets. Capital expenditures
in 1996 represented primarily the costs of upgrading or installing point-of-sale
computer systems in paint stores, relocating or remodeling paint stores, new
powder coatings manufacturing facilities, and upgrading distribution centers and
manufacturing facilities. The increase in capital expenditures in the Paint
Stores Segment in 1996 occurred primarily due to the upgrade or installation of
new point-of-sale computer systems in most of the Segment's stores. In the
Coatings Segment, increased capital expenditures in 1996 relating to a new
Brazilian manufacturing facility in
14
<PAGE> 17
the Coatings Division were offset by lower construction costs in the
Transportation Services and Automotive Divisions due to the 1995 completion of
distribution centers in Fredericksburg, Pennsylvania and Richmond, Kentucky.
Capital expenditures in the Corporate area increased due to the increased cost
of a replacement aircraft. In 1997, the most significant planned capital
expenditures are the continued replacement of point-of-sale computer systems in
the paint stores, the construction of a 695,000 square foot distribution center
in Reno, Nevada and various productivity improvement projects at manufacturing
facilities. The Company will continue to invest strategically in upgrading or
expanding its facilities and equipment. We do not anticipate the need for any
specific external financing to support these capital programs. Total assets grew
to just under $3.0 billion during 1996, an increase of $853.5 million from
December 31, 1995.
Long-term debt increased $118.7 million to $142.7 million at December 31,
1996. The issuance of two $50.0 million floating term notes in conjunction with
the purchase of Pratt & Lambert and the subsequent refinancing of their existing
debt and the issuance of various fixed rate notes totaling $22.0 million in
conjunction with other acquisitions accounted for the majority of the change in
long-term debt. Long-term debt assumed as part of certain acquisitions and other
changes in long-term debt, totaling $69.1 million, were more than offset by
payments of $72.4 million. As more fully explained in Note 16 on page 43 of this
report, the Company increased the aggregate principal amount of short-term debt
which can be issued under its commercial paper program to $1.45 billion in
January 1997. This program is fully supported by revolving credit agreements in
the same aggregate amount. Proceeds from borrowings under this program were used
to purchase all outstanding shares of Thompson Minwax Holding Corp. (Thompson
Minwax) in January 1997. Subsequently, in February 1997, the Company issued
$100.0 million of 6.25% notes due February 1, 2000, $100.0 million of 6.5% notes
due February 1, 2002 and $200.0 million of 6.85% notes due February 1, 2007
under its previously existing shelf registration with the Securities and
Exchange Commission. In addition, the Company issued $150.0 million of 7.375%
debentures due February 1, 2027 and $150.0 million of 7.45% debentures due
February 1, 2097 in a private offering not registered under the Securities Act
of 1933, as amended. The net proceeds from the sale of the notes and debentures
were used to refinance a portion of the Company's commercial paper outstanding.
Due to the refinancing, the size of the commercial paper program and related
revolving credit agreements will be re-evaluated in 1997. The Company expects to
remain in a borrowing position throughout 1997.
The increase in the long-term postretirement liability occurred due to the
combination of postretirement liabilities assumed in acquisitions and the excess
of the net postretirement expense, as determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 106, over the costs for benefit claims
incurred. The current portion of the accrued postretirement liability is
included in other accruals. See Note 7, on page 34 of this report, for
additional information concerning the Company's postretirement obligations.
Other long-term liabilities include accruals for environmental-related
items and other miscellaneous items. The increase of $104.9 million during 1996
occurred due primarily to adjustments made to previously recorded
environmental-related accruals, liabilities assumed for environmental-related
matters as a result of acquisitions and other items. In addition, the Company
accrued certain additional environmental-related expenses in accordance with the
early adoption of the American Institute of Certified Public Accountants
Statement of Position 96-1 (SOP 96-1), "Environmental Remediation Liabilities".
See Note 1, on page 28 of this report, for further information concerning the
Company's adoption of SOP 96-1 and see Note 10, on page 37 of this report, for
additional information concerning the Company's other long-term liabilities.
The Company and certain other companies are defendants in a number of
lawsuits arising from the manufacture and sale of lead pigments and lead paints.
It is possible that additional lawsuits may be filed against the Company in the
future with similar allegations. The various existing lawsuits seek damages for
personal injuries and property damages, along with costs involving the abatement
of lead related paint from buildings and medical monitoring costs. The Company
believes that such lawsuits are without merit and is vigorously defending them.
The Company does not believe that any potential
15
<PAGE> 18
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 promote continued compliance.
Capital expenditures and other expenses related to ongoing environmental
compliance measures are included in the normal operating expenses of conducting
business. The Company's capital expenditures and other expenses related to
ongoing environmental compliance measures were not material to the Company's
financial condition or net income during 1996, and the Company does not expect
such capital expenditures and other expenses to be material to the Company's
financial condition or net income in the future.
The Company is involved with environmental compliance and remediation
activities at some of its current and former sites. The Company, together with
other parties, has also been designated a potentially responsible party under
federal and state environmental protection laws for the remediation of hazardous
waste at a number of third-party sites, primarily Superfund sites. The Company
may be similarly designated with respect to additional third-party sites in the
future.
The Company accrues for certain environmental remediation-related
activities relating to its past operations and third-party sites, including
Superfund sites, for which commitments or clean-up plans have been developed or
for which costs or minimum costs can be reasonably estimated. The Company
continuously assesses its potential liability for remediation-related activities
and adjusts its environmental-related accruals as information becomes available
upon which more accurate costs can be reasonably estimated and as additional
accounting guidelines are issued, such as SOP 96-1, which require changing the
estimated costs or the procedure utilized in estimating such costs. Actual costs
incurred may vary from these estimates due to the inherent uncertainties
involved including, among others, the number and financial condition of parties
involved with respect to any given site, the volumetric contribution which may
be attributed to the Company relative to that attributable to other parties, the
nature and magnitude of the wastes involved, the various technologies that can
be used for remediation and the determination of acceptable remediation with
respect to a particular site.
Pursuant to a Consent Decree entered into with the United States of
America, on behalf of the Environmental Protection Agency, which has been filed
in the United States District Court for the Northern District of Illinois and
which is subject to court approval, the Company has agreed, in part, to (i)
conduct an investigation at its southeast Chicago, Illinois facility to
determine the nature, extent and potential impact, if any, of environmental
contamination at the facility, and (ii) implement remedial action measures, if
required, to address any environmental contamination identified pursuant to the
investigation. In addition, the Company is a defendant in a lawsuit brought by
PMC, Inc. regarding one of the Company's former Chemical Division's
manufacturing facilities which is located adjacent to the Company's southeast
Chicago, Illinois facility. This former manufacturing facility 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 this
lawsuit.
With respect to the Company's southeast Chicago, Illinois facility and its
former manufacturing facility adjacent thereto, the Company has evaluated its
potential liability and, based upon its preliminary evaluation, has accrued an
appropriate amount. However, due to the uncertainties surrounding these
facilities, the Company's ultimate liability may result in costs that are
significantly
16
<PAGE> 19
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, cash flow or, except as set forth in the preceding paragraph, net
income. See Note 10, on page 37 of this report, for discussion of the
environmental-related accruals included in the Company's consolidated balance
sheets.
Shareholders' equity increased $189.1 million during 1996 due primarily to
current year net income offset partially by dividends paid to shareholders.
Approximately 77,800 shares of the Company's common stock were received in
exchange from the exercise of stock options during 1996. We did not acquire any
of our own shares through open market purchases during this time period.
Depending upon our cash position and market conditions in the future, we may
acquire shares of our own stock for general corporate purposes.
At a meeting held January 29, 1997, the Board of Directors declared a
two-for-one common stock split and increased the quarterly dividend to $.10 per
share on a post-split basis, both payable to shareholders of record on March 3,
1997. The increase in the quarterly dividend represents the eighteenth
consecutive annual increase and a compounded rate of increase of 28.0 percent
since the dividend was reinstated in the fourth quarter of 1979. The 1996 annual
dividend of $.35 per share (on a post-split basis) marked the seventeenth
consecutive year that the dividend approximated our payout ratio target of 30
percent of the prior year's earnings.
The January 1997 acquisition of Thompson Minwax, for an approximate
purchase price of $830 million, included funds to extinguish all of Thompson
Minwax's previously-existing debt. Preliminary estimates of the fair market
value of the net assets to be recorded pursuant to the acquisition will
approximate $257.3 million, with approximately $572.7 million recorded as
goodwill. These estimates are tentative, pending completion of final appraisals.
The goodwill ultimately recorded for the purchase will be amortized over its
estimated life. See Note 16, on page 43 of this report, for additional
information related to the acquisition.
RESULTS OF OPERATIONS -- 1996 VS 1995
Consolidated net sales increased to $4.13 billion in 1996, a 26.2 percent
increase over 1995. Excluding incremental sales from Pratt & Lambert and other
smaller acquisitions (collectively, Acquisitions) after date of acquisition, net
sales for 1996 increased 7.5 percent.
Sales in the Paint Stores Segment increased 13.1 percent over 1995, or 9.1
percent excluding Acquisitions, due primarily to increased paint gallons sold to
both retail and wholesale customers. Comparable store sales were up 10.0 percent
for the year. Despite selling price reductions on certain non-paint product
lines in 1996, volume gains generated overall sales increases in all non-paint
product lines except window treatments.
Incremental sales from Acquisitions led to an external sales increase of
51.4 percent over 1995 in the Coatings Segment. Excluding Acquisitions, external
sales increased 4.7 percent. Increased gallons sold to national accounts and
independent dealers led to a net external sales increase excluding Acquisitions
over last year in the Consumer Brands Division. In the Automotive Division, 1996
external sales gains excluding Acquisitions were generated primarily from sales
growth in its branch distribution network. The addition of new products and new
customers in the Diversified Brands Division during 1996 helped to achieve sales
gains in its custom, automotive, hardware and industrial product lines excluding
Acquisitions. Revenue generated by real estate operations in the Other Segment
decreased slightly compared to 1995 due to the disposition of certain properties
in late 1995 and in 1996.
Lower gross profit margins from some of the Acquisitions' businesses caused
consolidated gross profit as a percent of sales to decline to 41.8 percent from
42.7 percent in 1995. Excluding
17
<PAGE> 20
Acquisitions, gross profit margins increased to 44.4 percent. Gross profit
margins in the Paint Stores Segment, both including and excluding Acquisitions,
were higher than last year due to increased sales of its higher margin product
lines combined with increased retail sales. Stable product costs combined with a
favorable sales mix led to improved gross profit margins over last year in the
Coatings Segment excluding Acquisitions.
Consolidated selling, general and administrative (SG&A) expenses as a
percent of sales were favorable to last year, declining to 31.7 percent from
32.8 percent, due to lower-than-average expenses in the Acquisitions'
businesses. Excluding Acquisitions, SG&A expenses as a percent of sales
increased to 33.5 percent. The Paint Stores Segment's controlled spending
throughout 1996 combined with its sales gains led to favorable SG&A expenses as
a percent of sales on both an as-reported basis and excluding Acquisitions. The
Coatings Segment's SG&A expenses as a percent of sales excluding Acquisitions
were unfavorable to last year due primarily to increased merchandising costs,
advertising and promotional expenses related to product introductions in the
Consumer Brands and Diversified Brands Divisions.
Consolidated operating profits increased 30.3 percent over 1995, or 19.2
percent excluding Acquisitions. Operating profits of the Paint Stores Segment
increased 30.2 percent, or 28.1 percent excluding Acquisitions, due to volume
gains and the continued containment of SG&A expenses. The Coatings Segment's
operating profits excluding Acquisitions increased 11.9 percent due to stable
raw material costs and manufacturing efficiencies resulting from volume gains.
The operating profits of the Other Segment increased in comparison to 1995
primarily due to the reduction in costs associated with disposed properties.
Corporate expenses increased over 1995 due to increased interest expense,
decreased net investment income and increases in other costs and expenses which
are not directly associated with or allocable to any individual operating
segment. Refer to pages 1 through 8 of this report for additional Business
Segment information.
The increases in long-term debt and short-term borrowings which occurred in
1996 due to the financing of Acquisitions caused interest expense to increase
significantly over 1995. Correspondingly, interest coverage decreased to 16.3
times from 126.8 times in 1995. Fixed charge coverage, which is calculated using
interest and gross rent expense, declined to 3.9 times from 4.2 times in 1995.
Net interest and investment income was lower than 1995 due to lower average
cash and short-term investment balances offset partially by higher average
yields. Other costs and expenses increased in 1996 due to increased provisions
for dispositions and termination of operations and for environmental
remediation-related matters and other items as more fully discussed in Note 4 on
page 31 of this report. The effective income tax rate increased in 1996, as
shown in Note 14, on page 41 of this report, primarily due to the increase in
non-deductible tax items, primarily goodwill.
Net income increased 14.2 percent in 1996 to $229.2 million from $200.7
million in 1995. Excluding Acquisitions, net income increased 12.6 percent. Net
income per share increased 13.7 percent in 1996 to $1.33 from $1.17.
In accordance with the consensus guidance in Emerging Issues Task Force No.
87-11, "Allocation of Purchase Price to Assets to be Sold", all 1996 results of
operations exclude the results of operations of certain Pratt & Lambert
subsidiaries through their respective dates of sale. These subsidiaries, which
were sold during the third quarter of 1996, include essentially all operations
of Pierce & Stevens Corp., a manufacturer of specialty chemicals, and Miracle
Adhesives Corporation, a manufacturer of adhesives for the construction
industry. The total operating profit related to these subsidiaries prior to
their sale, approximately $3.0 million in 1996, has been excluded from the
statement of consolidated income. The net gain realized on the sale of these
subsidiaries was insignificant to the allocation of purchase price pursuant to
APB Opinion No. 16.
The acquisition of Thompson Minwax in January 1997 will affect our results
of operations beginning in 1997.
18
<PAGE> 21
RESULTS OF OPERATIONS -- 1995 VS 1994
Consolidated net sales increased 5.6 percent, to $3.27 billion, over 1994
due primarily to volume and price increases in the Paint Stores Segment.
Sales in the Paint Stores Segment increased 7.3 percent for 1995 as all
divisions achieved sales improvements, particularly in paint and paint-related
product lines. Comparable store sales increased 6.5 percent. Increased paint
gallons sold to wholesale customers generated the majority of the sales
increase. Volume sales to retail customers remained sluggish. Selling price
increases implemented to partially offset increased raw materials costs also
contributed to the sales improvements.
External sales in the Coatings Segment increased 2.7 percent over 1994. The
Consumer Brands Division was the primary contributor to this sales increase due
to increased gallon sales, particularly in its Dutch Boy(R) brand. In the
Automotive Division, sales increases in the automotive branches were partially
offset by declines in two of its major product lines which resulted from soft
automotive aftermarket sales throughout 1995. Reduced consumer demand in the
custom, automotive and industrial markets led to flat sales as compared to 1994
in the Diversified Brands Division. Revenue for the real estate operations in
the Other Segment increased slightly for 1995.
Consolidated gross profit as a percent of sales was slightly lower than
1994, decreasing to 42.7 percent from 42.8 percent. Gross profit margins
increased slightly in the Paint Stores Segment due to gallon sales improvement
combined with successful implementation of supplemental selling price increases
during the year to partially offset increased costs for raw materials. The
Coatings Segment's gross profit margins were lower than 1994 due to the adverse
effects of raw material cost increases combined with a sales mix toward
lower-margin products in the Automotive Division and production volume decreases
in the Diversified Brands Division.
Consolidated SG&A expenses as a percent of sales declined to 32.8 percent
from 32.9 percent in 1994. The Paint Stores Segment carefully contained SG&A
spending throughout 1995, leading to favorable SG&A expenses as a percent of
sales. The Coatings Segment's SG&A expenses as a percent of sales were higher
than 1994 primarily due to increased market penetration costs for new customers
in the Consumer Brands Division and to the marginally higher sales amount.
Consolidated operating profits increased 4.0 percent in 1995. In the Paint
Stores Segment, operating profits increased 12.7 percent over 1994 due to
increased volume and controlled SG&A spending. Operating profits in the Coatings
Segment improved 0.6 percent for 1995. Increased raw material costs during 1995
combined with moderate production volume increases adversely impacted this
Segment's results. The operating profits of the Other Segment increased in 1995
due primarily to reduced interest expense on average long-term debt allocable to
its real estate operations combined with provisions incurred in 1994 for
disposition of certain non-retail properties. Corporate expenses increased in
1995 due primarily to various environmental remediation-related and disposition
provisions which are not directly associated with or allocable to any individual
segment.
Interest expense decreased 21.3 percent during 1995 due to reduced average
long-term debt resulting from normal maturities and 1994 debt purchases. As a
result, interest coverage increased to 126.8 times from 93.8 times in 1994. Our
fixed charge coverage, which is calculated using interest and gross rent
expense, improved to 4.2 times from 4.1 times in 1994.
Interest and net investment income increased 40.1 percent in 1995 due
primarily to increased investment yields. Other costs and expenses decreased in
1995 primarily due to increased dividends and a net reduction of other expenses
as more fully described in Note 4 on page 31 of this report. The effective
income tax rate decreased in 1995, as shown in Note 14 on page 41 of this
report, primarily due to increased tax-exempt investment vehicles.
Net income increased 7.5 percent in 1995 to $200.7 million from $186.6
million in 1994. Net income per share increased 9.3 percent to $1.17 from $1.07.
19
<PAGE> 22
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, 1996, 1995 and
1994, and the related statements of consolidated income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. Our audits also included the financial statement schedule listed at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Sherwin-Williams Company and subsidiaries at December 31, 1996, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 23, 1997, except for Note 17,
as to which the date is January 29, 1997
20
<PAGE> 23
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, 1996, 1995
and 1994. 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.
<TABLE>
<S> <C> <C>
/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
</TABLE>
FINANCIAL STATEMENTS
See "Item 14 -- Exhibits, Financial Statement Schedules and Reports on Form
8-K" for the required Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
21
<PAGE> 24
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 (Proposal 1)" 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.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained on pages 7 through 18 of
the Proxy Statement and under the captions "Directors' Fees" and "Compensation
Committee Interlocks and Insider Participation" contained in the Proxy Statement
which information 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 captions
"Security Ownership of Management" and "Security Ownership of Certain Beneficial
Owners" in the Proxy Statement which information under such captions is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
None
22
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) (1) Financial Statements
(i) Statements of Consolidated Income for the Years Ended December
31, 1996, 1995 and 1994
(ii) Consolidated Balance Sheets at December 31, 1996, 1995 and 1994
(iii) Statements of Consolidated Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
(iv) Statements of Consolidated Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
(v) Notes to Consolidated Financial Statements for the Years Ended
December 31, 1996, 1995 and 1994
(2) Financial Statement Schedule
Financial Schedule No. II for the Years Ended December 31,
1996, 1995 and 1994 -- 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 47 of this report which is
incorporated herein by reference.
</TABLE>
(b) Reports on Form 8-K -- Current Report on Form 8-K dated November 22, 1996
reporting, under Item 5, the signing of a definitive agreement to purchase
Thompson Minwax Holding Corp.
23
<PAGE> 26
STATEMENTS OF CONSOLIDATED INCOME
(Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net sales $4,132,879 $3,273,819 $3,100,069
Costs and expenses:
Cost of goods sold 2,405,178 1,877,083 1,772,671
Selling, general and administrative
expenses 1,309,086 1,075,442 1,018,470
Interest expense 24,537 2,532 3,217
Interest and net investment income (6,819) (11,518) (8,222)
Other 25,520 11,782 15,420
- -----------------------------------------------------------------------------------------
3,757,502 2,955,321 2,801,556
- -----------------------------------------------------------------------------------------
Income before income taxes 375,377 318,498 298,513
Income taxes 146,220 117,844 111,942
- -----------------------------------------------------------------------------------------
Net income $ 229,157 $ 200,654 $ 186,571
=========================================================================================
Net income per share* $ 1.33 $ 1.17 $ 1.07
=========================================================================================
</TABLE>
*Per share data reflects the effect of the stock split described in Note 17.
See notes to consolidated financial statements.
24
<PAGE> 27
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,880 $ 249,484 $ 251,415
Short-term investments 20,000
Accounts receivable, less allowance 452,421 334,304 310,984
Inventories:
Finished goods 529,148 395,817 396,299
Work in process and raw materials 113,539 67,270 62,921
- ----------------------------------------------------------------------------------------------
642,687 463,087 459,220
Deferred income taxes 105,065 71,583 73,956
Other current assets 214,134 100,440 93,049
- ----------------------------------------------------------------------------------------------
Total current assets 1,416,187 1,238,898 1,188,624
Deferred pension assets 254,376 233,574 225,962
Goodwill 546,461 38,792 19,538
Intangibles and other assets 228,175 173,432 118,705
Property, plant and equipment:
Land 53,705 45,203 42,211
Buildings 312,954 282,011 227,390
Machinery and equipment 716,015 629,786 596,878
Construction in progress 51,258 30,434 26,074
- ----------------------------------------------------------------------------------------------
1,133,932 987,434 892,553
Less allowances for depreciation 584,541 531,077 483,351
- ----------------------------------------------------------------------------------------------
549,391 456,357 409,202
- ----------------------------------------------------------------------------------------------
Total Assets $2,994,590 $2,141,053 $1,962,031
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 168,001
Accounts payable 385,928 $ 276,863 $ 258,930
Compensation and taxes withheld 103,353 78,148 79,110
Other accruals 327,768 232,035 218,240
Accrued taxes 65,957 31,891 40,768
- ----------------------------------------------------------------------------------------------
Total current liabilities 1,051,007 618,937 597,048
Long-term debt 142,679 24,018 20,465
Postretirement benefits other than pensions 184,551 175,766 172,114
Other long-term liabilities 215,121 110,206 119,060
Shareholders' equity:
Common stock -- $1.00 par value*: 171,831,178,
170,909,626 and 169,651,660 shares outstanding
at December 31, 1996, 1995 and 1994,
respectively 101,650 101,110 100,370
Other capital 203,223 182,311 159,562
Retained earnings 1,411,295 1,242,167 1,096,066
Cumulative foreign currency translation
adjustment (18,982) (20,657) (20,006)
Treasury stock, at cost (295,954) (292,805) (282,648)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 1,401,232 1,212,126 1,053,344
- ----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,994,590 $2,141,053 $1,962,031
==============================================================================================
</TABLE>
*Common share amounts reflect the effect of the stock split described in Note
17.
See notes to consolidated financial statements.
25
<PAGE> 28
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
OPERATIONS
Net income $ 229,157 $ 200,654 $ 186,571
Non-cash adjustments:
Depreciation 76,176 62,947 60,571
Deferred income tax expense (14,215) (3,316) (18,329)
Provisions for disposition of operations 17,366 6,267 5,712
Provisions for environmental remediation 15,494 10,136 14,400
Amortization of intangible assets 27,447 14,971 13,153
Defined benefit pension plans net credit (15,298) (7,612) (11,379)
Net increase in postretirement liability 3,258 3,652 5,139
Other 1,658 10,077 15,099
Change in current items-net:
Increase in accounts receivable (20,338) (19,571) (13,836)
Decrease (increase) in inventories (85,911) 3,922 (28,748)
Increase in accounts payable 60,410 17,283 3,933
Increase (decrease) in accrued taxes 33,147 (8,877) 964
Increase in accrued employee welfare costs 9,779 8,246 6,991
Other current items (6,893) (13,066) 19,751
Costs incurred for disposition of operations (6,993) (4,704) (5,840)
Other 8,321 1,716 (3,629)
- --------------------------------------------------------------------------------------
Net operating cash 332,565 282,725 250,523
- --------------------------------------------------------------------------------------
INVESTING
Capital expenditures (122,720) (108,392) (78,660)
Decrease (increase) in short-term investments 20,000 (20,000) 39,700
Acquisitions of assets (670,755) (72,349) (9,215)
Decrease (increase) in other investments 37,829 (49,833) (2,397)
Other 15,898 5,824 8,744
- --------------------------------------------------------------------------------------
Net investing cash (719,748) (244,750) (41,828)
- --------------------------------------------------------------------------------------
FINANCING
Net increase in short-term borrowings 134,654
Increase in long-term debt 101,792
Payments of long-term debt (72,426) (804) (19,607)
Payments of cash dividends (60,029) (54,553) (48,363)
Proceeds from stock options exercised 12,800 11,104 6,301
Treasury stock acquired (3,149) (17,367) (128,148)
Other financing of acquisitions 22,000 18,948 1,459
Other 3,937 2,766 986
- --------------------------------------------------------------------------------------
Net financing cash 139,579 (39,906) (187,372)
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (247,604) (1,931) 21,323
Cash and cash equivalents at beginning of
year 249,484 251,415 230,092
- --------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,880 $ 249,484 $ 251,415
======================================================================================
Taxes paid on income $ 144,359 $ 122,687 $ 132,573
Interest paid on debt 22,950 2,526 3,314
- --------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
Cumulative
Common Other Retained Translation Treasury
Stock Capital Earnings Adjustment Stock
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Balance at January 1, 1994 $ 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 -- $.28 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)
Treasury stock acquired (14,404)
Stock issued 740 22,749 4,247
Net income 200,654
Cash dividends -- $.32 per share* (54,553)
Current year translation
adjustment (651)
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1995 101,110 182,311 1,242,167 (20,657) (292,805)
Stock issued 540 20,912 (3,149)
Net income 229,157
Cash dividends -- $.35 per share* (60,029)
Current year translation
adjustment 1,675
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $101,650 $203,223 $1,411,295 $(18,982) $(295,954)
================================================================================================
</TABLE>
*Per share data reflects the effect of the stock split described in Note 17.
See notes to consolidated financial statements.
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars Unless Otherwise Indicated)
(All common share amounts and per share data reflect the effect of
the stock split described in Note 17.)
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 8 of
this report.
Foreign currency translation. All consolidated non-highly inflationary foreign
operations use the local currency of the country of operation as the functional
currency and translate the local currency asset and liability accounts at
year-end exchange rates while income and expense accounts are translated at
average exchange rates. The resulting translation adjustments are accumulated as
a separate component of Shareholders' Equity titled "Cumulative foreign currency
translation adjustment". All consolidated highly inflationary foreign operations
use the Company's currency as the functional currency.
Cash flows. The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Nature of operations. The Company is engaged in the manufacture, distribution
and sale of coatings and related products to professional, industrial,
commercial and retail customers in North and South America.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Environmental matters. Capital expenditures for ongoing environmental compliance
measures are recorded in the consolidated balance sheets and related expenses
are included in the normal operating expenses of conducting business. The
Company is involved with environmental compliance and remediation activities at
some of its current and former sites and at a number of third-party sites. The
Company accrues for certain environmental remediation-related activities for
which commitments or clean-up plans have been developed or for which costs or
minimum costs can be reasonably estimated. All accrued amounts are recorded on
an undiscounted basis. In 1996, the Company adopted American Institute of
Certified Public Accountants Statement of Position (SOP) 96-1, "Environmental
Remediation Liabilities". SOP 96-1 proscribes that accrued environmental
remediation-related expenses include direct costs of remediation and indirect
costs related to the remediation effort. Although the Company previously accrued
for the direct costs of remediation and certain indirect costs, additional
indirect costs were required to be accrued by the Company at the time of
adopting SOP 96-1 such as compensation and benefits for employees directly
involved in the remediation activities and fees paid to outside engineering,
consulting and law firms. The effect of initially applying the provisions of SOP
96-1 has been treated as a change in accounting estimate and is not material to
the accompanying financial statements. See Note 4 and Note 10 for discussions of
the environmental remediation-related expense and accruals included in the
financial statements.
Stock-based compensation. The Company uses the intrinsic value method of
accounting for stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25. See Note 13 for pro forma disclosure of net income and
earnings per share under the fair value method of accounting for stock-based
compensation as proscribed by Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123.
28
<PAGE> 31
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:
<TABLE>
<S> <C>
Buildings 2% - 6 2/3%
Machinery and equipment 4% - 20%
Furniture and fixtures 5% - 20%
Automobiles and trucks 10% - 33 1/3%
</TABLE>
Investment in life insurance. The Company invests in broad-based corporate owned
life insurance. The cash surrender values of the policies, net of policy loans,
are included in Other Assets. The net expense associated with such investment is
included in Other Costs and Expenses. Such expense is immaterial to income
before income taxes.
Goodwill. Goodwill represents the cost in excess of fair value of net assets
acquired in purchase transactions and is amortized on a straight-line basis over
periods not exceeding 40 years. The Company evaluates the recoverability of
goodwill at each balance sheet date and would record an impairment if necessary.
Accumulated amortization of goodwill was $18,186, $3,821 and $2,714 at December
31, 1996, 1995 and 1994, respectively.
Intangibles. Intangible assets were $104,206, $84,070 and $86,283, net of
accumulated amortization of $74,450, $61,293 and $60,030 at December 31, 1996,
1995 and 1994, respectively. These assets are amortized by the straight-line
method over the expected period of benefit. The Company reviews such assets for
impairment and revises the related estimated remaining lives if necessary.
Technical expenditures. Total technical expenditures include research and
development costs, quality control, product formulation expenditures and other
similar items. Research and development costs included in technical expenditures
were $18,661, $17,238 and $16,319 for 1996, 1995 and 1994, respectively.
Advertising expenses. The cost of advertising is expensed as incurred. The
Company incurred $212,448, $152,588 and $148,973 in advertising costs during
1996, 1995 and 1994, 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 after
adjustment for the effect of the two-for-one stock split described in Note 17.
See computation on page 49 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 1997, provide credit availability to the various beneficiaries if
certain contractual events occur. Amounts outstanding under these agreements
totaled $17,092, $17,075 and $20,091 at December 31, 1996, 1995 and 1994,
respectively.
Fair value of financial instruments. The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate fair
value.
Short-term investments: The carrying amounts reported in the consolidated
balance sheets for marketable debt and equity securities are based on
quoted market prices and approximate fair value.
Investments in securities: The Company maintains certain long-term
investments, classified as available for sale securities, in a fund to
provide for payment of health care benefits of certain qualified employees.
The estimated fair values of these securities, included in other assets, of
$31,785, $34,709 and $37,668 at December 31, 1996, 1995 and 1994,
respectively, are based on quoted market prices.
29
<PAGE> 32
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.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair Carrying Fair
AMOUNT VALUE Amount Value Amount Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Publicly traded debt $ 15,900 $ 18,670 $15,900 $20,065 $16,077 $17,643
Non-traded debt 130,460 110,295 8,715 6,162 5,083 3,243
------------------------------------------------------------------------------------------
</TABLE>
Interest rate swaps: The Company occasionally enters into interest rate
swaps primarily to hedge against interest rate risks. These agreements
generally involve the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal amounts.
Counterparties to these agreements are major financial institutions.
Management believes the risk of incurring losses related to credit risk is
remote.
The fair values for the Company's off-balance-sheet instruments, shown
below, are based on pricing models or formulas using current assumptions
for comparable instruments.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Carrying amount $ (808) $(1,275) $(1,802)
Fair value 770 (943) (1,996)
Notional amount 109,669 9,711 9,446
Number of agreements outstanding 3 1 1
----------------------------------------------------------------------------------------
</TABLE>
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 $100,797, $31,491 and $18,829 at December 31, 1996, 1995 and
1994, respectively, represent the Company's best estimate of current
economic values of these investments.
Reclassification. Certain amounts in the 1995 and 1994 financial statements have
been reclassified to conform with the 1996 presentation.
NOTE 2 -- ACQUISITIONS AND MERGERS
Effective January 10, 1996, the Company, through its wholly-owned
subsidiary, SWACQ, Inc., acquired all outstanding stock and completed its merger
with Pratt & Lambert United, Inc. (Pratt & Lambert) for a total cash purchase
price of approximately $400,000. The excess purchase price over the fair value
of the net assets acquired is being amortized over 40 years using the
straight-line method.
For financial statement purposes, the acquisition is being accounted for
under the purchase method of accounting. Accordingly, the results of operations
of Pratt & Lambert since the date of acquisition are included in the Company's
statements of consolidated income. The following unaudited pro forma combined
condensed statement of consolidated income for the year ended December 31, 1995
was prepared in accordance with Accounting Principles Board Opinion No. 16 and
assumes the merger had occurred on January 1, 1995. The following pro forma data
reflects adjustments for interest expense, net investment income, depreciation
expense and amortization of intangible assets. In management's opinion, the pro
forma financial information is not indicative of the results of operations which
would have occurred had the acquisition of Pratt & Lambert taken
30
<PAGE> 33
place on January 1, 1995 or of future results of operations of the combined
companies under the ownership and operation of the Company.
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF CONSOLIDATED INCOME
---------------------------------------------------------
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Net sales $3,670,181
==========
Net income $ 183,806
==========
Net income per share $ 1.07
==========
</TABLE>
In addition, during the three-year period ended December 31, 1996, the
Company also purchased various domestic automotive and retail paint
distributors, coatings manufacturers, and aerosol and liquid filling businesses.
Various foreign architectural and automotive paint manufacturing and aerosol
filling businesses located in South America were also acquired during the
period. The results of operations of these businesses were not material to
consolidated pro forma results.
NOTE 3 -- INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on the last-in, first-out (LIFO) method which provides a better
matching of current costs and revenues. The following presents the effect on
inventories, net income and net income per 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.
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Percentage of total inventories on LIFO 96% 97% 97%
Excess of FIFO and average cost over LIFO $ 94,138 $ 102,725 $ 80,199
Increase (decrease) in net income due to LIFO 4,698 (14,642) (68)
Increase (decrease) in net income per share due to LIFO .03 (.09) --
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 -- OTHER COSTS AND EXPENSES
A summary of significant items included in Other Costs and Expenses is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend and royalty income $ (5,127) $ (10,433) $ (7,500)
Net expense of financing and investing activities 13,226 9,376 12,660
Provisions for environmental matters -- net (see Note
10) 15,494 10,136 4,700
Provisions for disposition and termination of operations
(see Note 5) 5,506 1,007 1,812
Miscellaneous (3,579) 1,696 3,748
- -----------------------------------------------------------------------------------------------
$ 25,520 $ 11,782 $ 15,420
===============================================================================================
</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.
31
<PAGE> 34
During the year ended December 31, 1996, provisions for environmental
matters reflect the increased estimated costs of environmental remediation at
current, former and third-party sites, and certain additional costs relating to
the early adoption of SOP 96-1 (see Note 1), which were partially offset by a
settlement of $56,000 with certain insurance carriers pertaining to
environmental-related matters. For the years ended December 31, 1995 and 1994,
the provisions for environmental remediation reflect only the increased
estimated environmental remediation costs at such sites.
NOTE 5 -- DISPOSITION AND TERMINATION OF OPERATIONS
The Company is continually re-evaluating its operating facilities with
regard to the long-term strategic goals established by management and the board
of directors. Operating facilities which are not expected to sufficiently
contribute to the Company's future plans are closed or sold.
At the time of the decision to close or sell a facility, a provision is
made and the expense included in Other Costs and Expenses to reduce property,
plant and equipment to its estimated net realizable value. Similarly, provisions
are made which reduce all other assets to their estimated net realizable values
and provide for all qualified exit costs such as lease cancellation penalties,
post-closure rent expenses and incremental post-closure expenses, and the
estimated costs of employee termination benefits if management has approved a
termination plan and communicated such plan to the affected employees. The
expenses associated with the provisions for such exit costs and termination
benefits are included in Cost of Goods Sold. Adjustments to all previous
accruals, as closure or disposition occurs, are included in Other Costs and
Expenses.
The provisions made during 1996, charged to current operations, provided
for the reduction to net realizable value of certain assets and exit costs
related to one manufacturing facility and consolidations of certain redundant
distribution and administrative facilities. The 1995 provisions represent the
reduction to net realizable value for certain assets and exit costs associated
with closing certain warehouses due to distribution consolidation. In 1994,
provisions were made for the closing of certain warehouses which were replaced
during 1995 by larger, more efficient facilities.
A summary of the financial data related to the closing or sale of the
facilities is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning accruals -- January 1 $ 27,545 $ 25,982 $ 26,110
Provisions included in cost of goods sold 11,860 5,260 3,900
Provisions and adjustments to prior accruals included in
costs and expenses -- other 5,506 1,007 1,812
- -----------------------------------------------------------------------------------------------
Total provisions charged to current operations 17,366 6,267 5,712
Accruals related to acquired sites 22,626
Actual expenditures (6,993) (4,704) (5,840)
- -----------------------------------------------------------------------------------------------
Ending accruals -- December 31 $ 60,544 $ 27,545 $ 25,982
===============================================================================================
Net after-tax provision charged to current operations $ 11,288 $ 4,073 $ 3,713
Net after-tax provision per share $ .07 $ .03 $ .02
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE 6 -- 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. The Company's funding policy for
defined benefit pension plans is to
32
<PAGE> 35
fund at least the minimum annual contribution required by applicable
regulations. Plan assets consist primarily of cash, equity investments and
fixed-income securities. There were 1,938,800 shares of the Company's stock
included in these assets at December 31, 1996, 1995 and 1994.
At December 31, 1995, the assumed discount rate was changed due to
decreased rates of high-quality long-term investments, increasing the projected
benefit obligation. The decreased interest rates during 1995 positively impacted
the return on plan assets in the defined benefit pension trusts. The effect of
the change in the assumed discount rate and the increased earnings on plan
assets resulted in a net decrease in the unrecognized net loss, whose
amortization was reduced beginning in 1996 thereby increasing the net pension
credit. A change in the assumed discount rate and rate of return on plan assets
at December 31, 1994 previously increased the unrecognized net loss, whose
amortization in 1995 reduced the net pension credit.
The net pension credit for defined benefit plans and its components was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 3,516 $ 2,401 $ 2,800
Interest cost 10,933 8,929 8,402
Actual return on plan assets (49,923) (53,926) 7,418
Net amortization and deferral 20,176 34,984 (29,999)
- -----------------------------------------------------------------------------------------------
Net pension credit $ (15,298) $ (7,612) $ (11,379)
===============================================================================================
</TABLE>
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. Certain
defined benefit plans formerly sponsored by Pratt & Lambert United, Inc. and its
subsidiaries are included beginning in 1996.
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (148,534) $ (116,335) $ (103,860)
Accumulated benefit obligation $ (151,376) $ (118,585) $ (105,480)
Projected benefit obligation $ (158,876) $ (128,335) $ (111,650)
Plan assets at fair value 391,865 323,216 277,841
- -----------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 232,989 194,881 166,191
Unrecognized net asset at January 1, 1986, net of
amortization (6,943) (9,865) (12,787)
Unrecognized prior service cost 858 393 441
Unrecognized net loss 27,472 48,165 72,117
- -----------------------------------------------------------------------------------------------
Deferred pension assets recognized in the
consolidated balance sheets $ 254,376 $ 233,574 $ 225,962
===============================================================================================
Assumptions used in determining actuarial present
value of benefit obligations:
Discount rate 7.25% 7.25% 8.25%
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% 8.50%
- -----------------------------------------------------------------------------------------------
</TABLE>
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 $24,730 for
33
<PAGE> 36
1996, $20,326 for 1995 and $20,193 for 1994. The cost of multiemployer and
foreign plans charged to income was immaterial for the three years ended
December 31, 1996.
NOTE 7 -- 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. Beginning in 1996, these plans include certain health
care and postretirement benefit plans formerly sponsored by Pratt & Lambert
United, Inc. and its subsidiaries. The health care plans are contributory and
contain cost-sharing features such as deductibles and coinsurance. There were
16,935, 14,823 and 14,160 active employees entitled to receive benefits under
these plans as of December 31, 1996, 1995 and 1994, respectively. The cost of
these benefits for active employees is recognized as claims are incurred and
amounted to $44,221, $37,194 and $32,694 for 1996, 1995 and 1994, respectively.
The Company has a fund, to which it no longer intends to contribute, that
provides for payment of health care benefits of certain qualified employees.
Distributions from the fund amounted to $4,618 in 1996, $5,265 in 1995 and
$4,662 in 1994.
Substantially all employees of the Company who were hired prior to January
1, 1993 and who are not members of a collective bargaining unit are eligible for
certain health care and life insurance benefits upon retirement from active
service with the Company. There were 4,152, 4,008 and 4,093 retired employees
entitled to receive benefits as of December 31, 1996, 1995 and 1994,
respectively. The plans are unfunded.
The assumed discount rate used in determining the actuarial present value
of the accumulated postretirement benefit obligation was 7.25% in 1996 and 1995,
and 8.25% in 1994. The change in the assumed discount rate at December 31, 1995,
caused by decreased interest rates of high-quality long-term investments,
increased the accumulated postretirement benefit obligation, the effect of which
increased 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 7.75 percent for 1997 and decreases gradually to 5.5 percent for
2003 and thereafter. 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, 1996 by $10,450 and the
aggregate service and interest cost components of net periodic postretirement
benefit cost for 1996 by $885.
34
<PAGE> 37
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:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ (109,116) $ (105,200) $ (93,049)
Fully eligible active participants (20,486) (17,590) (14,240)
Other active participants (53,577) (49,120) (41,811)
- -----------------------------------------------------------------------------------------------
(183,179) (171,910) (149,100)
Effect of changes in the accumulated postretirement
benefit obligation to be amortized over future
years:
Unrecognized prior service credit (21,570) (24,268) (26,961)
Unrecognized net (gain) loss 11,288 12,262 (4,203)
- -----------------------------------------------------------------------------------------------
Total accrued postretirement benefit liability $ (193,461) $ (183,916) $ (180,264)
===============================================================================================
Accrued postretirement benefit liabilities
recognized in the consolidated balance sheets:
Amount included in current liabilities $ (8,910) $ (8,150) $ (8,150)
Amount of long-term postretirement benefits
other than pensions (184,551) (175,766) (172,114)
- -----------------------------------------------------------------------------------------------
Total accrued postretirement benefit liability $ (193,461) $ (183,916) $ (180,264)
===============================================================================================
The expense for postretirement benefit plans and
its components was as follows:
Service cost $ 3,327 $ 2,723 $ 3,112
Interest cost 12,483 11,998 11,459
Net amortization of unrecognized prior service
credit (2,696) (2,693) (2,693)
Net amortization and deferral 61
- -----------------------------------------------------------------------------------------------
Net postretirement benefit expense $ 13,114 $ 12,028 $ 11,939
===============================================================================================
</TABLE>
35
<PAGE> 38
NOTE 8 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
Sinking Fund/
Interim Payments Amount Outstanding
--------------------- ----------------------------------
Due Date Amount Commence 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Floating Rate Notes Through $100,000
1999
9.875% Debentures 2016 $5,000 2007 15,900 $ 15,900 $ 15,900
6% Promissory Notes Through 11,233
2002
8% to 8.5% Promissory Notes Through Varies Payable 6,985 5,328 1,000
2004 currently
7% Promissory Notes Through Varies Payable 4,400
2000 currently
8% to 12% Promissory Notes Through Varies Payable 3,242 2,632 3,365
partially secured by 2005 currently
certain land and
buildings and other
4.75% Promissory Note 2000 800
Other Obligations 119 158 200
- ----------------------------------------------------------------------------------------------------------------
$142,679 $ 24,018 $ 20,465
================================================================================================================
</TABLE>
Maturities of long-term debt are as follows for the next five years: $3,800
in 1997; $53,805 in 1998; $59,094 in 1999; $5,799 in 2000; and $3,861 in 2001.
Interest expense on long-term debt amounted to $8,602, $2,387 and $2,768
for 1996, 1995 and 1994, respectively. There were no interest charges
capitalized during the periods presented.
The Company had other financing arrangements available at December 31, 1996
as outlined below.
Effective August 31, 1995, the Company entered into 364-day and five year
revolving credit agreements with a group of banks to borrow up to an aggregate
of $600,000. There were no outstanding borrowings under these agreements at the
end of 1996 or 1995. In 1997, the Company terminated these agreements and
entered into new revolving credit agreements as more fully explained in Note 16.
Under a shelf registration with the Securities and Exchange Commission
covering $450,000 of unsecured debt securities with maturities greater than nine
months from the date of issue, 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. In 1997, the Company issued debt securities under this shelf
registration as more fully explained in Note 16.
Effective January 24, 1996, the Company increased the aggregate principal
amount of unsecured short-term notes which can be issued under its commercial
paper program to $600,000. In 1997, the Company increased the aggregate
principal amount of such notes to $1,450,000 as more fully explained in Note 16.
At December 31, 1996, outstanding borrowings under this program totaled $166,246
and are included in short-term borrowings on the balance sheet. The
weighted-average interest rate related to these borrowings was 5.71% at December
31, 1996.
NOTE 9 -- LEASES
The Company leases certain 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 $104,894, $95,536 and $93,637 for 1996, 1995 and 1994,
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 $9,877 in 1996, $9,102
36
<PAGE> 39
in 1995 and $8,985 in 1994. 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, 1996:
<TABLE>
<S> <C>
1997 $ 79,190
1998 65,032
1999 50,590
2000 37,980
2001 25,361
Later years 74,012
--------
Total minimum lease payments $332,165
========
</TABLE>
NOTE 10 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Environmental-related $139,057 $ 70,310 $ 71,049
Other 76,064 39,896 48,011
- --------------------------------------------------------------------------------------------
$215,121 $110,206 $119,060
============================================================================================
</TABLE>
The long-term liability for environmental-related items represents the
Company's provision for the estimated costs associated with environmental
remediation-related activities at some of its current and former sites. Also,
the Company, together with other parties, has been designated a potentially
responsible party under federal and state environmental protection laws for the
remediation of hazardous waste at a number of third-party sites, primarily
Superfund sites. In general, these laws provide that potentially responsible
parties may be held jointly and severally liable for investigation and
remediation costs regardless of fault. The Company provides for, and includes in
long-term liabilities, its estimated potential 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
estimates the cost of similar environmental-related activities at sites obtained
through acquisition on the same basis as described above. The Company believes
that any additional liability in excess of amounts provided which may result
from the resolution of such matters will not have a material adverse effect on
the financial condition, liquidity or cash flow of the Company.
The increase in environmental-related liabilities in 1996 reflects
adjustments to previously recorded estimated costs resulting from the ongoing
evaluation of environmental matters at certain current, former and third-party
sites, liabilities recorded relating to certain sites acquired in connection
with 1996 acquisitions, and the accrual of certain additional costs relating to
the early adoption of SOP 96-1 (see Note 1).
37
<PAGE> 40
In addition to the long-term portion of environmental-related accruals
shown above, current accruals for certain environmental-related liabilities are
included in other accruals in current liabilities on the consolidated balance
sheets.
During 1996, taxes associated with acquisitions and other events
significantly increased other long-term liabilities.
NOTE 11 -- STOCK PURCHASE PLAN
As of December 31, 1996, 12,373 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 $29,935, $26,795 and
$22,242 for 1996, 1995 and 1994, respectively. Additionally, the Company made
contributions on behalf of participating employees, which represent salary
reductions for income tax purposes, amounting to $15,282 in 1996, $12,775 in
1995 and $11,456 in 1994.
At December 31, 1996, there were 26,267,922 shares of the Company's stock
being held by this plan, representing 15.3 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 -- CAPITAL STOCK
<TABLE>
<CAPTION>
Shares Shares
in Treasury Outstanding
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1994 22,975,962 177,012,674
Stock issued upon:
Exercise of stock options 84,584 638,248
Conversion of 6.25% Convertible Subordinated Debentures 40,338
Cancellation of restricted stock grants (12,000)
Treasury stock acquired 8,027,600 (8,027,600)
- -------------------------------------------------------------------------------------------
Balance at December 31, 1994 31,088,146 169,651,660
Stock issued upon:
Exercise of stock options 171,226 1,042,086
Conversion of 6.25% Convertible Subordinated Debentures 123,336
Restricted stock grants 144,000
Treasury Stock:
Acquired 822,600 (822,600)
Issued for acquisition (771,144) 771,144
- -------------------------------------------------------------------------------------------
Balance at December 31, 1995 31,310,828 170,909,626
Stock issued upon:
Exercise of stock options 158,688 918,552
Restricted stock grants 3,000
- -------------------------------------------------------------------------------------------
Balance at December 31, 1996 31,469,516 171,831,178
===========================================================================================
</TABLE>
An aggregate of 8,686,286, 9,779,730 and 11,327,544 shares of stock at
December 31, 1996, 1995 and 1994, respectively, were reserved for future
restricted stock grants, the exercise and future grants of stock options, and,
prior to their expiration in February 1995, the conversion of convertible
subordinated debentures. At December 31, 1996, there were 300,000,000 shares of
common stock and 30,000,000 shares of serial preferred stock authorized for
issuance.
38
<PAGE> 41
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.
NOTE 13 -- 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 4,000,000
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 375,000 shares at
December 31, 1996, were awarded to certain officers and key employees which
require four years of continuous employment from the date of grant before
vesting and 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. There were 208,000 shares issued pursuant to these
grants during 1995. No shares were issued during 1996 and 1994. Unamortized
deferred compensation expense with respect to the restricted stock amounted to
$2,962, $4,024 and $1,612 at December 31, 1996, 1995 and 1994, respectively, and
is being amortized over the four-year vesting period. Deferred compensation
expense aggregated $3,983, $1,563 and $1,416 in 1996, 1995 and 1994,
respectively. No stock appreciation rights have been granted. A summary of
restricted stock granted during 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------
<S> <C> <C>
Shares granted 3,000 196,000
Weighted-average fair value of
options granted during year $ 20.72 $16.35
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123), requires use of highly subjective assumptions in
option valuation models. Under APBO No. 25, because the exercise price of the
Company's employee stock options is not less than fair market price of the
shares at the date of grant, no compensation expense is recognized in the
financial statements. Pro forma information regarding net income and earnings
per share, determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS No. 123, is required by that
statement for 1996 and 1995. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for all options granted in 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.99% 6.25%
Expected life of option 3 YEARS 3 years
Expected dividend yield of stock 2.00% 2.00%
Expected volatility of stock 0.201 0.221
</TABLE>
39
<PAGE> 42
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, it is management's opinion that the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
The amounts below represent the pro forma information calculated through
use of the Black-Scholes model. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period.
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------
<S> <C> <C>
Pro forma net income $ 228,126 $ 200,229
Pro forma earnings per share:
Primary $1.33 $1.17
Fully Diluted $1.32 $1.17
</TABLE>
Due to the required phase-in provisions, the effects of applying SFAS No.
123 to arrive at the above pro forma amounts are not representative of the
expected effects on pro forma net income or earnings per share in future years.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1996, 1995 and 1994, is shown in the following
table in accordance with SFAS No. 123 beginning in 1995:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Optioned Exercise Optioned Exercise Optioned
Shares Price Shares Price Shares Price Range
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
year 4,976,268 $ 12.77 5,212,918 $ 11.23 5,343,090 $ 3.86-$17.94
Granted 1,648,500 20.82 1,008,400 16.39 668,800 16.10- 17.53
Exercised (1,077,240) 11.28 (1,213,312) 9.19 (722,832) 3.86- 15.82
Canceled (112,932) 18.36 (31,738) 15.72 (76,140) 6.28- 16.63
- ------------------------------------------------------------------------------------------------------------------
Outstanding end of year 5,434,596 $ 14.91 4,976,268 $ 12.35 5,212,918 $ 5.47-$17.94
==================================================================================================================
Exercisable at end of year 3,011,242 $ 11.99 3,342,388 $ 11.03 3,939,138
Weighted-average fair value
of options granted during
year $3.57 $3.50
Reserved for future grants 3,251,686 4,803,462 5,991,260
</TABLE>
Exercise prices for optioned shares outstanding as of December 31, 1996
ranged from $6.28 to $25.63. A summary of these options by range of exercise
prices is shown as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------- ---------------------- Weighted-
Weighted- Weighted- Average
Average Average Remaining
Range of Optioned Exercise Optioned Exercise Contractual
Exercise Prices Shares Price Shares Price Life (years)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
< $ 8.00 246,752 $ 6.81 246,752 $ 6.81 1.50
$ 8.00-$11.99 1,348,220 9.31 1,348,220 9.31 3.75
$12.00-$18.00 2,216,476 15.79 1,405,226 15.42 6.83
> $18.00 1,623,148 20.87 11,044 18.05 9.00
- ---------------------------------------------------------------------------------------------------
5,434,596 $ 14.91 3,011,242 $ 11.99 6.50
===================================================================================================
</TABLE>
40
<PAGE> 43
NOTE 14 -- INCOME TAXES
The Company accounts for income taxes in accordance with 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.
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, 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $ 24,393 $ 21,630 $ 23,829
Deferred employee benefit items 27,873 26,360 26,494
- -------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 52,266 $ 47,990 $ 50,323
===========================================================================================
Deferred tax assets:
Dispositions, environmental and other similar
items $ 55,143 $ 32,425 $ 36,076
Other items (each less than 5% of total assets) 100,679 82,193 77,013
- -------------------------------------------------------------------------------------------
Total deferred tax assets $155,822 $114,618 $113,089
===========================================================================================
</TABLE>
Significant components of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $124,847 $ 97,936 $106,132
Foreign 8,542 2,470 1,775
State and Local 27,046 20,754 22,364
- -------------------------------------------------------------------------------------------
Total Current 160,435 121,160 130,271
Deferred:
Federal (12,169) (3,062) (15,465)
State and Local (2,046) (254) (2,864)
- -------------------------------------------------------------------------------------------
Total Deferred (14,215) (3,316) (18,329)
- -------------------------------------------------------------------------------------------
Total income tax expense $146,220 $117,844 $111,942
===========================================================================================
</TABLE>
For financial reporting purposes, income before income taxes include the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 343,445 $ 309,467 $ 290,768
Foreign 31,932 9,031 7,745
- -----------------------------------------------------------------------------------------------
$ 375,377 $ 318,498 $ 298,513
===============================================================================================
</TABLE>
41
<PAGE> 44
A reconciliation of the statutory federal income tax rate and the effective
tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Effect of:
State and local taxes 4.3 4.2 4.2
Investment vehicles (2.9) (2.6) (2.0)
Other, net 2.6 0.4 0.3
- ---------------------------------------------------------------------------------------
Effective tax rate 39.0% 37.0% 37.5%
=======================================================================================
</TABLE>
The provision includes estimated taxes payable on that portion of retained
earnings of foreign subsidiaries expected to be received by the Company. No
provision was made with respect to $9,063 of retained earnings at December 31,
1996 that have been invested by foreign subsidiaries. It is not practicable to
estimate the amount of unrecognized deferred tax liability for the undistributed
foreign earnings.
Included in the Company's deferred tax assets are valuation reserves of
$19,158, $17,784 and $14,021 at December 31, 1996, 1995 and 1994, respectively,
resulting from the uncertainty as to future recognition of certain foreign net
operating losses and other foreign assets.
NOTE 15--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1996
- ----------------------------------------------------------------------
NET
NET GROSS NET INCOME
QUARTER SALES PROFIT INCOME PER SHARE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1ST $ 857,771 $ 337,493 $ 19,593 $ .12
2ND 1,145,254 469,981 81,902 .48
3RD 1,171,010 492,237 88,550 .51
4TH 958,844 427,990 39,112 .23
</TABLE>
Net income during the fourth quarter decreased by $1,176 (no per share
effect) due to net before-tax adjustments of $1,809. Cost of goods sold
decreased by a net of $9,516 ($6,185 after-tax, $.04 per share) as a result of
physical inventory adjustments of $17,380 ($11,297 after-tax, $.07 per share)
which were partially offset by provisions for the closing costs associated with
certain operations of $7,560 ($4,914 after-tax, $.03 per share) and other
year-end adjustments of $304 ($198 after-tax, no per share effect).
Administrative expenses were reduced by $5,623 ($3,655 after-tax, $.02 per
share) due to other year-end adjustments. Other costs and expenses increased
$16,948 ($11,017 after-tax, $.07 per share) due to the provision of $11,621
($7,554 after-tax, $.05 per share) for environmental remediation-related matters
at current, former and third-party sites and to the provision of $5,327 ($3,463
after-tax, $.02 per share) for the adjustment to net realizable value of certain
net fixed assets.
<TABLE>
<CAPTION>
1995
- ---------------------------------------------------------------------
Net
Net Gross Net Income
Quarter Sales Profit Income per Share
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st $ 716,796 $292,559 $ 18,733 $ .11
2nd 904,729 387,947 73,207 .43
3rd 911,387 390,498 74,948 .44
4th 740,907 325,732 33,766 .20
</TABLE>
Year-end adjustments during the fourth quarter of $1,565 increased net
income by $1,017 (no per share effect). Cost of goods sold decreased by a net of
$8,268 ($5,374 after-tax, $.03 per share) as a result of physical inventory
adjustments of $13,528 ($8,793 after-tax, $.05 per share) which were
42
<PAGE> 45
partially offset by certain provisions for the disposition and termination of
operations of $5,260 ($3,419 after-tax, $.02 per share). Administrative expenses
were increased by $60 ($39 after-tax, no per share effect) due to other year-end
adjustments. Other costs and expenses increased $6,643 ($4,318 after-tax, $.03
per share) due to the provisions for environmental-related matters at certain
current, former and third-party sites of $7,136 ($4,638 after-tax, $.03 per
share) which were partially offset by reductions to prior accruals for the
disposition and termination of operations of $493 ($320 after-tax, no per share
effect).
NOTE 16 -- SUBSEQUENT EVENTS
Effective January 7, 1997, the Company acquired all outstanding shares of
stock of Thompson Minwax Holding Corp. (Thompson Minwax) pursuant to a
definitive stock purchase agreement dated November 22, 1996 among the Company,
Silver Acquisition Corp. (a wholly-owned subsidiary of the Company) and Forstman
Little & Co. and its affiliates. The total amount of funds required to acquire
the shares and pay off certain indebtedness of Thompson Minwax was approximately
$830 million, subject to adjustment based on the closing date shareholders'
equity of Thompson Minwax.
The acquisition was financed with proceeds from the Company's commercial
paper program. Effective January 3, 1997, the Company increased the aggregate
principal amount of unsecured short-term notes which can be issued under this
program to $1,450,000. The Company's commercial paper program is supported by
the following new revolving credit agreements dated January 3, 1997: (1) a
364-day revolving credit agreement with a group of 30 banks, under which the
Company may borrow up to $290,000; and (2) a five-year revolving credit
agreement with the same group of 30 banks, under which the Company may borrow up
to $1,160,000.
Thompson Minwax is a major producer and marketer in the United States of
interior stains and varnishes under the Minwax(R) brand name, exterior water
sealers and stains under the Thompson's(R) brand name, finishing and enamel
coating products under the Formby's(R) and Red Devil(R) brand names, and
high-performance specialty lubricants under the Tri-Flow(TM) brand name. Ronseal
Limited, a subsidiary of Thompson Minwax, is a major producer and seller of
interior and exterior stains in Ireland and the United Kingdom under the
Ronseal(TM) brand name.
The acquisition will be accounted for under the purchase method of
accounting, and the results of operations of Thompson Minwax will be included in
the results of operations of the Company beginning in 1997. The annual sales of
Thompson Minwax during 1996 were approximately $364,000.
On February 10, 1997, the Company issued $400,000 of debt securities under
its shelf registration with the Securities and Exchange Commission consisting of
$100,000 of 6.25% notes due February 1, 2000, $100,000 of 6.5% notes due
February 1, 2002 and $200,000 of 6.85% notes due February 1, 2007. In addition,
on February 10, 1997, the Company issued $150,000 of 7.375% debentures due
February 1, 2027 and $150,000 of 7.45% debentures due February 1, 2097 in a
private offering not registered under the Securities Act of 1933, as amended.
Each of the notes and debentures are senior unsecured securities of the Company.
The net proceeds from the sale of such notes and debentures were used to
refinance a portion of the Company's commercial paper debt outstanding.
NOTE 17 -- STOCK SPLIT
On January 29, 1997, the Company's board of directors declared a
two-for-one common stock split to be effected in the form of a 100 percent stock
dividend to be distributed on or about March 28, 1997 to holders of record on
March 3, 1997. Accordingly, all numbers of common shares and per share data have
been restated to reflect the stock split. The par value of the additional shares
of common stock to be issued in connection with the stock split will be credited
to common stock and a like amount charged to other capital in 1997.
43
<PAGE> 46
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(SCHEDULE II)
Changes in the allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 15,154 $ 10,820 $ 8,589
Bad debt expense 19,095 13,793 11,801
Net uncollectible accounts written off (11,618) (9,459) (9,570)
- ------------------------------------------------------------------------------------------------
Ending balance $ 22,631 $ 15,154 $ 10,820
================================================================================================
</TABLE>
Activity related to other asset reserves:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 83,897 $ 80,853 $ 54,079
Charges to expense 28,838 15,672 20,850
Other additions (deductions) (814) (12,628) 5,924
- -----------------------------------------------------------------------------------------------
Ending balance $ 111,921 $ 83,897 $ 80,853
===============================================================================================
</TABLE>
Charges to expense consist primarily of amortization of goodwill and
intangibles and, in 1994, adjustments to reduce certain assets to their
estimated net realizable values. Other additions (deductions) consist primarily
of actual costs incurred and balance sheet reclassifications and, in 1995,
removal of fully-amortized items.
44
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, and State of Ohio, on the 12th day of March, 1997.
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 12, 1997.
<TABLE>
<CAPTION>
SIGNATURE
---------
<S> <C>
* J. G. BREEN Chairman and Chief Executive Officer,
- ------------------------------------------------- Director (Principal Executive Officer)
J. G. Breen
* T. A. COMMES President and Chief Operating Officer,
- ------------------------------------------------- Director
T. A. Commes
* L. J. PITORAK Senior Vice President -- Finance,
- ------------------------------------------------- Treasurer and Chief Financial Officer
L. J. Pitorak (Principal Financial Officer)
* J. L. AULT Vice President -- Corporate Controller
- ------------------------------------------------- (Principal Accounting Officer)
J. L. Ault
* J. M. BIGGAR Director
- -------------------------------------------------
J. M. Biggar
* D. E. COLLINS Director
- -------------------------------------------------
D. E. Collins
* D. E. EVANS Director
- -------------------------------------------------
D. E. Evans
* R. W. MAHONEY Director
- -------------------------------------------------
R. W. Mahoney
* W. G. MITCHELL Director
- -------------------------------------------------
W. G. Mitchell
* A. M. MIXON, III Director
- -------------------------------------------------
A. M. Mixon, III
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
SIGNATURE
---------
<S> <C>
* C. E. MOLL Director
- -------------------------------------------------
C. E. Moll
* H. O. PETRAUSKAS Director
- -------------------------------------------------
H. O. Petrauskas
* R. K. SMUCKER Director
- -------------------------------------------------
R. K. Smucker
</TABLE>
* 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.
<TABLE>
<S> <C>
By: /s/ L. E. STELLATO March 12, 1997
---------------------------------------------
L. E. Stellato, Attorney-in-fact
</TABLE>
46
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<S> <C>
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
as of February 1, 1996, filed as Exhibit 4(a) to Form S-3
Registration Statement Number 333-01093, dated February 20, 1996
(also deemed to be filed as Exhibit 4(b) to Form S-3 Registration
Statement Number 33-22705, dated June 24, 1988), and incorporated
herein by reference.
(b) 364-Day Revolving Credit Agreement, dated January 3, 1997, between
the Company, Texas Commerce Bank National Association, as
Administrative Agent, The Chase Manhattan Bank, as Competitive
Advance Facility Agent, and the financial institutions which are
signatories thereto, filed as Exhibit 99.2 to Form 8-K, dated
January 7, 1997, and incorporated herein by reference.
(c) Five Year Revolving Credit Agreement, dated January 3, 1997,
between the Company, Texas Commerce Bank National Association, as
Administrative Agent, The Chase Manhattan Bank, as Competitive
Advance Facility Agent, and the financial institutions which are
signatories thereto, filed as Exhibit 99.1 to Form 8-K, dated
January 7, 1997, and incorporated herein by reference.
(d) Term Loan/Bankers' Acceptance Agreement, by and between the Company
and SunTrust Bank, Atlanta, dated January 9, 1996, filed as Exhibit
4(e) to Form 10-K, dated March 13, 1996, and incorporated herein by
reference.
(e) Term Loan/Bankers' Acceptance Agreement, by and between the Company
and SunTrust Bank, Atlanta, dated February 1, 1996, filed as
Exhibit 4(f) to Form 10-K, dated March 13, 1996, and incorporated
herein by reference.
(f) Indenture between Sherwin-Williams Development Corporation, as
issuer, the Company, as guarantor, and Harris Trust and Savings
Bank, as Trustee, dated June 15, 1986, filed as Exhibit 4(b) to
Form S-3 Registration Statement Number 33-6626, dated June 20,
1986, and incorporated herein by reference.
(g) Rights Agreement between the Company and 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.
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 with J.G. Breen, T.A. Commes and C.G. Ivy
filed as Exhibit 28(b) to Form S-3 Registration Statement Number
33-22705, dated June 24, 1988, and incorporated herein by reference.
*(c) Amendments to Employment Agreements with J.G. Breen, T.A. Commes
and C.G. Ivy filed as Exhibit 10(c) to Form 10-K, dated March 13,
1996, and incorporated herein by reference.
*(d) Form of Severance Pay Agreements filed as Exhibit 10(c) to Form
10-K, dated March 13, 1990, and incorporated herein by reference.
*(e) 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.
</TABLE>
47
<PAGE> 50
<TABLE>
<S> <C>
*(f) Amendment No. 1 to The Sherwin-Williams Company Deferred
Compensation Plan filed as Exhibit 10(f) to Form 10-K, dated March
13, 1996, and incorporated herein by reference.
*(g) The Sherwin-Williams Company Key Management Deferred Compensation
Plan (1994 Amendment and Restatement) filed as Exhibit 10(g) to
Form 10-K, dated March 13, 1996, and incorporated herein by
reference.
*(h) Form of Executive Disability Income Plan filed as Exhibit 10(g) to
Form 10-K, dated March 13, 1992, and incorporated herein by
reference.
*(i) Form of Executive Life Insurance Plan filed as Exhibit 10(h) to
Form 10-K, dated March 13, 1992, and incorporated herein by
reference.
*(j) Form of Directors' Deferred Fee Plan filed as Exhibit 10(i) to Form
10-K, dated March 13, 1992, and incorporated herein by reference.
(k) 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.
(l) 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.
*(m) Form of The Sherwin-Williams Company Management Compensation
Program filed as Exhibit 10(l) to Form 10-K, dated March 15, 1995,
and incorporated herein by reference.
*(n) The Sherwin-Williams Company 1994 Stock Plan, as amended and
restated in its entirety, effective January 29, 1997 (filed
herewith).
(o) Agreement and Plan of Merger, dated as of November 4, 1995, among
the Company, SWACQ, Inc. and Pratt & Lambert United, Inc., filed as
Exhibit(c)(1) to the Tender Offer Statement on Schedule
14D-1/Schedule 13D, filed November 9, 1995, as amended, and
incorporated herein by reference.
(p) Stock Purchase Agreement, dated November 22, 1996, among the
Company, Silver Acquisition Corp., Forstmann Little & Co.
Subordinated Debt and Equity Management Buyout Partnership -- V,
L.P., MTF Partners, L.P. and certain individual shareholders who
are signatories thereto, filed as Exhibit 2 to Form 8-K, dated
January 7, 1997, and incorporated herein by reference.
*(q) Split-Dollar Agreement, dated March 25, 1996, among the Company,
National City Bank and John G. and Mary Breen (filed herewith).
*(r) The Sherwin-Williams Company Estate Protection Plan Trust, dated
November 15, 1996, between the Company and National City Bank
(filed herewith).
11. Computation of Net Income Per Share -- Page 49.
21. Subsidiaries -- Page 50.
23. Consent of Independent Auditors -- Page 51.
24. Powers of Attorney (filed herewith).
27. Financial Data Schedule.
*Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
</TABLE>
48
<PAGE> 1
EXHIBIT 10(n)
THE SHERWIN-WILLIAMS COMPANY
1994 STOCK PLAN
(AMENDED AND RESTATED JANUARY 29, 1997)
The Sherwin-Williams Company 1994 Stock Plan (the "Plan") is amended
and restated effective as of January 29, 1997. The Plan was established
effective as of 12:00:01 a.m. on February 16, 1994. The purpose of the Plan is
to attract and retain key executive, managerial, technical and professional
personnel for The Sherwin-Williams Company and its subsidiaries by providing
incentives and rewards for superior performance by such personnel.
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings unless the context clearly indicates otherwise:
1.01 Appreciation Right. A right to receive from the Company, upon
surrender of the related stock option, an amount equal to the Spread in
accordance with Article IV.
1.02 Board of Directors. The Board of Directors of the Company.
1.03 Code. The Internal Revenue Code of 1986, as the same has been or
may be amended from time-to-time.
1.04 Committee. The Compensation and Management Development Committee
of the Board of Directors or such other committee composed of not less than
three (3) non-employee directors appointed by the Board of Directors.
1.05 Common Stock. Common Stock of the Company or any security into
which such Common Stock may be changed by reason of any transaction or event of
the type described in Article VIII.
1.06 Company. The Sherwin-Williams Company, or its corporate successor
or successors.
1.07 Date of Grant. The date specified by the Board of Directors on
which a grant of Option Rights or Appreciation Rights or a grant or sale of
Restricted Stock shall become effective
1
<PAGE> 2
(which date shall not be earlier than the date on which the Board of Directors
takes action with respect thereto).
1.08 Eligible Employees. Persons who are selected by the Board of
Directors and who are, at the time such persons are selected, officers
(including officers who are members of the Board of Directors) or other key
employees of the Company or any of its subsidiaries.
1.09 Fair Market Value. The average between the highest and the lowest
quoted selling price of the Company's Common Stock on the New York Stock
Exchange or any successor exchange.
1.10 ISO. An "incentive stock option" within the meaning of section
422 of the Code.
1.11 Option Right. The right to purchase a share of Common Stock upon
exercise of an option granted pursuant to Article III.
1.12 Participant. An Eligible Employee named in an agreement
evidencing an outstanding Option Right, Appreciation Right, sale or grant of
Restricted Stock or stock option granted under any stock option plan heretofore
or hereafter approved by the shareholders of the Company.
1.13 Plan. The Sherwin-Williams Company 1994 Stock Plan, as the same
may be amended from time-to-time.
1.14 Restricted Stock. Shares of Common Stock granted or sold pursuant
to Article V as to which neither the substantial risk of forfeiture nor the
prohibition or restriction on transfer referenced to therein has lapsed,
terminated or been cancelled.
1.15 Section 16. Section 16 of the Securities Exchange Act of 1934, as
the same has been and may be amended from time-to-time.
1.16 Spread. The excess of the Fair Market Value per share of Common
Stock on the date when an Appreciation Right is exercised over the option price
provided for in the related stock option.
1.17 Subsidiary. Any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option Right, Appreciation Right or the grant or sale of
Restricted Stock, each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
1.18 Tax Date. The date upon which the tax is first determinable.
2
<PAGE> 3
ARTICLE II
COMMON STOCK AVAILABLE
2.01 Number of Shares. The shares of Common Stock which may be (a) sold
upon the exercise of Option Rights, (b) delivered upon the exercise of
Appreciation Rights, or (c) awarded or sold as Restricted Stock and released
from substantial risks of forfeiture thereof shall not exceed in the aggregate
2,000,000 shares plus the number of shares of Common Stock authorized pursuant
to the 1984 Stock Plan which are not granted pursuant to the 1984 Stock Plan as
of the expiration thereof, all subject to adjustment as provided in Articles VII
and VIII. Such shares may be shares of original issuance or treasury shares or a
combination of the foregoing.
2.02 Reuse of Shares. If an Option Right or portion thereof shall
expire or terminate for any reason without having been exercised in full, or if
the rights of a Participant in Restricted Stock shall terminate prior to the
lapse of the substantial risk of forfeiture relating thereto, the shares covered
by such Option Right or Restricted Stock grant not transferred to the
Participant shall be available for future grants of Option Rights and/or
Restricted Stock. In the event of a cancellation or amendment of Option Rights
or Restricted Stock grants, the Board of Directors may authorize the granting of
new Option Rights or Restricted Stock (which may or may not cover the same
number of shares which had been the subject of the prior grant) in such manner,
at such price and subject to the same terms, conditions and discretions as,
under the Plan, would have been applicable had the cancelled Option Rights or
Restricted Stock not been granted.
ARTICLE III
OPTION RIGHTS
3.01 Authorization and Terms. The Board of Directors may, from
time-to-time and upon such terms and conditions as it may determine, consistent
with the terms of the Plan, authorize the granting of options to Eligible
Employees to purchase shares of Common Stock. Each such grant may utilize any or
all of the authorizations and shall be subject to all of the applicable
limitations set forth in the Plan, including the following:
(A) Each grant shall specify the number of shares of Common
Stock to which it pertains;
(B) Each grant shall specify an option price per share equal
to the Fair Market Value per share on the Date of Grant, and that such
option price shall be payable in full at the time of exercise of the
option either (i) in cash, (ii) by exchanging for the shares to be
issued hereunder pursuant to the exercise of the option previously
acquired shares of the Company's Common Stock held for such period of
time, if any, as the Board of Directors may require and reflect in the
stock option certificate (valued at an amount equal to the Fair Market
Value of such stock on the date of exercise), or (iii) by a
combination of the payment methods specified in clauses (i) and (ii)
hereof. The proceeds of sale of
3
<PAGE> 4
Common Stock subject to Option Rights are to be added to the general
funds of the Company or to the shares of the Common Stock held in
treasury and used for the Company's corporate purposes as the Board of
Directors shall determine;
(C) Successive grants may be made to the same Eligible
Employee whether or not any Option Rights previously granted to such
Eligible Employee remain unexercised;
(D) Each grant shall specify the period or periods of
continuous employment by the Participant with the Company or any
Subsidiary which is necessary before the Option Rights or installments
thereof will become exercisable;
(E) The Option Rights may be either (i) options which are
intended to qualify under particular provisions of the Code, as in
effect from time-to-time, including, but not limited to, ISOs, (ii)
options which are not intended to so qualify or (iii) any combination
of separate grants of both (i) and (ii) above;
(F) The aggregate Fair Market Value of the stock (determined
as of the time the option with respect to such stock is granted) for
which any Eligible Employee may be granted options which are intended
to qualify as ISOs and which are exercisable for the first time by
such Participants during any calendar year (under all plans of the
Company and its parent and Subsidiary corporations, if any) shall not
exceed $100,000;
(G) No Option Right shall be exercisable more than ten years
from the Date of Grant;
(H) Each grant of Option Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and
delivered to and accepted by the Eligible Employee and containing such
terms and provisions, consistent with the Plan, as the Board of
Directors may approve; and
(I) The maximum number of shares for which Option Rights may
be granted to any Eligible Employee during any calendar year shall not
exceed 500,000.
ARTICLE IV
APPRECIATION RIGHTS
4.01 Generally. The Board of Directors may from time-to-time grant
Appreciation Rights in respect of any or all stock options heretofore or
hereafter granted (including stock options simultaneously granted) pursuant to
any stock option plan or employment agreement of the Company now or hereafter in
effect, whether or not such stock options are at such time exercisable, to the
extent that such stock options at such time have not been exercised and have not
been terminated. The Board of Directors may define the terms and provisions of
such Appreciation Rights, subject to the limitations and provisions of the Plan.
The amount which may
4
<PAGE> 5
be due the Participant at the time of the exercise of an Appreciation Right may
be paid by the Company in whole shares of Common Stock (taken at their fair
market value at the time of exercise), in cash or a combination thereof, as the
Board of Directors shall determine.
4.02 Exercise of Appreciation Rights. An Appreciation Right may be
exercised at any time when the related stock option may be exercised by the
surrender to the Company, unexercised, of the related stock option. Shares
covered by stock options so surrendered shall not be available for the granting
of further stock options under any stock option plan of the Company or a
Subsidiary, anything in such plan to the contrary notwithstanding.
4.03 Limitation on Payments. The amount payable on the exercise of any
Appreciation Rights may not exceed 100% (or such lesser percentage as the Board
of Directors may determine) of the excess of (i) the Fair Market Value of the
shares of Common Stock covered by the related option as determined on the date
such Appreciation Right is exercised over (ii) the aggregate option price
provided for in the related stock option.
4.04 Termination of Appreciation Right. An Appreciation Right shall
terminate and may no longer be exercised upon the earlier of (i) exercise or
termination of the related stock option or (ii) any termination date specified
by the Board of Directors at the time of grant of such Appreciation Right.
4.05 Limitation on Number of Appreciation Rights. The maximum number
of shares for which Appreciation Rights may be granted to any Eligible Employee
during any calendar year shall not exceed 500,000.
ARTICLE V
RESTRICTED STOCK
5.01 Authorization and Terms. The Board of Directors may, from
time-to-time and upon such terms and conditions as it may determine, authorize
the granting or sale to Eligible Employees of Restricted Stock. Each grant or
sale may utilize any or all of the authorizations and shall be subject to all of
the following limitations:
(A) Each such grant or sale shall constitute an immediate
transfer of the ownership of shares of Common Stock to the Participant
in consideration of the performance of services and shall entitle such
Participant to voting, dividend and other ownership rights, as the
Board of Directors may determine, subject, however, to a substantial
risk of forfeiture and restrictions on transfer as the Board of
Directors may determine;
(B) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant
that is less than the Fair Market Value per share at the Date of
Grant;
5
<PAGE> 6
(C) Each such grant or sale shall provide that the shares of
Restricted Stock covered by such grant or sale are subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of
the Code and the regulations thereunder;
(D) Each such grant or sale shall provide that during the
period for which the substantial risk of forfeiture is to continue, the
transferability of the Restricted Stock shall be prohibited or
restricted in the manner and to the extent prescribed by the Board of
Directors at the Date of Grant; and
(E) Each grant or sale of Restricted Stock shall be evidenced
by an agreement executed on behalf of the Company by an officer and
delivered to and accepted by the Participant and shall contain such
terms and provisions, consistent with the Plan, as the Board of
Directors may approve.
(F) Each grant or sale shall be subject to a vesting
requirement. The percentage of the number of shares of Restricted Stock
granted to any Participant that such Participant shall be entitled to
receive without restriction shall be based upon a comparison of the
average return on average equity of the Company and a group of other
companies. The number of shares of Restricted Stock which a Participant
shall be entitled to receive without restriction shall be determined in
accordance with the following table:
<TABLE>
<CAPTION>
Average Return on
Average Equity Percentile Ranking
of the Company Compared Percentage of
to Group of Other Companies Shares Vesting
--------------------------- --------------
<S> <C> <C>
80th to 100th Percentile ..................................... 100%
75th to 80th Percentile ...................................... 90%
70th to 75th Percentile ...................................... 80%
65th to 70th Percentile ...................................... 70%
60th to 65th Percentile ...................................... 60%
55th to 60th Percentile ...................................... 50%
50th to 55th Percentile ...................................... 40%
Less than 50th Percentile .................................... 0%
</TABLE>
The maximum number of shares of Restricted Stock that may be
granted to any Eligible Employee during any calendar year shall not
exceed 500,000.
6
<PAGE> 7
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.01 Generally. The Plan shall be administered by the Board of
Directors, which may from time-to-time delegate all or any part of its authority
under the Plan to a Committee. The members of the Committee shall not be
eligible and shall not have been eligible for a period of at least one year
prior to their appointment, to participate in the Plan. A majority of the Board
of Directors or the Committee, if applicable, shall constitute a quorum, and the
action of the members present at any meeting at which a quorum is present, or
acts unanimously approved in writing, shall be the acts of the Board of
Directors or the Committee, as applicable. No Restricted Stock, Option Right or
Appreciation Right shall be granted or sold under the Plan to any member of the
Committee so long as his membership continues.
6.02 Interpretation and Construction. The interpretation and
construction by the Board of Directors of any provision of the Plan or of any
agreement, notification or document evidencing the grant of Restricted Stock,
Option Rights or Appreciation Rights and any determination by the Board of
Directors pursuant to any provision of the Plan or of any such agreement,
notification or document, made in good faith, shall be final and conclusive. No
member of the Board of Directors shall be liable for any such action or
determination made in good faith.
ARTICLE VII
AMENDMENT AND TERMINATION
7.01 Amendment of the Plan. The Plan may be amended from time-to-time
by the Board of Directors without further approval by the shareholders of the
Company unless such amendment (i) increases the maximum number of shares
specified in Article II (except that adjustments authorized by Section 8.02
shall not be limited by this provision), (ii) changes the definition of
"Eligible Employees" or (iii) causes Rule 16b-3 issued under the Securities
Exchange Act of 1934 (or any successor rule to the same effect) to cease to be
applicable to the Plan.
7.02 Amendment of the Agreements. The Board of Directors may cancel or
amend any agreement evidencing Restricted Stock, Option Rights or Appreciation
Rights granted under the Plan provided that the terms and conditions of each
such agreement as amended are not inconsistent with the Plan.
7.03 Automatic Termination. The Plan will terminate at midnight on
February 16, 2003; provided, however, that Option Rights and Appreciation Rights
granted on or before that date may extend beyond that date and restrictions
imposed on Restricted Stock transferred on or before that date may extend beyond
such date.
7
<PAGE> 8
ARTICLE VIII
MISCELLANEOUS
8.01 Transferability. No Option Right or Appreciation Right shall be
transferable by a Participant other than by will or the laws of descent and
distribution. Option Rights and Appreciation Rights shall be exercisable during
the Participant's lifetime only by the Participant. No right or interest of any
Participant granted under the Plan shall be subject to alienation, anticipation,
encumbrance, garnishment, attachment, any lien, obligation or liability of such
Participant, or execution or levy of any kind, voluntary or involuntary, except
as provided herein or required by law.
8.02 Adjustments. The Board of Directors may make or provide for such
adjustments in the exercise price, sale price and the number or kind of shares
of the Company's Common Stock or other securities covered by outstanding Option
Rights, Appreciation Rights or Restricted Stock grants as such Board of
Directors in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of
Participants that would otherwise result from (i) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, (ii) any merger, consolidation, separation,
reorganization or partial or complete liquidation, or (iii) any other corporate
transaction or event having an effect similar to any of the foregoing. The Board
of Directors may also make or provide for such adjustments in the number or kind
or shares of the Company's Common Stock or other securities which may be sold or
transferred under the Plan and in the maximum number of shares that may be
purchased or received by any person, as such Board of Directors in its sole
discretion, exercised in good faith, may determine is appropriate to reflect any
event of the type described in clauses (i) and/or (ii) of the preceding
sentence.
8.03 Fractional Shares. The Company shall not be required to sell or
transfer any fractional share of Common Stock pursuant to the Plan. The Board of
Directors may provide for the elimination of fractions or for the settlement of
fractions in cash.
8.04 Withholding Taxes. The Company shall have the right to deduct from
any transfer of shares or other payment under this Plan an amount equal to the
Federal, state and local income taxes and employment taxes required to be
withheld by it with respect to such transfer and payment and, if the cash
portion of any such payment is less than the amount of taxes required to be
withheld, to require the Participant or other person receiving such transfer or
payment, to pay to the Company the balance of such taxes so required to be
withheld. Notwithstanding the foregoing, when a Participant is required to pay
to the Company an amount required to be withheld under applicable income and
employment tax laws, the Participant may elect to satisfy the obligation, in
whole or in part, by electing to have withheld, from the shares required to be
delivered to the Participant, shares of Common Stock having a value equal to the
amount required to be withheld (except in the case of Restricted Stock where an
election under Section 83(b) of the Code has been made), or by delivering to the
Company other shares of Common Stock held by such Participant. The shares used
for tax withholding settlement will be valued at an amount
8
<PAGE> 9
equal to the Fair Market Value of such Common Stock on the Tax Date. Election by
a Participant to have shares withheld or to deliver other shares of Common Stock
for this purpose will be subject to the following restrictions: (i) such
election must be made prior to the Tax Date, (ii) such election will be
irrevocable, and (iii) such election will be subject to the disapproval of the
Board of Directors.
8.05 Not an Employment Contract. This Plan shall not confer upon any
Eligible Employee or Participant any right with respect to continuance of
employment with the Company or any Subsidiary, nor shall it interfere in any way
with any right such Eligible Employee, Participant, the Company or any
Subsidiary would otherwise have to terminate such Participant or Eligible
Employee's employment at any time.
8.06 Invalidity of Provisions. Should any part of the Plan for any
reason be declared by any court of competent jurisdiction to be invalid, such
decision shall not affect the validity of any remaining portion, which remaining
portion shall continue in full force and effect as if the Plan had been adopted
with the invalid portion hereof eliminated, it being the intention of the
Company that it would have adopted the remaining portion of the Plan without
including any such part, parts or portion which may for any reason be hereafter
declared invalid.
8.07 Effective Date. The Plan became effective at 12:00:01 a.m. on
February 16, 1994 following its approval at the April 28, 1993 Annual Meeting of
Shareholders of the Company by the affirmative vote of the holders of a majority
of the shares of Common Stock present, in person or by proxy, and entitled to
vote thereat. The Plan shall be deemed to have been adopted on the date of such
meeting.
9
<PAGE> 1
EXHIBIT 10(q)
SPLIT-DOLLAR AGREEMENT
THIS AGREEMENT made and entered into this 25th day of March, 1996, by
and among The Sherwin Williams Company, an Ohio corporation, with principal
offices and place of business in the State of Ohio (hereinafter referred to as
the "Corporation"), John G. Breen, an individual residing in the State of Ohio
(hereinafter referred to as the "Employee"), and National City Bank, Trustee
under Trust Agreement dated March 2, 1996, with John G. Breen and Mary J. Breen
as Grantors (hereinafter referred to as the "Owner"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for
his family, under policies of life insurance (hereinafter referred to jointly as
the "Policies" and individually as a "Policy"), insuring his life and the life
of his wife (hereinafter jointly referred to as the "Insureds"), which Policies
are described in Exhibit A attached hereto and by this reference made a part
hereof, and which are being issued by The Guardian Life Insurance Company of
America (hereinafter referred to as the "Insurer"); and
WHEREAS, the Corporation is willing to pay a portion of the premiums
due on the Policies as an additional employment benefit for the Employee, on the
terms and conditions hereinafter set forth; and
WHEREAS, Owner is the owner of the Policies and, as such, possesses
all incidents of ownership in and to the Policies; and
<PAGE> 2
WHEREAS, the Corporation wishes to have the Policies collaterally
assigned to it by the Owner, in order to secure the repayment of the amounts
which it will pay toward the premiums on the Policies; and
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. PURCHASE OF POLICIES. The Owner will contemporaneously purchase the
Policies from the Insurer in the total aggregate face amount of $12,000,000. The
parties hereto agree that they will take all necessary action to cause the
Insurer to issue the Policies, and shall take any further action which may be
necessary to cause the Policies to conform to the provisions of this Agreement.
The parties hereto agree that the Policies shall be subject to the terms and
conditions of this Agreement and of the collateral assignments filed with the
Insurer relating to the Policies.
2. OWNERSHIP OF POLICIES. The Owner shall be the sole and absolute
owner of the Policies, and may exercise all ownership rights granted to the
owner thereof by the terms of the Policies, except as may otherwise be provided
herein.
3. POLICY DIVIDENDS. Any dividend declared on either Policy shall be
applied to purchase paid-up additional insurance on the lives of the Insureds.
The parties hereto agree that the dividend election provisions of the Policies
shall conform to the provisions hereof.
4. PAYMENT OF PREMIUMS. On or before the due date of each Policy
premium, or within the grace period provided therein, the Corporation shall pay
the full amount of the premium to the Insurer, and shall, upon request, promptly
furnish the Employee
2
<PAGE> 3
and the Owner notice of timely payment of such premium. The Corporation shall
annually furnish the Employee a statement of the amount of income reportable by
the Employee for federal and state income tax purposes, if any, as a result of
the insurance protection provided the Owner as the beneficiary of the Policies.
5. COLLATERAL ASSIGNMENT. To secure the repayment to the Corporation
of the amount of the premiums on the Policies paid by it hereunder, the Owner
has, contemporaneously herewith, assigned the Policies to the Corporation as
collateral, under the form used by the Insurer for such assignments. The
collateral assignments of the Policies to the Corporation hereunder shall not be
terminated, altered or amended by the Owner, without the express written consent
of the Corporation. The parties hereto agree to take all action necessary to
cause such collateral assignments to conform to the provisions of this
Agreement.
6. LIMITATIONS ON OWNER'S RIGHTS IN POLICIES. Except as otherwise
provided herein, the Owner shall not sell, assign, transfer, borrow against,
surrender or cancel either Policy, change the beneficiary designation provision
thereof, nor terminate the dividend election thereof without, in any such case,
the express written consent of the Corporation.
7. COLLECTION OF DEATH PROCEEDS.
a. Upon the death of the survivor of the Insureds, the Corporation
and the Owner shall cooperate to take whatever action is necessary to collect
the death benefit provided under the Policies; when such benefits have been
collected and paid as provided herein, this Agreement shall thereupon
terminate.
b. Upon the death of the survivor of the Insureds, the Corporation
shall have the unqualified right to receive a portion of the death benefit of
each Policy equal to
3
<PAGE> 4
the total amount of the premiums paid by it hereunder with respect to such
Policy (which amount shall be calculated subject to the provisions of paragraph
c below), reduced by any outstanding indebtedness which was incurred by the
Corporation and secured by such Policy, including any interest due on such
indebtedness. The balance of the death benefit provided under such Policy, if
any, shall be paid directly to the Owner in the manner and in the amount or
amounts provided in the beneficiary designation provision of such Policy. In no
event shall the amount payable to the Corporation hereunder with respect to any
one Policy exceed the death benefit of such Policy payable as a result of the
maturity of such Policy as a death claim. No amount shall be paid from such
death benefit to the Owner until the full amount due the Corporation hereunder
has been paid. The parties hereto agree that the beneficiary designation
provision of the Policies shall conform to the provisions hereof.
c. For purposes of calculating the total amount of premiums
paid by the Corporation hereunder with respect to a Policy, the Owner shall be
deemed to have contributed toward each annual premium payment due with respect
to such Policy (and the Corporation shall not be deemed to have contributed) an
amount equal to the annual cost of current life insurance protection on the
joint lives of the Insureds, measured by the U.S. Life Table 38, while both are
alive and thereafter measured by the lower of the PS 58 rate, set forth in
Revenue Ruling 55-747 (or the corresponding applicable provision of any future
Revenue Ruling), or the Insurer's current published premium rate for annually
renewable term insurance for standard risks.
d. Notwithstanding any provision hereof to the contrary, in the event
that, for any reason whatsoever, no death benefit is payable under a Policy upon
the
4
<PAGE> 5
death of the survivor of the Insureds and in lieu thereof the Insurer refunds
all or any part of the premiums paid for such Policy, the Corporation and the
Owner shall have the unqualified right to share such premiums based on their
respective cumulative contributions thereto.
8. TERMINATION OF THE AGREEMENT DURING THE LIFETIME OF THE INSUREDS.
This Agreement shall terminate, while either of the Insureds is alive, upon the
mutual written consent of the parties.
9. DISPOSITION OF THE POLICIES ON TERMINATION OF THE AGREEMENT DURING
THE LIFETIME OF THE INSUREDS.
a. For sixty (60) days after the date of the termination of this
Agreement during the lifetime of the Insureds, the Owner shall have the option
of obtaining the release of the collateral assignment of either or both of the
Policies to the Corporation. To obtain such release with respect to a Policy,
the Owner shall repay to the Corporation the greater of (1) the then cash
surrender value of such Policy, or (2) the total amount of the premium payments
made by the Corporation hereunder with respect to such Policy (which amount
shall be calculated subject to the provisions of paragraph c below), less, in
either case, any indebtedness secured by such Policy which was incurred by the
Corporation and remains outstanding as of the date of such termination,
including any interest due on such indebtedness. Upon receipt of such amount,
the Corporation shall release the collateral assignment of such Policy, by the
execution and delivery of an appropriate instrument of release.
b. If the Owner fails to exercise such option within such sixty
(60) day period with respect to one or both of the Policies, then, at the
request of the Corporation, the Owner shall execute any document or documents
required by the Insurer to transfer to the
5
<PAGE> 6
Corporation the interest of the Owner in those Policies for which a release of
the collateral assignment was not obtained. Alternatively, the Corporation may
enforce its right to be repaid the amount of the premiums on any such Policy
paid by it (which amount shall be calculated subject to the provisions of
paragraph c below) from the cash surrender value of such Policy under the
collateral assignment of such Policy; provided that in the event the cash
surrender value of such Policy exceeds the amount due the Corporation, such
excess shall be paid to the Owner. Thereafter, neither the Owner nor the Owner's
successors, assigns or beneficiaries shall have any further interest in and to
any such Policy, either under the terms thereof or under this Agreement.
c. For purposes of calculating the total amount of premiums paid
by the Corporation hereunder with respect to a Policy, the Owner shall be deemed
to have contributed toward each annual premium payment due with respect to such
Policy (and the Corporation shall not be deemed to have contributed) an amount
equal to the annual cost of current life insurance protection on the joint lives
of the Insureds, measured by the U.S. Life Table 38, while both are alive and
thereafter measured by the lower of the PS 58 rate, set forth in Revenue Ruling
55-747 (or the corresponding applicable provision of any future Revenue Ruling),
or the Insurer's current published premium rate for annually renewable term
insurance for standard risks.
10. INSURER NOT A PARTY. The Insurer shall be fully discharged from
its obligations under the Policies by payment of the death benefit of the
Policies to the beneficiary or beneficiaries named in the Policies, subject to
the terms and conditions of the Policies. In no event shall the Insurer be
considered a party to this Agreement, or any modification or
6
<PAGE> 7
amendment hereof. No provision of this Agreement, nor of any modification or
amendment hereof, shall in any way be construed as enlarging, changing, varying,
or in any other way affecting the obligations of the Insurer as expressly
provided in the Policies, except insofar as the provisions hereof are made a
part of a Policy by the collateral assignment executed by the Owner and filed
with the Insurer in connection herewith.
11. NAMED FIDUCIARY, DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND
ADMINISTRATION.
a. The Corporation is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to control and
manage the operation and administration of this Agreement, and it shall be
responsible for establishing and carrying out a funding policy and method
consistent with the objectives of this Agreement.
b. As a participant in the Plan you are guaranteed certain rights
and protection under the Employee Retirement Income Security Act of 1974. ERISA
provides that all Plan participants shall be entitled to:
(1) Examine, without charge, at the principal place of
business of the Corporation, all documents filed by the Plan with the U.S.
Department of Labor, such as annual reports and Plan descriptions;
(2) Obtain copies of all non-confidential Plan documents and
other Plan information upon written request to the Corporation. The Corporation
may make a reasonable charge for the copies; and
(3) File suit in a federal court if any materials requested
are not received within 30 days of your written request, unless the materials
were not sent due to
7
<PAGE> 8
matters beyond the control of the Corporation. The court may require the
Corporation to pay up to $100 a day until the materials are received.
c. In addition to creating rights for Plan participants, ERISA
also imposes obligations upon the persons responsible for the operation of the
employee benefit plan. These persons are referred to as "fiduciaries" in the
law. Fiduciaries must act solely in the interest of the Plan participants, and
they must exercise prudence in the performance of their Plan duties. Fiduciaries
who violate ERISA may be removed and required to make good any losses they have
caused this Plan or the Corporation.
d. If your claim for a benefit is denied in whole or in part, you
must receive a written explanation of the reason for the denial. You have the
right to have the Plan review and reconsider your claim. Under ERISA, there are
steps you can take to enforce the above rights.
e. Your employer may not fire or discriminate against you to
prevent you from obtaining a benefit or exercising your rights under ERISA.
f. If you have a claim for benefits which is denied or ignored,
in whole or in part, you may file suit in a state or federal court. If the
Corporation misuses the Plan's money, or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of Labor
or file suit in a federal court. The court will decide who should pay court
costs and legal fees. If you are successful, the court may order the person you
have sued to pay these costs and fees. If you lose, the court may order you to
pay these costs and fees if it finds your claim is frivolous or for such other
reasons as the court may determine.
8
<PAGE> 9
g. If you have any questions about your Plan, you should
contact the Secretary Corporation. If you have any questions about this
statement or about your rights under ERISA, you should contact the nearest Area
Office of the U.S. Labor-Management Services Administration, Department of
Labor.
h. CLAIMS PROCEDURE. Any Participant who believes that he or
she is entitled to a benefit under the Plan which he or she has not received
because the Corporation has denied the benefit in whole or in part, may file
with the Corporation a written claim specifying the basis of his or her
complaint and the facts upon which he or she relies in making such claim. Such
claim must be witnessed by the claimant or his or her authorized representative
and shall be deemed filed when received by the Corporation. Unless such claim is
allowed in total by the Corporation, the Corporation shall respond in writing to
the claimant advising him or her of the total or partial denial of his or her
claim. Such notice shall include:
(1) The reasons for denial of the claim;
(2) Reference to the provisions of the Plan upon which
the denial of the claim was based;
(3) A description of any additional material or
information necessary for the claimant to perfect the claim and an explanation
of why such material and information is necessary; and
(4) An explanation of the review procedure.
Within six (6) months after the mailing of such notice of denial, the claimant
can appeal such denial by filing with a special review committee appointed by
the Corporation his or her written request for review of said claim. A special
review committee shall consist of no less
9
<PAGE> 10
than three (3) disinterest parties to the claimant. If an appeal is so filed
within the six (6) month period, the special review committee shall conduct a
full and fair review of such claim and mail to the claimant not later than sixty
(60) days after receipt of a request for review a written decision of the matter
based upon the facts and pertinent provisions of the Plan. Such decision shall
state the reason for the decision as well as references to the pertinent Plan
provisions in which the decision is based. During the full review, the claimant
shall be given the opportunity to review documents that are pertinent to his or
her claim and to submit issues and comments in writing to the special review
committee, or, if he or she requests a hearing, to present his or her case in
person or by an authorized representative at a hearing scheduled by the special
review committee. In the event the claimant requests a hearing, the time period
for the special review committee to tender a decision upon a claim shall be
extended from sixty (60) to one hundred twenty (120) days after receipt of
request for review.
i. Notwithstanding any other provisions of this Plan, a
Participant or Beneficiary, who has decision make or other administrative
authority with respect to the Plan may not decide matters affecting his or her
own benefits under the Plan as a Participant functioning in such capacity.
j. Neither the establishment of the Plan or any
modification thereof, or the creation of any fund or account, or the payment of
any benefits shall be construed as giving to any Participant or other person any
legal or equitable right against the Corporation or any officer or employee
thereof, except as provided by law or by any Plan provisions. The Corporation
does not in any way guarantee the Participant's benefits from loss or
depreciation. In no event shall the Corporation's employees, officers, directors
or stockholders be liable to
10
<PAGE> 11
any person on account of any claim arising by reason of the provisions of the
Plan or of any instrument or instruments implementing its provisions, or for the
failure of any Participant, Beneficiary or other person to be entitled to any
particular tax consequences with respect to the Plan, any contribution thereto
or distribution therefrom.
12. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns, and may not be otherwise terminated except as provided
herein.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Corporation and its successors and assigns, and the Employee,
the Owner, and their respective successors, assigns, heirs, executors,
administrators and beneficiaries.
14. NOTICE. Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and shall be
signed by the party giving or making the same. If such notice, consent or demand
is mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on the
records of the Corporation. The date of such mailing shall be deemed the date of
notice, consent or demand.
11
<PAGE> 12
15. GOVERNING LAW. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed multiple
original copies of this Agreement, as of the day and year first above written.
The Sherwin-Williams Company
By /s/
-----------------------------
Title:
---------------------
ATTEST:
/s/
- ---------------------------
Secretary
"Corporation"
/s/
-------------------------------
John G. Breen,
"Employee"
Trust Agreement dated March 2,1996
with John G. Breen and Mary J. Breen
as Grantors
By /s/
------------------------------
National City Bank, Trustee
"Owner"
/s/
-------------------------------
12
<PAGE> 1
EXHIBIT 10(r)
THE SHERWIN-WILLIAMS COMPANY
ESTATE PROTECTION PLAN TRUST
This Trust Agreement ("Agreement") is made and entered into this 15th
day of November, 1996, by and between THE SHERWIN-WILLIAMS COMPANY ("Company")
and NATIONAL CITY BANK, N.A. ("Trustee").
RECITALS:
A. Company has adopted the Estate Protection Plan ("Plan") attached hereto
as Appendix A;
B. Company has incurred or expects to incur liability under the terms of
such Plan with respect to the individual participating in such Plan;
C. Company wishes to establish a trust (hereinafter called "Trust") and to
contribute to the Trust assets that shall be held therein, subject to
the claims of Company's creditors in the event of Company's Insolvency,
as herein defined, until paid to the Plan participant and his
beneficiaries in such manner and at such times as specified in the
Plan;
D. It is the intention of the parties that this Trust shall constitute an
unfunded arrangement and shall not affect the status of the Plan as an
unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); and
E. It is the intention of Company to make contributions to the Trust to
provide itself with a source of funds to assist it in satisfying any of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows;
SECTION 1. ESTABLISHMENT OF TRUST
(a) Company hereby deposits with Trustee in trust $100.00 in cash, which
shall be held uninvested by Trustee prior to a Potential Change in
Control, as defined in this Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended
("Code"), and shall be construed accordingly.
<PAGE> 2
(d) The contributions to the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of the Plan participant and
general creditors as herein set forth. The Plan participant and his
beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created
under the Plan and this Agreement shall be mere unsecured contractual
rights of the Plan participant and his beneficiaries against Company.
Any assets held by the Trust will be subject to the claims of Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Upon a Potential Change in Control, Company shall, as soon as possible,
but in no event longer than 30 days following the Potential Change in
Control, as defined herein: (i) make a contribution to the Trust of the
Company's entire interest in the cash value of the life insurance plan
used to fund the Estate Protection Plan, and (ii) make a contribution
to the Trust in an amount not less than 100%, but not more than 110%,
of the present value of the Company's future premium payment
obligations due on the life insurance policy used to fund the Estate
Protection Plan. The future premium payments are the payments necessary
to endow the life insurance policy when Mr. John G. Breen attains age
95, as determined at the time of the Potential Change in Control by the
issuing life insurance Company's actuaries, using guaranteed dividend
and insurance change assumptions. The interest rate used for purposes
of determining the present value of the Company's future premium
payment obligations shall be the weekly average interest rate reported
for five-year treasury notes (as published in the Wallstreet Journal)
as of the close of the business week immediately preceding the date
such contribution is made to the Trust. Such contribution shall be
invested as provided in this Agreement. If a Change in Control (as
defined herein) occurs, and the Trustee receives written notice of such
event from the Board of Directors of the Company, the Trustee will
begin to make scheduled premium payments to the issuing insurance
company of the life insurance policy used to fund the Estate Protection
Plan. If a Change in Control does not occur within one year of a
Potential Change in Control, then all Trust Corpus, less the original
$100.00, shall be returned to the Company. Notwithstanding anything in
this Trust to the contrary, in the event Company shall fail to fund the
Trust under the circumstances and within the time specified in this
Section 1(e), Company shall indemnify Trustee for its reasonable costs
and expenses (including reasonable attorneys' fees) actually incurred
to enforce Company's funding obligation.
SECTION 2. PAYMENTS WITH RESPECT TO THE PLAN PARTICIPANT AND HIS
BENEFICIARIES.
(a) Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of the Plan participant
(and his beneficiaries), that provides a formula or other instructions
acceptable to Trustee for determining the amounts so payable, the form
in which such amount is to be paid (as provided for or available under
the Plan), the party to whom such payments are to be paid, and the time
of commencement for payment of such amounts. Except as otherwise
provided herein, Trustee shall make payments with respect to the Plan
participant and his
2
<PAGE> 3
beneficiaries in accordance with such Payment Schedule. The Trustee
shall make provision for the reporting and withholding of any federal,
state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plan and shall
pay amounts withheld to the appropriate taxing authorities or determine
that such amounts have been reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as
it shall designate under the Plan, and any claim for such benefits
shall be considered and reviewed under the procedures set out in the
Plan.
(c) Company may make payment of benefits directly to the Plan participant
or his beneficiaries as they become due under the terms of the Plan.
Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to the Plan
participant or his beneficiaries. In addition, if the principal of the
Trust, and any earnings thereon, are not sufficient to make payments of
benefits in accordance with the terms of the Plan, Company shall make
the balance of each such payment as it falls due. Trustee shall notify
Company where principal and earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY
WHEN COMPANY IS INSOLVENT.
(a) Trustee shall cease payment of benefits to the Plan participant and his
beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject
to a pending proceeding as a debtor under the United States Bankruptcy
Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and
state law as set forth below.
(1) The Board of Directors of Company shall have the duty to
inform Trustee in writing of Company's Insolvency. If a person
claiming to be a creditor of Company alleges in writing to
Trustee that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such
determination, Trustee shall discontinue payment of benefits
to the Plan participant or his beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency,
or has received notice from Company or a person claiming to be
a creditor alleging that Company is Insolvent, Trustee shall
have no duty to inquire whether Company is Insolvent. Trustee
may in all events rely on such evidence concerning Company's
solvency as may be furnished to Trustee and that provides
Trustee
3
<PAGE> 4
with a reasonable basis for making a determination concerning
Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to the Plan
participant or his beneficiaries and shall hold the assets of
the Trust for the benefit of Company's general creditors.
Nothing in this Trust Agreement shall in any way diminish any
rights of the Plan participant or his beneficiaries to pursue
their rights as general creditors of Company with respect to
benefits due under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to the Plan
participant or his beneficiaries in accordance with Section 2
of this Trust Agreement only after Trustee has determined that
Company is not Insolvent (or is no longer Insolvent).
(c) Provided there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due
to the Plan participant or his beneficiaries under the terms of the
Plan for the period of such discontinuance, less the aggregate amount
of any payments made to the Plan participant or his beneficiaries by
Company in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Sections 1(e) or 3 hereof, Company shall have no
right or power to direct Trustee to return to Company or to divert to others any
of the Trust assets before all payment of benefits have been made to the Plan
participant and his beneficiaries pursuant to the terms of the Plan.
SECTION 5. INVESTMENT AUTHORITY.
With respect to the Trust and subject to any investment guidelines as
agreed to in writing by the Trustee and Company, Trustee may invest in
securities (including stock or rights to acquire stock) or obligations issued by
Company. All rights associated with assets of the Trust shall be exercised by
Trustee or the person designated by Trustee, and shall in no event be
exercisable by or rest with the Plan participant. Company shall have the right,
at any time, and from time to time in its sole discretion, to substitute assets
of equal fair market value for any asset held by the Trust. This right is
exercisable by Company in a nonfiduciary capacity without the approval or
consent of any person in a fiduciary capacity.
4
<PAGE> 5
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 30 days following the close of each calendar year
and within 30 days after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the Trust during
such year or during the period from the close of the last preceding year to the
date of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and
with like aims, provided, however, that Trustee shall incur no
liability to any person for any action taken pursuant to a
direction, request or approval given by Company which is
contemplated by, and in conformity with, the terms of the Plan
or this Trust and is given in writing by Company. In the event
of a dispute between Company and a party, Trustee may apply,
at its own expense, to a court of competent jurisdiction to
resolve the dispute.
(b) Trustee may hire, at its own expense, agents, accountants,
actuaries, investment advisors, financial consultants or other
professionals to assist it in performing any of its usual and
customary duties or obligations hereunder.
(c) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance
policy is held as an asset of the Trust, Trustee shall have no
power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of
the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
5
<PAGE> 6
(d) Notwithstanding any powers granted to Trustee pursuant to this
Agreement or to applicable law, Trustee shall not have any
power that could give this Trust the objective of carrying on
a business and dividing the gains therefrom, within the
meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
Company shall pay all reasonable administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to Company,
which shall be effective no sooner than 30 days after receipt
of such notice unless Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or upon
shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within 30 days after receipt of notice or
resignation, removal or transfer, unless Company extends the
time limit.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraph (a)
or (b) of this section. If no such appointment has been made,
Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of Trustee in connection with the proceeding shall be allowed
as administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
If Trustee resigns or is removed in accordance with Section 10(a) or
(b) hereof, Company may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, as
a successor to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee, including ownership rights
in the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by Company or the successor Trustee to evidence the
transfer.
6
<PAGE> 7
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Plan or shall make the Trust revocable after it has become
irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which the Plan
participant and his beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plan. Upon termination
of the Trust any assets remaining in the Trust shall be
returned to Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to the Plan participant and his beneficiaries
under this Agreement may not be anticipated, assigned (either
at law or in equity), alienated, pledged, encumbered or
subjected to attachment, garnishment, levy, execution or other
legal or equitable process.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
(d) For purposes of this Agreement, the term "Change in Control"
shall be deemed to have occurred if: (i) there shall be
consummated (I) any consolidation or merger of the Company in
which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the
holders of the Company's common stock immediately prior to the
merger have substantially the same proportionate ownership of
common stock of the surviving, corporation, immediately after
the merger, or (II) any sale, lease, exchange or transfer (in
one transaction or a series of related transactions) of fifty
percent (50%) or more of the assets or earning power of the
Company; (ii) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended, hereinafter the "Exchange Act") other than the
Company or any employee benefit or stock ownership plan
sponsored by the Company, or any person or entity organized,
appointed or established by the Company for or pursuant to the
terms of any such plan, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from
7
<PAGE> 8
rights accruing in special circumstances) having the right to
vote in the election of directors, as a result of a tender or
exchange offer, open market purchases, privately negotiated
purchases or otherwise; or (iii) during any period of two
consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company and
any new director whose election by the Board of Directors or
nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute a majority thereof. Notwithstanding subsections
(i) through (iii) above, with respect to the transactions set
forth in subsections (i) and (ii) above, a Change of Control
shall not be deemed to have occurred if any such transaction
(x) is approved by a vote of at least two-thirds (2/3) of the
directors, and (y) at the time of such vote, at least
two-thirds (2/3) of the directors then in office were members
of the Board of Directors immediately prior to such
transaction. Any such approval pursuant to the preceding
sentence shall provide that such approval is being given for
the purpose of not triggering the benefits under this
Agreement. For purposes of this Trust, "Potential Change in
Control" shall mean any steps taken by a third party
reasonably calculated to effect a Change in Control.
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be November 15, 1996.
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Agreement to be executed on their behalf by their respective officers thereunto
duly authorized, the day and year first above written.
ATTEST/WITNESS: THE SHERWIN-WILLIAMS COMPANY
/s/ By: /s/
- ---------------------------- ----------------------------
/s/ Its:
- ---------------------------- ----------------------------
ATTEST/WITNESS: NATIONAL CITY BANK, N.A.
/s/ By: /s/
- ---------------------------- ----------------------------
/s/ Its:
- ---------------------------- ----------------------------
/s/ By: /s/
- ---------------------------- ----------------------------
/s/ Its:
- ---------------------------- ----------------------------
8
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE(1)
(Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
FULLY DILUTED
Average shares outstanding 171,492,390 170,378,812 172,591,028
Options -- treasury stock method 1,766,388 1,272,556 1,159,848
Assumed conversion of 6.25% Convertible
Subordinated Debentures 7,942 141,740
- --------------------------------------------------------------------------------------------
Average fully diluted shares 173,258,778 171,659,310 173,892,616
============================================================================================
Net income $229,157 $200,654 $186,571
Add 6.25% Convertible Subordinated
Debentures interest -- net of tax(2) 8
============================================================================================
Net income applicable to fully diluted
shares $229,157 $200,654 $186,579
============================================================================================
Net income per share $1.33 $1.17 $1.07
============================================================================================
PRIMARY
Average shares outstanding 171,492,390 170,378,812 172,591,028
Options -- treasury stock method 1,408,386 1,107,734 1,132,444
- --------------------------------------------------------------------------------------------
Average shares and equivalents 172,900,776 171,486,546 173,723,472
===========================================================================================
Net income applicable to shares and
equivalents $229,157 $200,654 $186,571
============================================================================================
Net income per share $1.33 $1.17 $1.07
============================================================================================
</TABLE>
(1)All common share amounts and per share data reflect the effect of the stock
split described in Note 17 to the consolidated financial statements.
(2)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.
49
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
FOREIGN SUBSIDIARIES
Compania Sherwin-Williams, S.A. de C.V.*
Distribuidora Excelo, S.A. de C.V.
Industria Quimica Elgin Ltda.
Lazzuril Tintas S/A Corporation
Pinturas Excelo, S.A. de C.V.
Productos Quimicos y Pinturas, S.A. de C.V.
Proquipsa, S.A. de C.V.
Quetzal Pinturas, S.A. de C.V.
Sherwin-Williams Argentina I.y C.S.A.*
Sherwin-Williams do Brasil Industria e Comercio Ltda.
Sherwin-Williams Canada Inc.
Sherwin-Williams Cayman Islands Limited*
Sherwin-Williams Chile S.A.*
Sherwin-Williams Foreign Sales Corporation Limited
Sherwin-Williams (Caribbean) N.V.
Sherwin-Williams (West Indies) Limited
The Sherwin-Williams Company Resources Limited
147926 Canada Inc.
UNITED STATES SUBSIDIARIES
Contract Transportation Systems Co.
DIMC, Inc.
Dupli-Color Products Company
INCO International Company
Rubberset Company
Sherwin-Williams Automotive Finishes Corp.
Sherwin-Williams Diversified Brands, Inc.
SWIMC, Inc.
The Sherwin-Williams Acceptance Corporation
*Unconsolidated
50
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated January
23, 1997, except for Note 17, as to which the date is January 29, 1997, with
respect to the consolidated financial statements and schedule of The
Sherwin-Williams Company included in the Annual Report (Form 10-K) for the year
ended December 31, 1996, in the following registration statements and related
prospectuses:
<TABLE>
<CAPTION>
REGISTRATION
NUMBER DESCRIPTION
- ------------ --------------------------------------------------------------
<S> <C>
333-01093 The Sherwin-Williams Company Form S-3 Registration Statement
333-00725 The Sherwin-Williams Company Form S-4 Registration Statement
33-64543 The Sherwin-Williams Company Form S-3 Registration Statement
33-62229 The Sherwin-Williams Company Employee Stock Purchase and
Savings Plan Form S-8 Registration Statement
2-80510 Post-Effective Amendment Number 5 to Form S-8 Registration
Statement relating to The Sherwin-Williams Company Employee
Stock Purchase and Savings Plan
33-52227 The Sherwin-Williams Company 1994 Stock Plan Form S-8
Registration Statement
33-28585 The Sherwin-Williams Company 1984 Stock Plan Form S-8
Registration Statement
33-22705 The Sherwin-Williams Company Form S-3 Registration Statement
</TABLE>
Cleveland, Ohio
March 10, 1997
ERNST & YOUNG LLP
51
<PAGE> 1
EXHIBIT 24
----------
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Officer and Director of The Sherwin-Williams Company,
an Ohio corporation, which corporation anticipates filing with the Securities
and Exchange Commission, Washington, D.C., under the provisions of the
Securities Exchange Act of 1934, as amended, and any rules and regulations of
the Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 24, 1997 /s/ J.G. Breen
------------------------- --------------------------------
J.G. Breen
Chairman and Chief Executive Officer,
Director
<PAGE> 2
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Officer and Director of The Sherwin-Williams Company,
an Ohio corporation, which corporation anticipates filing with the Securities
and Exchange Commission, Washington, D.C., under the provisions of the
Securities Exchange Act of 1934, as amended, and any rules and regulations of
the Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1997 /s/ T.A. Commes
--------------------------- -----------------------------------
T.A. Commes
President and Chief Operating
Officer, Director
<PAGE> 3
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Officer of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 25, 1997 /s/ L.J. Pitorak
-------------------------- ------------------------------------
L.J. Pitorak
Senior Vice President - Finance,
Treasurer and Chief Financial Officer
<PAGE> 4
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Officer of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1997 /s/ J.L. Ault
-------------------------- ----------------------------------
J.L. Ault
Vice President - Corporate Controller
<PAGE> 5
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 28, 1997 /s/ James M. Biggar
--------------------------- ------------------------------------
J.M. Biggar
Director
<PAGE> 6
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 31, 1997 /s/ D.E. Collins
--------------------------- ------------------------------------
D.E. Collins
Director
<PAGE> 7
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 24, 1997 /s/ D.E. Evans
--------------------------- -----------------------------------
D.E. Evans
Director
<PAGE> 8
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 24, 1997 /s/ R.W. Mahoney
------------------------- -------------------------------------
R.W. Mahoney
Director
<PAGE> 9
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1997 /s/ W.G. Mitchell
-------------------------- -------------------------------------
W.G. Mitchell
Director
<PAGE> 10
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1997 /s/ A.M. Mixon
------------------------- ----------------------------------
A.M. Mixon
Director
<PAGE> 11
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 5, 1997 /s/ Curtis E. Moll
--------------------------- ------------------------------------
C.E. Moll
Director
<PAGE> 12
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1997 /s/ H.O. Petrauskas
-------------------------- -------------------------------------
H.O. Petrauskas
Director
<PAGE> 13
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission, Washington, D.C., under the provisions of the Securities
Exchange Act of 1934, as amended, and any rules and regulations of the
Securities and Exchange Commission, a Form 10-K for the fiscal year ended
December 31, 1996, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J.
Pitorak and L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said proposed Form 10-K and any and all amendments,
supplements, and exhibits thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1997 /s/ R.K. Smucker
-------------------------- -------------------------------------
R.K. Smucker
Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089800
<NAME> THE SHERWIN-WILLIAMS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,880
<SECURITIES> 0
<RECEIVABLES> 475,053
<ALLOWANCES> 22,632
<INVENTORY> 642,687
<CURRENT-ASSETS> 1,416,187
<PP&E> 1,133,932
<DEPRECIATION> 584,541
<TOTAL-ASSETS> 2,994,590
<CURRENT-LIABILITIES> 1,051,007
<BONDS> 142,679
0
0
<COMMON> 101,650
<OTHER-SE> 1,299,582
<TOTAL-LIABILITY-AND-EQUITY> 2,994,590
<SALES> 4,132,879
<TOTAL-REVENUES> 4,132,879
<CGS> 2,405,178
<TOTAL-COSTS> 2,405,178
<OTHER-EXPENSES> 25,520
<LOSS-PROVISION> 19,095
<INTEREST-EXPENSE> 24,537
<INCOME-PRETAX> 375,377
<INCOME-TAX> 146,220
<INCOME-CONTINUING> 229,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,157
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
</TABLE>
