<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 1997
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________________
to _______________________
Commission file number 1-4851
-------
THE SHERWIN-WILLIAMS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0526850
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Prospect Avenue, N.W., Cleveland, Ohio 44115-1075
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(Address of principal executive offices) (Zip Code)
(216) 566-2000
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.00 Par Value - 172,857,989 shares as of October 31, 1997.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Thousands of dollars, except per share data
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,346,531 $ 1,171,010 $ 3,789,669 $ 3,174,035
Costs and expenses:
Cost of goods sold 763,140 678,773 2,165,108 1,874,324
Selling, general and administrative expenses 398,065 338,242 1,204,954 968,354
Interest expense 20,250 6,566 62,387 19,016
Interest and net investment income (1,350) (1,539) (6,388) (4,837)
Other 3,785 1,120 10,251 5,629
- --------------------------------------------------------------------------------------------------------------------------------
1,183,890 1,023,162 3,436,312 2,862,486
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 162,641 147,848 353,357 311,549
Income taxes 63,430 59,298 137,809 121,504
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 99,211 $ 88,550 $ 215,548 $ 190,045
================================================================================================================================
Net income per share $ 0.57 $ 0.51 $ 1.24 $ 1.10
================================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
<TABLE>
<CAPTION>
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars
SEPT. 30, Dec. 31, Sept. 30,
1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 18,241 $ 1,880 $ 6,194
Accounts receivable, less allowance 672,106 452,421 584,023
Inventories:
Finished goods 581,118 529,148 476,538
Work in process and raw materials 133,830 113,539 103,978
- --------------------------------------------------------------------------------------------------------------------------------
714,948 642,687 580,516
Other current assets 247,939 319,199 223,313
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,653,234 1,416,187 1,394,046
Deferred pension assets 269,848 254,376 245,244
Goodwill 1,203,107 546,461 519,811
Other assets 379,952 228,175 229,750
Property, plant and equipment 1,318,695 1,133,932 1,154,790
Less allowances for depreciation and
amortization 638,330 584,541 601,577
- --------------------------------------------------------------------------------------------------------------------------------
680,365 549,391 553,213
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 4,186,506 $ 2,994,590 $ 2,942,064
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 287,380 $ 168,001 $ 221,321
Accounts payable 430,503 385,928 367,522
Compensation and taxes withheld 117,268 103,353 97,705
Current portion of long-term debt 53,150 2,169 2,113
Other accruals 370,158 325,599 342,611
Accrued taxes 158,333 65,957 95,361
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,416,792 1,051,007 1,126,633
Long-term debt 799,594 142,679 137,641
Postretirement benefits other than pensions 198,863 184,551 183,220
Other long-term liabilities 209,396 215,121 126,874
Shareholders' equity
Common stock - $1.00 par value:
172,810,409, 171,831,178 and 171,655,266
shares outstanding at Sept. 30, 1997,
December 31, 1996 and Sept. 30, 1996,
respectively 204,441 101,650 101,508
Other capital 115,792 203,223 193,247
Retained earnings 1,574,292 1,411,295 1,387,214
Cumulative foreign currency translation
adjustment (31,234) (18,982) (20,530)
Treasury stock, at cost (301,430) (295,954) (293,743)
- --------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,561,861 1,401,232 1,367,696
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,186,506 $ 2,994,590 $ 2,942,064
================================================================================================================================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of dollars
Nine months ended Sept. 30,
-------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 215,548 $ 190,045
Non-cash adjustments:
Depreciation 66,110 55,632
Amortization of goodwill and intangible assets 37,080 20,208
Increase in deferred pension assets (15,357) (11,670)
Net increase in postretirement liability 3,886 1,647
Other 3,169 184
Change in current assets and liabilities-net (68,427) (37,798)
Proceeds of insurance settlement 53,937
Costs incurred for disposition of operations (9,036) (4,652)
Other (28,666) (13,928)
- ----------------------------------------------------------------------------------------------------------------------
Net operating cash 258,244 199,668
INVESTING
Capital expenditures (122,061) (85,969)
Decrease in short-term investments 20,000
Acquisitions of assets (877,321) (599,754)
(Increase) decrease in other investments (12,317) 30,535
Other 1,408 (4,860)
- ----------------------------------------------------------------------------------------------------------------------
Net investing cash (1,010,291) (640,048)
FINANCING
Net increase in short-term borrowings 118,776 191,946
Increase in long-term debt 711,505 119,004
Payments of long-term debt (3,609) (75,379)
Payments of cash dividends (52,552) (44,998)
Proceeds from stock options exercised 7,633 8,200
Costs related to issuance of debt (14,253)
Other 908 (1,683)
- ----------------------------------------------------------------------------------------------------------------------
Net financing cash 768,408 197,090
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 16,361 (243,290)
Cash and cash equivalents at beginning of year 1,880 249,484
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 18,241 $ 6,194
======================================================================================================================
Taxes paid on income $ 69,147 $ 71,711
Interest paid on debt 53,528 17,278
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 5
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended September 30, 1997 and 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the fiscal year ended December
31, 1996. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The consolidated results for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the fiscal year ending December 31, 1997.
NOTE B--DIVIDENDS
Dividends paid on common stock during each of the first three quarters of 1997
and 1996 were $.10 per share and $.0875 per share, respectively, on a post-split
basis (see Note F).
NOTE C--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.
NOTE D--OTHER COSTS AND EXPENSES
Significant items included in other costs and expenses are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
(Thousands of dollars) Sept. 30, Sept. 30,
------------------------------- ----------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Royalty income $ 723 $ 1,001 $ 2,591 $ 3,780
Net expense of financing and
investing activities (1,736) (2,956) (6,320) (10,570)
Foreign exchange and other
foreign gain (loss) (2,420) (179) (5,612) (1,835)
</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 and other financing activities.
<PAGE> 6
NOTE E--ACQUISITION AND MERGER
Effective January 7, 1997, the Company, through a wholly-owned subsidiary,
acquired all outstanding shares of Thompson Minwax Holding Corp. (Thompson
Minwax). The total amount of funds required to acquire the shares and pay off
certain indebtedness of Thompson Minwax was approximately $830 million. 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
Thompson Minwax since the date of acquisition are included in the Company's
statements of consolidated income. The following unaudited pro forma combined
condensed statements of consolidated income for the three months and nine months
ended September 30, 1996 were prepared in accordance with Accounting Principles
Board Opinion No. 16 and assume the merger had occurred on January 1, 1996. The
following pro forma data reflects adjustments for interest expense, net
investment income and amortization of goodwill and intangible assets. In
management's opinion, the pro forma financial information is not necessarily
indicative of the results of operations which would have occurred had the
acquisition of Thompson Minwax taken place on January 1, 1996 or of future
results of operations of the combined companies under the ownership and
operation of the Company.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
-------------------------------------------
(Thousands of dollars, Three months ended Nine months ended
except per share data) Sept. 30, 1996 Sept. 30, 1996
------------------ -----------------
<S> <C> <C>
Net sales $ 1,261,563 $ 3,462,405
=========== ===========
Net income 84,055 186,249
=========== ===========
Net income per share 0.49 1.08
=========== ===========
</TABLE>
NOTE F--STOCK SPLIT
The par value of additional shares of common stock issued in connection with a
two-for-one stock split distributed during March 1997 was credited to common
stock and a like amount charged to other capital.
NOTE G--SUBSEQUENT EVENT
On October 6, 1997, the Company issued $50,000,000 of 5.5% bonds due October 15,
2027. The bonds provide that the holders, individually or in the aggregate, may
exercise a put option which would require the Company to repay the bond(s) at an
earlier date. This option is first available to the holders on October 15, 1999,
and then annually on each October 15 thereafter. The proceeds from these
borrowings were used to refinance short-term commercial paper.
NOTE H--RECLASSIFICATION
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
<PAGE> 7
<TABLE>
<CAPTION>
NOTE I--COMPUTATION OF NET INCOME PER SHARE
Three months ended Nine months ended
September 30, September 30,
--------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Fully Diluted
<S> <C> <C> <C> <C>
Average shares outstanding 172,740,123 171,620,446 172,457,173 171,398,204
Options - treasury stock method 1,706,984 1,368,640 1,715,941 1,371,349
------------ ------------ ------------ ------------
Average fully diluted shares 174,447,107 172,989,086 174,173,114 172,769,553
============ ============ ============ ============
Net income $ 99,211 $ 88,550 $ 215,548 $ 190,045
============ ============ ============ ============
Net income per share $ 0.57 $ 0.51 $ 1.24 $ 1.10
============ ============ ============ ============
Primary
Average shares outstanding 172,740,123 171,620,446 172,457,173 171,398,204
Options - treasury stock method 1,685,068 1,325,913 1,682,515 1,319,466
------------ ------------ ------------ ------------
Average shares and equivalents 174,425,191 172,946,359 174,139,688 172,717,670
============ ============ ============ ============
Net income $ 99,211 $ 88,550 $ 215,548 $ 190,045
============ ============ ============ ============
Net income per share $ 0.57 $ 0.51 $ 1.24 $ 1.10
============ ============ ============ ============
</TABLE>
<PAGE> 8
NOTE J--BUSINESS SEGMENTS
Net External Sales/Operating Profit
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
----------------------------------------------- ----------------------------------------------
1997 1996 1997 1996
--------------------- ---------------------- --------------------- ---------------------
NET Net NET Net
EXTERNAL OPERATING External Operating EXTERNAL OPERATING External Operating
SALES PROFIT Sales Profit SALES PROFIT Sales Profit
---------- --------- ---------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paint Stores $ 752,360 $ 80,786 $ 705,593 $ 75,389 $2,001,300 $ 152,366 $1,839,608 $139,581
Coatings 591,246 114,401 461,853 90,429 1,779,919 301,145 1,324,299 226,469
Other 2,925 2,963 3,564 3,333 8,450 8,888 10,128 9,948
---------- -------- ---------- --------- ---------- --------- ---------- --------
Segment totals $1,346,531 198,150 $1,171,010 169,151 $3,789,669 462,399 $3,174,035 375,998
========== ========== ========== ==========
Corporate expenses-net (35,509) (21,303) (109,042) (64,449)
-------- --------- --------- --------
Income before income taxes $162,641 $ 147,848 $ 353,357 311,549
======== ========= ========== ========
===========================================================================================================================
<CAPTION>
Intersegment Transfers
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------------
1997 1996 1997 1996
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Coatings $ 292,961 $ 233,119 $ 795,557 $ 673,534
Other 5,366 5,176 15,961 15,628
Segment totals ----------- ------------- ------------ ------------
$ 298,327 $ 238,295 $ 811,518 $ 689,162
=========== ============= ============ ============
===========================================================================================================================
Operating profit is total revenue, including realized profit on intersegment
transfers, less operating costs and expenses.
Export sales, sales of foreign subsidiaries, and sales to any individual
customer were each less than 10% of consolidated sales to unaffiliated customers
during all periods presented.
Intersegment transfers are accounted for at values comparable to normal
unaffiliated customer sales.
</TABLE>
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Consolidated net sales increased 15.0 percent during the third quarter of 1997
and 19.4 percent during the first nine months over the comparable 1996 periods.
Excluding the results of operations of Thompson Minwax Holding Corp. (Thompson
Minwax), acquired in January 1997, and other smaller acquisitions which
occurred at various times since the third quarter of 1996, comparable sales
increased 2.6 percent for the quarter and 4.5 percent for the first nine-month
period. Increased paint gallons sold in the Paint Stores Segment, particularly
to wholesale customers, led to a sales increase of 6.6 percent for the third
quarter and 8.8 percent for the first nine months. Wholesale customers include
professional painter, contractor, industrial and commercial maintenance
accounts. Comparable-store sales were up 5.5 percent in the quarter and 6.5
percent year-to-date. Excluding the effects of acquisitions, the Paint Stores
Segment's third quarter sales increased 6.1 percent and year-to-date sales
increased 6.9 percent. Incremental sales from acquisitions led to sales
increases in the Coatings Segment of 28.0 percent for the third quarter and
34.4 percent for the first nine months. Excluding the effects of these
acquisitions, third quarter sales declined 2.6 percent due primarily to
reduced customer out-the-door sales but remained 1.2 percent higher than last
year for nine months. Revenue generated by real estate operations in the
Other Segment declined 17.9 and 16.6 percent for the third quarter and
year-to-date, respectively, due to the loss of a large tenant in one of its
office buildings as of December 31, 1996.
Consolidated gross profit as a percent of sales increased to 43.3 and 42.9
percent in the third quarter and first nine months, respectively, from 42.0 and
40.9 percent in the comparable 1996 periods. Excluding the effects of
acquisitions, consolidated third quarter and year-to-date margins increased
similarly over last year. Margins in the Paint Stores Segment were higher than
last year for the quarter due primarily to increased gallons sold to
higher-margin retail customers combined with sales gains in its higher-margin
paint and paint-related product lines. Year-to-date margins were equal to last
year. Excluding the effects of acquisitions, the Segment's margins were higher
than last year for both time periods. The Coatings Segment's third quarter and
year-to-date margins were higher than last year on both an as-reported basis
and excluding the acquisitions due primarily to increased volume, a favorable
sales mix and higher-than-average margins realized on its acquired businesses.
Consolidated selling, general and administrative expenses as a percent of sales
were unfavorable to last year for the third quarter and nine months. Excluding
the effects of acquisitions, the SG&A ratio was equal to last year for the third
quarter but remained unfavorable on a year-to-date basis. SG&A expenses as a
percent of sales in the Paint Stores Segment were unfavorable to last year for
the quarter due to increased fixed costs but were favorable to last year for the
nine months due to lower-than-average expenses related to the acquired
businesses. Excluding the effects of acquisitions, the Segment's SG&A ratio was
unfavorable for both time periods. The Coatings Segment's SG&A expenses as a
percent of sales were unfavorable to last year for the quarter and year-to-date
due primarily to increased merchandising and administrative costs related to new
products, new customers and expanded service. Excluding the effects of
acquisitions, the Coatings Segment's SG&A ratio was favorable for the third
quarter but remained unfavorable on a year-to-date basis.
<PAGE> 10
The increase in interest expense over 1996 for the both the third quarter and
nine months is due to additional debt incurred since the end of September 1996
to finance acquisitions. Average short-term borrowing rates were slightly
higher than last year.
Other costs and expenses were higher than last year for the third quarter and
nine months due primarily to increased foreign currency exchange losses, offset
partially in both periods by decreased expenses of financing and investing
activities.
Net income for the third quarter of 1997 increased 12.0 percent to $99,211,000,
or $.57 per share, from $88,550,000, or $.51 per share, in 1996. For the first
nine months of 1997, net income increased 13.4 percent to $215,548,000 or $1.24
per share, from $190,045,000, or $1.10 per share, in 1996. Excluding the
effects of acquisitions and the related financing costs, net income increased
12.6 and 12.3 percent for the quarter and year-to-date, respectively.
FINANCIAL CONDITION
- -------------------
During the first nine months of 1997, cash and cash equivalents increased $16.4
million, net long-term debt increased $707.9 million and short-term borrowings
increased $119.4 million. Short-term borrowings incurred during the year relate
to the Company's commercial paper program, which had unused borrowing
availability of $712.6 million at September 30, 1997. The aggregate principal
amount of unsecured short-term notes which can be issued under this program was
increased to $1,450.0 million in January 1997 and subsequently decreased to
$1,000.0 million in May 1997. Outstanding borrowings under this program are
backed by the Company's revolving credit agreements, whose maximum borrowing
amount was increased to $1,450.0 million in January 1997 and subsequently
reduced to $1,080.0 million in March 1997. The increase in long-term debt since
December 31, 1996 relates to the Company's issuance of $400.0 million of debt
securities issued under the Company's shelf registration statement and $300.0
million of debentures which were originally issued in a private offering not
registered under the Securities Act of 1933, as amended. In July 1997, the
Company completed offers to exchange all of its outstanding $300.0 million of
debentures for an equal principal amount of newly-issued debentures containing
identical terms except that the newly-issued debentures were registered under
the Securities Act of 1933, as amended. The proceeds from these borrowings and
net cash provided by operations of $258.2 million were used to acquire Thompson
Minwax and other smaller businesses totaling $877.3 million, capital
expenditures of $122.1 million, cash dividends of $52.6 million, costs related
to the issuance of debt of $14.3 million and normal operating needs. Net cash
provided by operations during the first nine months of 1997 includes the receipt
of approximately $53.9 million related to a settlement with certain insurance
carriers pertaining to environmental-related matters, which settlement was
recorded in income in 1996. The Company's current ratio decreased to 1.17 from
1.35 at December 31, 1996 due primarily to increased short-term borrowings, the
reclassification of certain long-term debt to current and increased current
taxes payable. The increase in goodwill of $656.6 million since December 31,
1996 relates to goodwill recorded in accordance with APB Opinion No. 16 upon the
purchase of Thompson Minwax and other smaller acquisitions. The increase in
other assets occurred primarily due to intangible assets acquired. The increase
in common stock and related decrease in other capital since December 31, 1996
occurred due to the par value of $101.9 million of additional common shares
issued in a two-for-one stock split in March 1997.
<PAGE> 11
Since September 30, 1996, cash and cash equivalents increased $12.0 million,
short-term borrowings increased $66.1 million and long-term debt increased
$713.0 million. The proceeds from these borrowings and net cash generated by
operations of $391.1 million during this twelve-month period were used for
acquisitions of $984.8 million, capital expenditures of $158.8 million,
payments of cash dividends of $67.6 million, debt issue costs of $14.3 million
and normal working capital needs. The Company expects to remain in a borrowing
position throughout the remainder of 1997.
Capital expenditures during the first nine months of 1997 represented primarily
the costs of upgrading or installing point-of-sale terminals at the paint
stores and costs for construction, capacity expansion or upgrade of
distribution centers and manufacturing and research facilities. We do not
anticipate the need for any specific external financing to support our capital
programs during the remainder of 1997.
During the first nine months of 1997, approximately 107,000 shares of our own
stock were received from the exercise of stock options. We did not acquire any
of our own shares through open market purchases during this time period. We
acquire our own stock for general corporate purposes and, depending on our cash
position and market conditions, we may acquire additional shares of our own
stock in the future. In April 1997, the Board of Directors authorized the
Company to purchase in the aggregate, 10,000,000 shares of common stock.
The Company is continuing to review its computer systems to identify those that
could be affected by the Year 2000 issue. The Company has also commenced
remediation projects to correct certain of the affected systems and is in the
process of developing a corrective action plan to address the Year 2000 issue
in all affected systems. Management is also in the process of determining the
total cost for system changes (including testing and implementation).
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods presented in comparative statements. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded from the calculation. The adoption of SFAS
No. 128 will result in immaterial changes to the primary earnings per share
amounts reported. The impact of SFAS No. 128 on the calculation of fully
diluted earnings per share for these periods is also expected to be immaterial.
<PAGE> 12
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 damage, along with costs involving the abatement
of lead related paint from buildings and medical monitoring costs. The Company
believes that such lawsuits are without merit and is vigorously defending them.
The Company does not believe that any potential liability which may ultimately
be determined to be attributable to the Company arising out of such lawsuits
will have a material adverse effect on the Company's business or financial
condition.
The operations of the Company, like those of other companies in our industry,
are subject to various federal, state and local environmental laws and
regulations. These laws and regulations not only govern our current operations
and products, but also impose potential liability on the Company for past
operations which were conducted utilizing practices and procedures that were
considered acceptable under the laws and regulations existing at that time. The
Company expects the environmental laws and regulations to impose increasingly
stringent requirements upon the Company and our industry in the future. The
Company believes it conducts its operations in compliance with applicable
environmental laws and regulations and has implemented various programs
designed to protect the environment and ensure continued compliance.
The Company is involved with environmental compliance and remediation
activities at some of its current and former sites. The Company, together with
other parties, has also been designated a potentially responsible party under
federal and state environmental protection laws for the remediation of
hazardous waste at a number of third-party sites, primarily Superfund sites. In
general, these laws provide that potentially responsible parties may be held
jointly and severally liable for investigation and remediation costs regardless
of fault. The Company may be similarly designated with respect to additional
third-party sites in the future.
Although the Company continuously assesses its potential liability for
remediation activities with respect to its past operations and third-party
sites, any potential liability ultimately determined to be attributable to the
Company is subject to a number of uncertainties including, among others, the
number 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.
The Company has accrued for certain environmental remediation activities
relating to its past operations and third-party sites, including Superfund
sites, for which commitments or clean-up plans have been developed or for which
costs or minimum costs can be reasonably estimated. These environmental-related
accruals are adjusted as information becomes available upon which more accurate
costs can be reasonably estimated. In the opinion of the Company's management,
any potential liability ultimately attributed to the Company for its
environmental-related matters will not have a material adverse effect on the
Company's financial condition, liquidity or cash flow.
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
(10) Schedule of Certain Executive Officers who are Parties to the
Severance Pay Agreements in the Forms Attached as Exhibit 10(b)
to the Company's Quarterly Report on Form 10-Q for the Period
Ended June 30, 1997 (filed herewith).
(11) Computation of Net Income Per Share - See Note I to Condensed
Consolidated Financial Statements (Unaudited).
(27) Financial Data Schedule for the period ended September 30, 1997
(filed herewith).
(b) Reports on Form 8-K
None.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
THE SHERWIN-WILLIAMS COMPANY
November 14, 1997 By: /s/ J.L. Ault
-----------------------------------
J.L. Ault
Vice President-Corporate Controller
November 14, 1997 By: /s/ L.E. Stellato
-----------------------------------
L.E. Stellato
Vice President, General Counsel and
Secretary
<PAGE> 14
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. EXHIBIT
- ----------- -------
(10) Schedule of Certain Executive Officers who are Parties to
the Severance Pay Agreements in the Forms Attached as
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q
For the Period Ended June 30, 1997 (filed herewith).
(11) Computation of Net Income Per Share - See Note I to
Condensed Consolidated Financial Statements (Unaudited).
(27) Financial Data Schedule for the period ended September 30,
1997 (filed herewith).
<PAGE> 1
EXHIBIT 10
Schedule of Certain Executive Officers who are Parties
to the Severance Pay Agreements in the Forms Attached
as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q
For the Period Ended June 30, 1997
---------------------
Form A of Severance Pay Agreement
- ---------------------------------
John G. Breen
Thomas A. Commes
Form B of Severance Pay Agreement
- ---------------------------------
John L. Ault
Frank E. Butler
Christopher M. Connor
Michael A. Galasso
Thomas E. Hopkins
Conway G. Ivy
T. Scott King
Larry J. Pitorak
Joseph M. Scaminace
Louis E. Stellato
Richard M. Wilson
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPT. 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000089800
<NAME> THE SHERWIN-WILLIAMS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,241
<SECURITIES> 0
<RECEIVABLES> 707,868
<ALLOWANCES> 35,762
<INVENTORY> 714,948
<CURRENT-ASSETS> 1,653,234
<PP&E> 1,318,695
<DEPRECIATION> 638,330
<TOTAL-ASSETS> 4,186,506
<CURRENT-LIABILITIES> 1,416,792
<BONDS> 799,594
0
0
<COMMON> 204,441
<OTHER-SE> 1,357,420
<TOTAL-LIABILITY-AND-EQUITY> 4,186,506
<SALES> 3,789,669
<TOTAL-REVENUES> 3,789,669
<CGS> 2,165,108
<TOTAL-COSTS> 2,165,108
<OTHER-EXPENSES> 10,251
<LOSS-PROVISION> 14,626
<INTEREST-EXPENSE> 62,387
<INCOME-PRETAX> 353,357
<INCOME-TAX> 137,809
<INCOME-CONTINUING> 215,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,548
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
