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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-4851
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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
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Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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9.875% Debentures due 2016 New York Stock Exchange
Common Stock, Par Value $1.00 New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At January 31, 1999, 170,621,431 shares of common stock were outstanding,
net of treasury shares. The aggregate market value of such voting stock held by
non-affiliates on January 31, 1999 was $4,338,266,811.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1998 ("1998 Annual Report") are incorporated by reference into
Parts I, II and IV of this report.
Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders
("Proxy Statement") are incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The Sherwin-Williams Company, founded in 1866 and incorporated in 1884, is
engaged in the manufacture, distribution and sale of coatings and related
products to professional, industrial, commercial and retail customers primarily
in North and South America. As used in this report, the terms
"Sherwin-Williams", "Company" and "Registrant" mean The Sherwin-Williams Company
and its consolidated subsidiaries unless the context indicates otherwise.
BASIS OF REPORTABLE SEGMENTS
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information", was adopted by the
Company effective December 31, 1998. SFAS No. 131 requires an enterprise to
report segment information utilizing an approach referred to as the "management
approach" which is based on reporting segment information in the same way that
management internally organizes its business for assessing performance and
making decisions regarding allocation of resources. One of the characteristics
identified by SFAS No. 131 that must be considered in the determination of
reportable segments is the regular review of performance by the enterprise's
chief operating decision maker. The Company's chief operating decision maker has
been identified as the Chief Executive Officer because he has final authority
over performance assessment and resource allocation decisions. Each reportable
segment identified by the Company meets the SFAS No. 131 characteristic for the
management approach as well as other SFAS No. 131 characteristics of earning
revenue and incurring expenses in carrying out a business activity and making
discrete financial information about the business component available to the
chief operating decision maker.
Because of the global, diverse operations of the Company, the chief
operating decision maker regularly receives discrete financial information about
each operating segment as well as a significant amount of additional financial
information about certain aggregated divisions, operating units and subsidiaries
of the Company. The chief operating decision maker uses all such financial
information for performance assessment and resource allocation decisions. In
accordance with the objective of SFAS No. 131, the Company has determined that
it is organized as three reportable segments -- Paint Stores, Coatings and
Other -- each described in further detail below. Factors considered in
determining the three operating segments of the Company include the nature of
the business activity, existence of managers responsible for the operating
activities and information presented to the Board of Directors. Information
about net sales, operating profits and assets attributable to the United States
and to all foreign consolidated subsidiaries can be found on pages 10 and 11 of
the 1998 Annual Report, which is incorporated herein by reference. Revenues and
operating profits attributable to any individual country outside the United
States are not material.
In addition to the three operating segments, the Company and certain
consolidated subsidiaries have corporate headquarters which are not considered
an operating segment. Corporate expenses include administrative expenses of the
headquarters sites, interest expense which is unrelated to real estate leasing
activities, investment income, certain foreign currency transaction losses
related to dollar-denominated debt and other financing activities, certain
provisions for disposition and environmental-related matters, and other expenses
which are not directly associated with any operating segment. Corporate assets
consist primarily of cash, investments, deferred pension assets and headquarters
property, plant and equipment. These Corporate expenses and assets reconcile
operating segment data to total consolidated income before income taxes,
identifiable assets, capital expenditures and depreciation.
The Company evaluates the performance of operating segments and allocates
resources based on profit or loss from operations before income taxes, excluding
Corporate expenses and financing gains and losses. Intersegment transfers are
accounted for at values comparable to normal unaffiliated customer sales.
Operating profit includes realized profit on intersegment transfers. The
accounting policies of the reportable segments are the same as those described
in Note 1 -- Significant Accounting Policies on page 24 of the 1998 Annual
Report, which is incorporated herein by reference. The adoption of SFAS No. 131
did not change the composition of the
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reportable segments of the Company. Therefore, no restatements of comparative
information for earlier periods is required to reflect the current presentation.
PAINT STORES SEGMENT
The Paint Stores Segment consists of four geographically divided
divisions -- Eastern, Southeastern, Mid Western and South Western -- each having
the same business activity of selling identical national and similar regional
products through company-operated specialty paint stores to the same types of
customers. The Segment consisted of 2,254 stores in the United States, Canada
and Puerto Rico on December 31, 1998. A map on the inside back cover of the 1998
Annual Report shows the approximate geographical separation of each division and
the number of paint stores in each state, province and Puerto Rico.
The Paint Stores Segment is the exclusive North American marketer and
seller of Sherwin-Williams(R) branded architectural coatings, industrial
maintenance and marine products, industrial original equipment manufacturer
(OEM) product finishes and related items produced by the Coatings Segment. In
addition, this Segment markets and sells Con-Lux(R), Old Quaker(TM),
Mercury(TM), Brod Dugan(TM), Pro-Line(R), SeaGuard(R), JetGlo(R), AcryGlo(R),
other control-branded coatings, and related products also manufactured by the
Coatings Segment. Complementary coatings and associated products manufactured by
third parties are sold through the Paint Stores Segment to complete its product
offering.
Paint, applicators, wallcoverings, floorcoverings, spray equipment and
associated products are marketed and sold by store personnel and direct sales
representatives to the do-it-yourself customer, professional painting
contractor, home builder, property manager, industrial maintenance and marine
customer, aviation market, OEM customer, and product finishing job shop
customer. The loss of any single customer would not have a material adverse
effect on the business of this Segment.
During 1998, the Segment opened 59 net new stores, remodeled 67 and
relocated 40. There were 39 net new stores opened in 1997 and 23 in 1996. Many
new national and regional architectural products, industrial maintenance and
marine products and industrial OEM product finishes were introduced by this
Segment in 1998. This Segment was successful in obtaining thousands of new
customers and contracts in 1998.
The stores were technologically enhanced in 1998 with the completion of a
satellite network which electronically links all stores. Stores now have the
capability of sharing perpetual inventory information for better product
availability and consistent pricing for national and regional customers. Over
$27.9 million in capital expenditures were made in 1998 by the Paint Stores
Segment to open new stores, remodel existing facilities, purchase productivity
improving equipment and complete the satellite network project.
In 1999, the Segment plans to open approximately 65 net new stores,
continue to introduce new technologically leading products and capture further
enhancements from the satellite network project. Upgraded computers will improve
the color matching and tinting processes, improving customer service. Expanded
use of the Internet at the Segment's new web site, www.sherwin-williams.com,
will enable customers and vendors to get information and conduct business
electronically. A new architectural product under the brand Duration(TM) will be
introduced in the spring of 1999. This will be the Paint Stores Segment's finest
exterior latex house paint and will provide exceptional durability and
protection against peeling and cracking. To further extend the WoodClassics(TM)
interior wood finishing system, a low odor, fast drying, waterborne varnish is
being added to this line. Two additional primers are being added to the highly
successful Preprite(TM) family of primers. Low Temp 35(TM) primer and caulk will
also be added and provide extensions to the leading low temperature technology
product line. In all, over 50 new products will be introduced into the market
this year by this Segment.
A new advertising campaign has been developed and will begin airing in the
second quarter of 1999. This campaign capitalizes on the strong brand name
recognition and quality perception inherent in the Sherwin-Williams name. It
will focus on the store rather than any individual product, be more attractive
to female customers who are the primary paint buying decision makers, and be
skewed to a younger audience who comprise the highest percentage of
do-it-yourself customers. The campaign theme is "Ask How, Ask Now, Ask Sherwin-
Williams". This advertising campaign continues the successful "Ask
Sherwin-Williams" theme introduced 16 years ago.
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COATINGS SEGMENT
The Coatings Segment consists of domestic operating units and foreign
operations. Each domestic and foreign operating unit manufactures, distributes
and sells coatings and other similar products to the same types of customers. At
December 31, 1998, the Segment consisted of a network of 119 company-operated
wholesale automotive branches in the United States and 144 foreign stores and
branches in Canada, Mexico, Jamaica, Chile and Brazil. A map on the inside back
cover of the 1998 Annual Report shows the geographical demographics and the
number of stores and branches in each state, province or country.
The Coatings Segment develops, manufactures and distributes architectural
paint, stains, varnishes, industrial maintenance products, product finishes,
marine coatings, aviation coatings, wood finishing products, paint applicators,
motor vehicle finish, refinish and touch-up products, corrosion inhibitors, and
paint-related products worldwide. In addition, a wide variety of cleaning
products and custom, industrial and automotive aerosols are filled, packaged,
distributed and sold by this Segment throughout the world. The Coatings Segment
employs a wide variety of trade names and trademarks worldwide in pursuit of its
business. Sherwin-Williams(R), Dutch Boy(R), Krylon(R), Minwax(R), Ronseal(TM),
Cuprinol(R), Thompson's(R), Formby's(R), Red Devil(R), Kem-Tone(R), Martin
Senour(R), Pratt & Lambert(R), H&C(R), White Lightning(R), Western(R),
Dupli-Color(R), Rust Tough(R), Rubberset(R), Sprayon(R), Moly-White(R),
Cello(R), Tri-Flow(TM), Colorgin(TM), Globo(TM), Andina(TM), Lazzuril(TM),
Excelo(TM), and Marson(TM) are some of the trade names and trademarks that have
high national and international customer recognition and collectively contribute
significantly to the internal and external sales of the Coatings Segment.
In North America, Sherwin-Williams(R) branded and other control-branded
architectural coatings, stains, varnishes, industrial maintenance products, wood
finishing products, product finishes, marine coatings, aviation coatings, paint
applicators, aerosols, adhesives and related products are manufactured solely
for the Paint Stores Segment. Approximately 35 percent of the total sales of the
Coatings Segment in 1998 represented products sold through the Paint Stores
Segment. Sherwin-Williams(R) branded and other control-branded automotive finish
and refinish products are distributed throughout North America solely by the
Coatings Segment through its network of wholesale automotive branches.
Some other branded and private label coatings, stains, varnishes, wood
finishing products, motor vehicle finish, refinish and touch-up products, paint
applicators, aerosols and related products are manufactured for and distributed
through many of the leading regional, national and international mass
merchandisers, home centers, independent dealers, automotive chains, automotive
jobbers, industrial maintenance distributors, independent jobbers, wholesale
distributors, automotive body shops, automotive dealerships, fleet owners and
refinishers, production shops, body builders and manufacturers requiring a
factory-applied finished product. Sales and marketing of these branded and
private label products is performed by a direct sales staff. The products
distributed through these third party customers are intended for purchase by the
ultimate end-user of the product, such as the do-it-yourself customer,
professional painter, contractor, and industrial and commercial maintenance
account. Cleaning products and custom, industrial and automotive aerosols
produced by this Segment are distributed through the homecare products,
institutional, insecticide and industrial markets.
Outside North America, coatings, motor vehicle refinish products, paint
applicators, aerosols, adhesives and related products are manufactured under a
number of different brands and sold through various marketing channels. The
Coatings Segment manufactures, distributes and sells its products through
wholly-owned subsidiaries, joint ventures and licensees of technology,
trademarks and trade names. At December 31, 1998, this Segment included 23
foreign wholly-owned subsidiaries in 12 foreign countries, three foreign joint
ventures and 16 licensing agreements in 15 foreign countries. The majority of
the sales from licensees and subsidiaries is in South America, the Segment's
most important international market.
The Coatings Segment has sales to certain customers that, individually, may
be a significant portion of an operating unit's revenues. However, the loss of
any single customer would not have a material adverse effect on the overall
business of the Segment. All of the Company's technical expenditures occurred in
the Coatings Segment. A brief description of technical expenditures and amounts
spent for research and development appear on page 24 of the 1998 Annual Report,
which is incorporated herein by reference. Most of the Company's capital
expenditures related to ongoing environmental compliance measures are incurred
by this Segment.
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During 1998, the Coatings Segment's operations and administration was
affected by the consolidation of the Consumer Brands, Coatings, Transportation
Services and Diversified Brands Divisions. The consolidation was precipitated
from customer expectations for improved service, the necessity to lower
operating costs, the need to invest in additional advertising/promotional
support for high market share brands and the need for additional field service
personnel to support the customers' business. The majority of the consolidation
effort was completed by year-end and a new sales and marketing organization has
been established to provide proper focus to the key brands as well as this
Segment's large, diverse customer base. The Coatings Segment performed below
expectations in 1998 in its Dutch Boy(R) and Thompsons(R) retail brands although
certain other brands and markets performed well. The Minwax(R) brand met
expectations and the automotive products sold directly to body shop customers
exceeded expectations. The automotive topcoat business expanded its original
equipment manufacturer presence, particularly in the in-mold coatings and the
interior coatings business, with the Hydro-One(TM) and Hydro-Swade(TM) product
lines. Quality and service improvements in the product finishes business unit
translated into improved financial results for 1998.
The business climate throughout South America was difficult in 1998 causing
business rationalization of certain operations to occur. Consolidation of
production from facilities acquired in 1997 to previously existing manufacturing
facilities occurred in Chile. A resin plant for emulsions was put into operation
at the Sao Paulo, Brazil manufacturing site to reduce the costs of selected raw
materials. Portions of other Brazilian manufacturing facilities were closed
temporarily to contain production costs until the economies begin to improve and
previous production capacity needs are once again required. In spite of the
harsh economic climate, most foreign operations managed to increase market share
and solidify their market positions.
In 1999, new products will be introduced to improve market penetration at
our core customers. A new line of waterbase interior stains and an aerosol stain
will be introduced under the Minwax(R) brand. Automotive aerosol products will
be added such as truck bed, hi-heat and engine enamel products. The Segment will
increase advertising and promotional support for the Thompson's(R) brand wood
protector, stains and toners. All paint category products under the Dutch Boy(R)
private label and licensed brands will receive added support and commitment from
the field service/merchandising organization. The Coatings Segment plans to
improve its penetration and support at certain customers with increased service
and plans to pursue new distribution with focused direct advertising initiatives
of brands and product categories. The Segment will continue to pursue and
develop new international business in order to better compete on a global basis
and to continue to grow market share. Genesis(TM) high solids urethane systems
for heavy truck and bus application for original equipment manufacturers will be
launched during the second quarter of 1999.
Internationally in 1999, the less-than-favorable economic conditions in
South America are expected to continue, making cost reductions a focal point of
the business. Selling prices will be increased where it makes sense and where
our competitive position will not be compromised. Additionally, new product
introductions, repositioning of product lines, entry into new markets and a
broadening of distribution will be necessary to achieve planned goals. Further
reduction of manufacturing and administrative costs in Brazil and Chile is
necessary. Consolidation of manufacturing and administrative functions of
acquired businesses in these two countries will help reduce costs.
OTHER SEGMENT
The Other Segment is responsible for the acquisition, development, leasing
and management of properties for use by the Company and others, generally within
the United States. Obtaining real estate in the proper location, at the
appropriate cost, is a critical component for achieving the desired operating
success, particularly for paint stores and distribution service centers. Sales
are represented by external leasing revenue and intersegment transfers which are
accounted for at values comparable to normal unaffiliated customer leasing
rates.
At the end of 1998, there were 221 retail properties owned or leased by
this Segment, representing over 1,859,000 square feet of space, of which 218
locations were leased to the Paint Stores Segment. Retail properties which are
conducive to the sale of paint and associated products and where external rental
opportunities can be profitably operated are maintained by this Segment. Such
properties include 135 freestanding buildings, for
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exclusive use by the Paint Stores Segment, and 86 multi-tenant properties.
Multi-tenant properties are usually smaller "strip" shopping centers with
adequate parking and, generally, the paint store will be located at the end of
the shopping area for the most convenient access. The paint store must be easily
accessible to professional painters and contractors with sufficient access to
pickup and delivery areas. In 1999, the Segment does not anticipate significant
growth in the number of owned retail properties needed by the Paint Stores
Segment. The occupancy rate for external retail space was 80.5 percent at
December 31, 1998.
In addition to the Segment's retail properties, at the end of 1998 there
were 22 owned and 2 leased non-retail properties consisting of office buildings,
distribution service centers, idle manufacturing facilities and vacant land.
Occasionally, such properties are acquired or developed to provide the lowest
cost alternative for expansion of distribution operations by the Coatings
Segment. Locations that have been utilized profitably in the past which can no
longer contribute to the Company's future plans are offered for sale or lease.
If a location is no longer in usable condition, all buildings on the property
are razed and the vacant land is then offered for sale or lease. During 1998,
buildings on two such properties were completely demolished and the first phase
of a demolition plan was completed on a third property. Sales agreements are
currently being pursued for three facilities with anticipated sale dates in
1999. Gains and losses from the sale of property is not a significant operating
factor utilized by the chief operating decision maker in determining the
performance of this Segment. Additional facilities will become part of the Other
Segment's assets in 1999 as manufacturing ceases. The occupancy rate for
external non-retail office space was 91.2 percent at December 31, 1998.
RAW MATERIALS AND PRODUCTS PURCHASED FOR RESALE
Raw materials and fuel supplies are generally available from various
sources in sufficient quantities that the Coatings Segment does not anticipate
any significant sourcing problems during 1999. There are sufficient suppliers of
each product purchased for resale that the Paint Stores Segment and the Coatings
Segment do not anticipate any significant sourcing problems during 1999.
SEASONALITY
The majority of the sales for the Paint Stores Segment and Coatings Segment
traditionally occur during the second and third quarters. There is no
significant seasonality in sales for the Other Segment.
TRADEMARKS AND TRADE NAMES
Customer recognition of trademarks and trade names collectively contribute
significantly to the sales of the Company. The Paint Stores Segment is
identified with names such as Sherwin-Williams(R), SuperPaint(R), Pro Mar(R),
EverClean(R), Glas-Clad(R), Perma-Clad(R), Old Quaker(TM), Pro-Line(R),
SeaGuard(R), JetGlo(R), AcryGlo(R), Con-Lux(R), Mercury(TM) and Brod-Dugan(TM).
The Coatings Segment employs a variety of trade names and trademarks in
marketing its products, such as Sherwin-Williams(R), Thompson's(R), Dutch
Boy(R), Kem-Tone(R), Martin Senour(R), Cuprinol(R), Pratt & Lambert(R),
Globo(TM), Andina(TM), H&C(R), Lazzuril(TM), Excelo(TM), Western(R),
Colorgin(TM), Rubberset(R), Dupli-Color(R), Rust Tough(R), Sprayon(R),
Minwax(R), White Lightning(R), Krylon(R), Cello(R), Moly-White(R), Formby's(R),
Red Devil(R), Tri-Flow(TM), Marson(TM) and Ronseal(TM).
PATENTS
Although patents and licenses are not of material importance to the
business of the Company as a whole, the international operations of the Coatings
Segment derive a portion of their income from the license of technology,
trademarks and trade names to foreign companies.
BACKLOG AND PRODUCTIVE CAPACITY
Backlog orders are not significant in the business of any Segment.
Sufficient productive capacity currently exists to fulfill the Company's needs
for paint and coatings products through 1999.
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COMPETITION
The Company experiences competition from many local, regional, national and
international competitors of various sizes in the manufacture, distribution and
sale of its coatings and related products. The Company is a leading manufacturer
and retailer of coatings and related products to professional, industrial,
commercial and retail customers, however, the Company's competitive position
varies for its different products and markets. In the Paint Stores Segment,
competitors include other paint and wallpaper stores, mass merchandisers, home
centers, independent hardware stores, hardware chains and manufacturer-operated
direct outlets. Product quality, service and price determine the competitive
advantage for this Segment. In the Coatings Segment, competitors include
manufacturers and distributors of branded and private labeled coatings products.
Technology, product quality, product innovation, breadth of product line,
technical expertise, distribution, service and price are the key competitive
factors for this Segment.
EMPLOYEES
The Company employed 24,822 persons at December 31, 1998.
ENVIRONMENTAL COMPLIANCE
For additional information regarding environmental matters, see pages 13
and 14 of the 1998 Annual Report under the caption entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 1, 4 and 9 of the Notes to Consolidated Financial Statements on pages 24,
26 and 29, respectively, of the 1998 Annual Report, which is incorporated herein
by reference.
SEGMENT INFORMATION AND FOREIGN OPERATIONS
For additional information regarding the Company's reportable segments and
foreign operations, see the financial table and the notes thereto on pages 10
and 11 of the 1998 Annual Report, which is incorporated herein by reference.
Additional information regarding risks attendant to foreign operations is set
forth on pages 14 and 16 of the 1998 Annual Report under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which is incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Reportable Segment Information"
and elsewhere in this report constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements are based upon
management's expectations and beliefs concerning future events and discuss,
among other things, anticipated future performance and revenues, expected growth
and future business plans. Words and phrases such as "expects", "anticipates",
"believes", "will likely result", "will continue", "plans to" and similar
expressions are intended to identify forward-looking statements. Readers are
cautioned not to place undue reliance on any forward-looking statements.
Forward-looking statements are necessarily subject to risks, uncertainties and
other factors, many of which are outside the control of the Company, that could
cause actual results to differ materially from such statements. These
uncertainties and other factors include such things as: general business
conditions, strengths of retail economies and the growth in the coatings
industry; competitive factors, including pricing pressures and product
innovation and quality; raw material availability and pricing; changes in the
Company's relationships with customers and suppliers; the ability of the Company
to successfully integrate recent and future acquisitions into its existing
operations; changes in general domestic economic conditions such as inflation
rates, interest rates and tax rates; risks and uncertainties associated with the
Company's expansion into foreign markets, including inflation rates, recessions,
foreign currency exchange rates, foreign investment and repatriation
restrictions and other external economic and political factors; increasingly
stringent domestic and foreign governmental regulations including those
affecting the environment; inherent uncertainties involved in assessing the
Company's potential liability for environmental remediation-related activities;
the impact of the Year 2000; the outcome of pending and future litigation and
other claims; and unusual weather conditions.
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Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information, future events
or otherwise.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in Cleveland, Ohio. The
Company's principal manufacturing and distribution facilities operated by the
Coatings Segment are located as set forth below. The Company believes its
manufacturing and distribution facilities are well-maintained and are suitable
and adequate, and have sufficient productive capacity, to meet its current
needs.
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Manufacturing facilities
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Arlington, Texas Owned Memphis, Tennessee Leased
Baltimore, Maryland Owned Memphis, Tennessee Owned
Bedford Heights, Ohio Owned Morrow, Georgia Owned
Chicago, Illinois Owned Olive Branch, Mississippi Owned
Clifton, New Jersey Owned Ontario, California Leased
Coffeyville, Kansas Owned Orlando, Florida Owned
Columbus, Ohio Owned Richmond, Kentucky Owned
Crisfield, Maryland Leased Rockford, Illinois Leased
Deshler, Ohio Owned San Diego, California Leased
Edison, New Jersey Owned Spartanburg, South Carolina Leased
Elk Grove, Illinois Owned Victorville, California Owned
Emeryville, California Owned Wichita, Kansas Owned
Ennis, Texas Leased Arica, Chile Owned
Flora, Illinois Owned Buenos Aires, Argentina Owned
Fort Wayne, Indiana Leased Fort Erie, Ontario, Canada Owned
Fountain Inn, South Carolina Owned Kingston, Jamaica Owned
Garland, Texas Owned Mexico City, Mexico Owned
Greensboro, North Carolina (2) Owned Quilpue, Chile Leased
Harrisburg, Pennsylvania Leased Santiago, Chile (2) Owned
Havre de Grace, Maryland Owned Sao Paulo, Brazil (5) Owned
Holland, Michigan Owned Sheffield, England Owned
Lawrenceville, Georgia Owned Texcocco, Mexico Owned
Distribution facilities
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Bedford Heights, Ohio Leased Buenos Aires, Argentina Owned
Buford, Georgia Leased Kingston, Jamaica Owned
Cranberry Run, Maryland Leased Mexico City, Mexico Owned
Dayton Valley, Nevada Owned Moncton, Nova Scotia, Canada Leased
Effingham, Illinois Leased Montreal, Quebec, Canada Owned
Fredericksburg, Pennsylvania Owned San Juan, Puerto Rico Leased
Indianapolis, Indiana Leased Santiago, Chile Leased
Reno, Nevada Leased Santiago, Chile (2) Owned
Reno, Nevada Owned Sao Paulo, Brazil (5) Owned
Richmond, Kentucky Owned Scarborough, Ontario, Canada Owned
Waco, Texas Leased Vaughan, Ontario, Canada Leased
Winter Haven, Florida Owned Zaragoza, Mexico Owned
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In addition, the Coatings Segment included 119 company-operated wholesale
automotive branches, of which one was owned, in the United States and 144 leased
company-operated stores and branches in Canada, Mexico, Chile, Brazil and
Jamaica at December 31, 1998.
The operations of the Paint Stores Segment included 2,254 company-operated
stores in the United States, Canada and Puerto Rico at December 31, 1998. All
stores are leased locations with 218 being leased from the Company's Other
Segment. The Paint Stores Segment is divided into four separate operating
divisions, each of which is responsible for the stores located within its
geographical region. At the end of 1998, the Mid Western Division operated 628
stores primarily located in the midwestern and upper west coast states and
western Canada, the Eastern Division operated 468 stores along the upper east
coast and New England states and eastern Canada, the Southeastern Division
operated 603 stores principally covering the lower east and gulf coast states
and Puerto Rico, and the South Western Division operated 555 stores in the
plains and the lower west coast states. The Paint Stores Segment opened 59 net
new stores in 1998 and relocated 40.
All property within the Other Segment is owned by the Company except for
four land leases and two warehouse leases.
For additional information regarding real property leases, see Note 8 of
the Notes to Consolidated Financial Statements on page 29 of the 1998 Annual
Report, which is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
For information regarding environmental matters and other legal
proceedings, see pages 13 and 14 of the 1998 Annual Report under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 1, 4 and 9 of the Notes to Consolidated
Financial Statements on pages 24, 26 and 29, respectively, of the 1998 Annual
Report, which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is information regarding the Executive Officers at February
28, 1999.
<TABLE>
<CAPTION>
Name Age Present Position
---- --- ----------------
<S> <C> <C>
John G. Breen 64 Chairman and Chief Executive Officer, Director
Thomas A. Commes 56 President and Chief Operating Officer, Director
Larry J. Pitorak 52 Senior Vice President -- Finance, Treasurer and
Chief Financial Officer
John L. Ault 53 Vice President -- Corporate Controller
Christopher M. Connor 42 President, Paint Stores Group
Michael A. Galasso 51 President & General Manager, Automotive
Division
Thomas E. Hopkins 41 Vice President -- Human Resources
Conway G. Ivy 57 Vice President -- Corporate Planning and
Development
Joseph M. Scaminace 45 President, Consumer Group
Louis E. Stellato 48 Vice President, General Counsel and Secretary
</TABLE>
Mr. Breen has served as Chairman and Chief Executive Officer since June
1986 and has served as a Director since April 1979.
Mr. Commes has served as President and Chief Operating Officer since June
1986 and has served as a Director since April 1980. Mr. Commes intends to retire
on March 16, 1999.
8
<PAGE> 10
Mr. Pitorak has served as Senior Vice President -- Finance, Treasurer and
Chief Financial Officer since April 1992.
Mr. Ault has served as Vice President -- Corporate Controller since January
1987.
Mr. Connor has served as President, Paint Stores Group since August 1997
prior to which he served as President & General Manager, Diversified Brands
Division commencing April 1994. From September 1992 to April 1994, Mr. Connor
served as Senior Vice President -- Marketing, Paint Stores Group.
Mr. Galasso has served as President & General Manager, Automotive Division
since June 1997 prior to which he served as Vice President &
Director -- Operations, Automotive Division commencing May 1992.
Mr. Hopkins has served as Vice President -- Human Resources since August
1997 prior to which he served as Vice President -- Human Resources, Paint Stores
Group commencing February 1996. From November 1989 to February 1996, Mr. Hopkins
served as Director of Human Resources, Paint Stores Group.
Mr. Ivy has served as Vice President -- Corporate Planning and Development
since April 1992.
Mr. Scaminace has served as President, Consumer Group since July 1998 prior
to which he served as President & General Manager, Coatings Division commencing
June 1997. From April 1994 to June 1997, Mr. Scaminace served as President &
General Manager, Automotive Division prior to which he served as President &
General Manager, Diversified Brands Division commencing September 1985.
Mr. Stellato has served as Vice President, General Counsel and Secretary
since July 1991.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Sherwin-Williams common stock is listed on the New York Stock Exchange and
traded under the symbol SHW. The number of shareholders of record at January 31,
1999 was 11,858. Information regarding market prices and dividend information
with respect to Sherwin-Williams common stock is set forth on page 35 of the
1998 Annual Report under the caption entitled "Quarterly Stock Prices and
Dividends," which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
(Millions of Dollars, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996(a) 1995(b) 1994(b)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net Sales $4,934 $4,881 $ 4,133 $ 3,274 $ 3,100
Net Income 273 261 229 201 187
FINANCIAL POSITION
Total assets $4,065 $4,036 $ 2,995 $ 2,141 $ 1,962
Long-term debt 730 844 143 24 20
PER COMMON SHARE DATA
Net income -- basic(c) $ 1.58 $ 1.51 $ 1.34 $ 1.18 $ 1.08
Net income -- diluted(c) 1.57 1.50 1.33 1.17 1.07
Cash dividends .45 .40 .35 .32 .28
</TABLE>
(a) Pre-acquisition amounts for Thompson Minwax Holding Corp., acquired on
January 7, 1997 using the purchase method of accounting, are not included.
Therefore, amounts are not comparable to 1997 and beyond. See Note 2 of the
Notes to Consolidated Financial Statements on page 25 of the 1998 Annual
Report, which is incorporated herein by reference, for further acquisition
and merger information.
(b) Pre-acquisition amounts for Thompson Minwax Holding Corp. and Pratt &
Lambert United, Inc., acquired on January 7, 1997 and January 10, 1996,
respectively, using the purchase method of accounting, are not included.
Therefore, amounts are not comparable to 1996 and beyond. See Note 2 of the
Notes to
9
<PAGE> 11
Consolidated Financial Statements on page 25 of the 1998 Annual Report,
which is incorporated herein by reference, for further acquisition and
merger information.
(c) Amounts reflect adoption of Statement of Financial Accounting Standards No.
128, "Earnings Per Share", effective December 31, 1997. All amounts shown
for periods prior to adoption have been restated. See Note 1 and Note 15 of
the Notes to Consolidated Financial Statements on pages 24 and 33,
respectively, of the 1998 Annual Report, which are incorporated herein by
reference, for further per share information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is set forth on pages 12 through 17
of the 1998 Annual Report under the caption entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this item is set forth on page 14 of the 1998
Annual Report under the caption entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in Note 1 of the Notes to
Consolidated Financial Statements on page 24 of the 1998 Annual Report, which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on pages 20 through 33 of
the 1998 Annual Report under the captions entitled "Statements of Consolidated
Income," "Consolidated Balance Sheets," "Statements of Consolidated Cash Flows,"
"Statements of Consolidated Shareholders' Equity," and "Notes to Consolidated
Financial Statements," which is incorporated herein by reference. Unaudited
quarterly data is set forth in Note 14 of the Notes to Consolidated Financial
Statements on pages 32 and 33 of the 1998 Annual Report, which is incorporated
herein by reference. The Report of Independent Auditors is set forth on page 12
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors is set forth under the caption entitled
"Election of Directors" in the Proxy Statement, which is incorporated herein by
reference.
The information regarding Executive Officers is set forth under the caption
entitled "Executive Officers of the Registrant" in Part I of this report, which
is incorporated herein by reference.
The information regarding certain significant employees is set forth under
the captions entitled "Corporate Officers" and "Operating Managers" in the Proxy
Statement, which is incorporated herein by reference.
The information regarding compliance with Section 16 of the Securities
Exchange Act of 1934 is set forth under the caption entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement, which is
incorporated herein by reference.
10
<PAGE> 12
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth on pages 7 through 17 of
the Proxy Statement and under the captions entitled "Compensation of Directors"
and "Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is set forth under the captions
entitled "Security Ownership of Management" and "Security Ownership of Certain
Beneficial Owners" in the Proxy Statement, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C> <C>
(a) (1) Financial Statements
The following consolidated financial statements of the Company
included in the 1998 Annual Report are incorporated by reference in
Item 8. The Report of Independent Auditors is set forth on page 12
of this report.
(i) Statements of Consolidated Income for the years ended
December 31, 1998, 1997 and 1996 (page 20 of the 1998 Annual
Report)
(ii) Consolidated Balance Sheets at December 31, 1998, 1997 and
1996 (page 21 of the 1998 Annual Report)
(iii) Statements of Consolidated Cash Flows for the years ended
December 31, 1998, 1997 and 1996 (page 22 of the 1998 Annual
Report)
(iv) Statements of Consolidated Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996 (page 23 of the
1998 Annual Report)
(v) Notes to Consolidated Financial Statements for the years
ended December 31, 1998, 1997 and 1996 (pages 24 through 33
of the 1998 Annual Report)
(2) Financial Statement Schedule
Schedule No. II -- Valuation and Qualifying Accounts and
Reserves for the years ended December 31, 1998, 1997 and
1996 is set forth on page 12 of this report. All other
schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions
or are inapplicable and therefore have been omitted.
(3) Exhibits
See the Exhibit Index on page 15 of this report.
</TABLE>
(b) Reports on Form 8-K -- The Company filed a Current Report on Form 8-K, dated
November 6, 1998, reporting under Item 5 that T.A. Commes, President and
Chief Operating Officer and a member of the Board of Directors of the
Company, intends to retire in the spring of 1999.
11
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
The Sherwin-Williams Company
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of The
Sherwin-Williams Company and subsidiaries as of December 31, 1998, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Sherwin-Williams Company and subsidiaries at December 31, 1998, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 25, 1999
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(SCHEDULE II)
Changes in the allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 26,891 $ 22,631 $ 15,154
Bad debt expense 15,176 15,741 19,095
Net uncollectible accounts written off (16,674) (11,481) (11,618)
- --------------------------------------------------------------------------------------------
Ending balance $ 25,393 $ 26,891 $ 22,631
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Activity related to other asset reserves:
1998 1997 1996
- --------------------------------------------------------------------------------------------
Beginning balance $153,580 $111,921 $ 83,897
Charges to expense 52,103 49,499 28,838
Other additions (deductions) (2,077) (7,840) (814)
- --------------------------------------------------------------------------------------------
Ending balance $203,606 $153,580 $111,921
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
Charges to expense consist primarily of amortization of goodwill and
intangibles. Other additions (deductions) consist primarily of actual costs
incurred and balance sheet reclassifications and, in 1997, removal of
fully-amortized items.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 10th day of
March, 1999.
THE SHERWIN-WILLIAMS COMPANY
By: /s/ L. E. STELLATO
---------------------------------
L. E. Stellato, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on March 10, 1999.
<TABLE>
<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
* J. C. BOLAND Director
- -----------------------------------------------------------
J. C. Boland
* D. E. COLLINS Director
- -----------------------------------------------------------
D. E. Collins
* D. E. EVANS Director
- -----------------------------------------------------------
D. E. Evans
* R. W. MAHONEY Director
- -----------------------------------------------------------
R. W. Mahoney
* W. G. MITCHELL Director
- -----------------------------------------------------------
W. G. Mitchell
* A. M. MIXON, III Director
- -----------------------------------------------------------
A. M. Mixon, III
* C. E. MOLL Director
- -----------------------------------------------------------
C. E. Moll
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C>
* 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 10, 1999
- -----------------------------------------------------------
L. E. Stellato, Attorney-in-fact
</TABLE>
14
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<C> <C> <S>
3. (a) Amended Articles of Incorporation, as amended April 25,
1997, filed as Exhibit 3(i) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1997, and incorporated herein by reference.
(b) Regulations of the Company, as amended, dated April 27,
1988, filed as Exhibit 4(b) to Post-Effective Amendment No.
1, dated April 29, 1988, to Form S-8 Registration Statement
Number 2-91401, and incorporated herein by reference.
4. (a) Indenture between the Company and Chemical Bank, as Trustee,
dated as of February 1, 1996, filed as Exhibit 4(a) to Form
S-3 Registration Statement 333-01093, dated February 20,
1996, and incorporated herein by reference.
(b) 364-Day Revolving Credit Agreement, dated January 3, 1997,
between the Company, Texas Commerce Bank National
Association, as Administrative Agent, The Chase Manhattan
Bank, as Competitive Advance Facility Agent, and the
financial institutions which are signatories thereto, filed
as Exhibit 99.2 to Form 8-K, dated January 7, 1997, and
incorporated herein by reference.
(c) Amendment No. 2 to 364-Day Revolving Credit Agreement, dated
January 1, 1999, between the Company, Texas Commerce Bank
National Association, as Administrative Agent, The Chase
Manhattan Bank, as Competitive Advance Facility Agent, and
the financial institutions which are signatories thereto
(filed herewith).
(d) Five Year Revolving Credit Agreement, dated January 3, 1997,
between the Company, Texas Commerce Bank National
Association, as Administrative Agent, The Chase Manhattan
Bank, as Competitive Advance Facility Agent, and the
financial institutions which are signatories thereto, filed
as Exhibit 99.1 to Form 8-K, dated January 7, 1997, and
incorporated herein by reference.
(e) Amendment No. 2 to Five Year Revolving Credit Agreement,
dated January 3, 1999, between the Company, Texas Commerce
Bank National Association, as Administrative Agent, The
Chase Manhattan Bank, as Competitive Advance Facility Agent,
and the financial institutions which are signatories thereto
(filed herewith).
(f) Indenture between Sherwin-Williams Development Corporation,
as issuer, the Company, as guarantor, and Harris Trust and
Savings Bank, as Trustee, dated June 15, 1986, filed as
Exhibit 4(b) to Form S-3 Registration Statement Number
33-6626, dated June 20, 1986, and incorporated herein by
reference.
(g) Rights Agreement between the Company and The Bank of New
York, as successor Rights Agent to KeyBank National
Association, dated April 23, 1997, filed as Exhibit 1 to
Form 8-A, dated April 24, 1997, and incorporated herein by
reference.
10. *(a) Form of Director and Corporate Officer Indemnity Agreement
filed as Exhibit 10(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, and
incorporated herein by reference.
*(b) Employment Agreements with J.G. Breen, T.A. Commes and C.G.
Ivy filed as Exhibit 28(b) to Form S-3 Registration
Statement Number 33-22705, dated June 24, 1988, and
incorporated herein by reference.
*(c) Amendments to Employment Agreements with J.G. Breen, T.A.
Commes and C.G. Ivy filed as Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and incorporated herein by reference.
*(d) Agreement (covenant not to compete), dated November 13,
1999, between the Company and T.A. Commes (filed herewith).
</TABLE>
15
<PAGE> 17
<TABLE>
<C> <C> <S>
*(e) Forms of Severance Pay Agreements, filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997, and incorporated
herein by reference.
*(f) Schedule of Certain Executive Officers who are Parties to
the Severance Pay Agreements in the forms referred to in
Exhibit 10(e) filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1998, and incorporated herein by reference.
*(g) The Sherwin-Williams Company Deferred Compensation Savings
Plan filed as Exhibit 10(d) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991,
and incorporated herein by reference.
*(h) Amendment No. 1 to The Sherwin-Williams Company Deferred
Compensation Savings Plan filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and incorporated herein by
reference.
*(i) The Sherwin-Williams Company Key Management Deferred
Compensation Plan (1994 Amendment and Restatement) filed as
Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, and
incorporated herein by reference.
*(j) Form of Executive Disability Income Plan filed as Exhibit
10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, and incorporated herein
by reference.
*(k) Form of Executive Life Insurance Plan filed as Exhibit 10(h)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991, and incorporated herein by
reference.
*(l) Form of The Sherwin-Williams Company Management Compensation
Program filed as Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994, and incorporated herein by reference.
*(m) The Sherwin-Williams Company 1994 Stock Plan, as amended and
restated in its entirety, effective April 23, 1997, filed as
Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997, and
incorporated herein by reference.
*(n) The Sherwin-Williams Company 1997 Stock Plan for Nonemployee
Directors, dated April 23, 1997, filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997, and incorporated
herein by reference.
*(o) The Sherwin-Williams Company Director Deferred Fee Plan
(1997 Amendment and Restatement), dated April 23, 1997,
filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1997, and
incorporated herein by reference.
*(p) Split-Dollar Agreement, dated March 25, 1996, among the
Company, National City Bank and John G. and Mary Breen filed
as Exhibit 10(q) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, and
incorporated herein by reference.
*(q) The Sherwin-Williams Company Estate Protection Plan Trust,
dated November 15, 1996, between the Company and National
City Bank filed as Exhibit 10(r) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, and incorporated herein by reference.
13. Portions of the 1998 Annual Report to Shareholders
incorporated herein by reference (filed herewith).
21. Subsidiaries (filed herewith).
23. Consent of Ernst & Young LLP, Independent Auditors (filed
herewith).
24. Powers of Attorney (filed herewith).
27. Financial Data Schedule.
*Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
</TABLE>
16
<PAGE> 1
EXHIBIT 4(c)
AMENDMENT NO. 2
TO
364-DAY REVOLVING CREDIT AGREEMENT
This Amendment No. 2 to 364-Day Revolving Credit Agreement
("Amendment") is made and entered into as of this 1st day of January, 1999, by
and among The Sherwin-Williams Company ("Company"), whose principal place of
business is located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas
Commerce Bank National Association ("TCB"), as Administrative Agent, The Chase
Manhattan Bank ("Chase"), as the Competitive Advance Facility Agent, and the
financial institutions listed on Schedule A hereto together with each of their
successors and assigns (collectively referred to as the "Lenders" and
individually a "Lender").
W I T N E S S E T H:
--------------------
WHEREAS, the Company, TCB, Chase, the Lenders and/or certain other
financial institutions entered into that certain 364-Day Revolving Credit
Agreement, dated January 3, 1997 ("Agreement"), pursuant to which the Lenders
and/or certain other financial institutions agreed, on the terms and subject to
the conditions contained therein, to make available to the Company the principal
amount of Two Hundred Ninety Million Dollars ($290,000,000) to be used by the
Company as provided in the Agreement; and
WHEREAS, the Agreement was amended ("Amended Agreement") on March 31,
1997; and
WHEREAS, Company has been notified by the following financial
institutions that were "Lenders" under the Amended Agreement that their
Commitments shall terminate effective January 1, 1999: (i) The Fuji Bank
Limited, (ii) The First National Bank of Boston and (iii) The Long-Term Credit
Bank of Japan, Ltd.; and
WHEREAS, the Company, TCB, Chase and the Lenders desire to amend the
Amended Agreement to: (i) reduce the aggregate Commitments of the Lenders, and
the aggregate principal amount of the Facility, to an amount not to exceed One
Hundred Forty Seven Million Two Hundred Thousand and 00/100 Dollars
($147,200,000), (ii) increase or decrease, as the case may be, the Commitments
of the Lenders as provided on attached Schedule A, (iii) accept the election of
The Fuji Bank Limited, The First National Bank of Boston and The Long-Term
Credit Bank of Japan, Ltd. to withdraw as Lenders from the Facility effective
January 1, 1999, (iv) add Fifth Third Bank as a Lender, and (v) revise the list
of Lenders.
NOW, THEREFORE, in consideration of the mutual promises contained
herein the parties agree as follows:
1. All capitalized terms used in this Amendment but not otherwise defined
herein shall have the meanings prescribed such terms in the Agreement.
<PAGE> 2
2. The Commitments and Percentages set forth on Schedule A to the Amended
Agreement shall be deleted and the Commitments and Percentages set
forth on Schedule A hereto shall be substituted in lieu thereof.
3. Fifth Third Bank shall be added to the Facility as a Lender.
4. The aggregate amount of the Commitments, and the aggregate amount of
the Facility, shall not exceed One Hundred Forty Seven Million Two
Hundred Thousand and 00/100 Dollars ($147,200,000) unless otherwise
agreed to by the parties.
5. The Company represents to each of TCB, Chase and the Lenders that there
are no Loans outstanding under the Facility as of the date hereof.
6. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and when
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date indicated above.
THE SHERWIN-WILLIAMS COMPANY
By: /s/
-----------------------------
CYNTHIA D. BROGAN
Title: VICE PRESIDENT AND ASSISTANT
TREASURER
The signature pages of each of TCB, Chase and the Lenders are attached hereto.
2
<PAGE> 3
SCHEDULE A/364-DAY
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF TERMINATION
INSTITUTION COMMITMENT COMMITMENT DATE
- ----------- ---------- ------------- -----------
<S> <C> <C> <C>
Chase Bank of Texas, N.A. $10,000,000.00 6.79% 12/31/99
First Union National Bank of North Carolina $10,000,000.00 6.79% 12/31/99
Bank of New York $10,000,000.00 6.79% 12/31/99
Bank of America $10,000,000.00 6.79% 12/31/99
Key Bank N.A. $10,000,000.00 6.79% 12/31/99
Bank One Corporation $10,000,000.00 6.79% 12/31/99
National City Bank $10,000,000.00 6.79% 12/31/99
Suntrust Bank, Atlanta $10,000,000.00 6.79% 12/31/99
ABN Amro Bank N.V. $10,000,000.00 6.79% 12/31/99
The Bank of Nova Scotia $ 7,600,000.00 5.16% 12/31/99
Royal Bank of Canada $ 7,600,000.00 5.16% 12/31/99
Wachovia Bank $ 7,600,000.00 5.16% 12/31/99
Wells Fargo Bank $ 7,600,000.00 5.16% 12/31/99
PNC Bank, N.A. $ 7,600,000.00 5.16% 12/31/99
Bank of Tokyo-Mitsubishi $ 4,800,000.00 3.26% 12/31/99
Banca Commerciale Italiana $ 4,800,000.00 3.26% 12/31/99
Fifth Third Bank $ 4,800,000.00 3.26% 12/31/99
Mellon Bank, N.A. $ 4,800,000.00 3.26% 12/31/99
Total $147,200,000.00 100%
</TABLE>
3
<PAGE> 4
The Chase Manhattan Bank,
as the Competitive Advance Facility Agent
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
Date:
----------------------------------------
4
<PAGE> 5
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$4,800,000 3.26%
The Bank of Tokyo-Mitsubishi, Ltd.
Chicago Branch
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd.
Chicago Branch
227 W. Monroe St., Suite 2300
Chicago, IL 60606
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
5
<PAGE> 6
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$4,800,000 3.26%
Banca Commerciale Italiana
Chicago Branch
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Banca Commerciale Italiana
Chicago Branch
150 N. Michigan Ave., Suite 1500
Chicago, IL 60601
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
6
<PAGE> 7
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
Chase Bank of Texas, N.A.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Chase Bank of Texas, N.A.
707 Travis Street
Houston, TX 77002
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
7
<PAGE> 8
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$4,800,000 3.26%
Fifth Third Bank hereby agrees to each of the terms and conditions of that
certain 364-Day Revolving Credit Agreement ("Agreement") dated as of January 3,
1997 as amended on March 31, 1997 and January 3, 1999, by and among The
Sherwin-Williams Company ("Company"), whose principal place of business is
located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas Commerce Bank
National Association, as Administrative Agent, The Chase Manhattan Bank as the
Competitive Advance Facility Agent, and the financial institutions listed on
Schedule A to that certain amendment to the Agreement dated January 3, 1999, a
copy of which has been delivered by the Company to Fifth Third Bank.
Fifth Third Bank
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
8
<PAGE> 9
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$7,600,000 5.16%
PNC Bank N.A.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
9
<PAGE> 10
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
First Union National Bank of North Carolina
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
First Union National Bank of North Carolina
301 South College Street
Charlotte, NC 28288
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
10
<PAGE> 11
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
National City Bank
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
National City Bank
1900 E. Ninth Street
Cleveland, OH 44114-3484
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
11
<PAGE> 12
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$7,600,000 5.16%
Wachovia Bank of Georgia, N.A.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Wachovia Bank of Georgia, N.A.
191 Peachtree St., N.E.
Atlanta, GA 30303
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
12
<PAGE> 13
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
The First National Bank of Chicago
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
13
<PAGE> 14
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
The Bank of New York
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
The Bank of New York
One Wall Street
New York, NY 10286
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
14
<PAGE> 15
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
SunTrust Bank, Atlanta
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
SunTrust Bank, Atlanta
25 Park Place
Atlanta, GA 30303
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
15
<PAGE> 16
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$4,800,000 3.26%
Mellon Bank, N.A.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
16
<PAGE> 17
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$7,600,000 5.16%
The Bank of Nova Scotia
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
The Bank of Nova Scotia
600 Peachtree Street NE., Suite 2700
Atlanta, GA 30308
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
17
<PAGE> 18
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$7,600,000 5.16%
Wells Fargo Bank, N.A.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Wells Fargo Bank, N.A.
707 Wilshire Blvd., 16th Floor
Los Angeles, CA 90017
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
18
<PAGE> 19
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
ABN AMRO Bank N.V.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
ABN Amro Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
19
<PAGE> 20
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
KeyBank National Association
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
KeyBank National Association
127 Public Square
Mail Code: OH 01-27-0606
Cleveland, OH 44114-1306
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
20
<PAGE> 21
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$10,000,000 6.79%
Nationsbank, N.A.
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
21
<PAGE> 22
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$7,600,000 5.16%
Royal Bank of Canada
By: /s/
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Royal Bank of Canada
1 Liberty Plaza, 5th Floor
New York, NY 10006-1404
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
22
<PAGE> 1
EXHIBIT 4(e)
AMENDMENT NO. 2
TO
FIVE YEAR REVOLVING CREDIT AGREEMENT
This Amendment No. 2 to Five Year Revolving Credit Agreement
("Amendment") is made and entered into as of the 3rd day of January, 1999, by
and among The Sherwin-Williams Company ("Company"), whose principal place of
business is located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas
Commerce Bank National Association ("TCB"), as Administrative Agent, The Chase
Manhattan Bank ("Chase"), as the Competitive Advance Facility Agent, and the
financial institutions listed on Schedule A hereto together with each of their
successors and assigns (collectively referred to as the "Lenders" and
individually a "Lender").
W I T N E S S E T H:
WHEREAS, the Company, TCB, Chase, the Lenders and certain other
financial institutions entered into that certain Five Year Revolving Credit
Agreement, dated January 3, 1997 ("Agreement"), pursuant to which the Lenders
and/or certain other financial institutions agreed, on the terms and subject to
the conditions contained therein, to make available to the Company the principal
amount of One Billion One Hundred Sixty Million Dollars ($1,160,000,000) to be
used by the Company as provided in the Agreement; and
WHEREAS, the Agreement was amended ("Amended Agreement") on March 31,
1997; and
WHEREAS, Company has timely notified the following financial
institutions that were "Lenders" under the Agreement that their Commitments have
been terminated effective January 3, 1999: (i) The Fuji Bank Limited, (ii) The
Long-Term Credit Bank of Japan, Ltd., (iii) the Bank of Montreal and (iv) CIBC,
Inc.
WHEREAS, the Company, TCB, Chase and the Lenders desire to amend the
Amended Agreement to: (i) reduce the aggregate Commitments of the Participants,
and the aggregate principal amount of the Facility, to an amount not to exceed
Six Hundred Twelve Million Eight Hundred Thousand and 00/100 Dollars
($612,800,000), (ii) increase or decrease, as the case may be, the Commitments
of certain of the Lenders as provided on attached Schedule A, (iii) reflect that
the Commitments of The Fuji Bank Limited, The Long-Term Credit Bank of Japan,
Ltd., the Bank of Montreal and CIBC, Inc. shall terminate effective January 3,
1999, (iv) add Fifth Third Bank as a Lender, and (v) revise the list of Lenders.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises contained
herein the parties agree as follows:
1. All capitalized terms used in this Amendment and not otherwise defined
herein shall have the meanings prescribed such terms in the Agreement.
2. The Commitments and Percentages set forth on Schedule A attached to the
Amended Agreement shall be deleted and the Commitments and Percentages
set forth on Schedule A attached hereto shall be substituted in lieu
thereof.
3. Effective January 3, 1999, Fifth Third Bank shall be added to the
Facility as a Lender.
4. The aggregate amount of the Commitments, and the aggregate amount of
the Facility, shall not exceed Six Hundred Twelve Million Eight Hundred
Thousand and 00/100 Dollars ($612,800,000) unless otherwise agreed to
by the parties.
5. The Company represents to each of TCB, Chase and the Lenders that there
are no Loans outstanding under the Facility as of the date hereof.
6. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and when
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date indicated above.
THE SHERWIN-WILLIAMS COMPANY
By: /s/
--------------------------------
CYNTHIA D. BROGAN
Title: VICE PRESIDENT AND ASSISTANT
TREASURER
2
<PAGE> 3
SCHEDULE A/5-YEAR
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF TERMINATION
INSTITUTION COMMITMENT COMMITMENT DATE
- ----------- ------------ ------------- ----------
<S> <C> <C> <C>
Chase Bank of Texas, N.A. $40,000,000.00 6.53% 01/03/2004
First Union National Bank of North Carolina $40,000,000.00 6.53% 01/03/2004
Bank of New York $40,000,000.00 6.53% 01/03/2004
Bank of America $40,000,000.00 6.53% 01/03/2004
Key Bank N.A. $40,000,000.00 6.53% 01/03/2004
Bank One Corporation $40,000,000.00 6.53% 01/03/2004
National City Bank $40,000,000.00 6.53% 01/03/2004
Suntrust Bank, Atlanta $40,000,000.00 6.53% 01/03/2004
ABN Amro Bank N.V. $40,000,000.00 6.53% 01/03/2004
Royal Bank of Canada $30,400,000.00 4.96% 01/03/2004
Wachovia Bank $30,400,000.00 4.96% 01/03/2004
Wells Fargo Bank $30,400,000.00 4.96% 01/03/2004
Banca Commerciale Italiana $19,200,000.00 3.13% 01/03/2004
Fifth Third Bank $19,200,000.00 3.13% 01/03/2004
Mellon Bank, N.A. $19,200,000.00 3.13% 01/03/2004
The Bank of Nova Scotia $30,400,000.00 4.96% 01/03/2003
PNC Bank, N.A. $30,400,000.00 4.96% 01/03/2003
The First National Bank of Boston $24,000,000.00 3.92% 01/03/2003
Bank of Tokyo-Mitsubishi $19,200,000.00 3.13% 01/03/2003
Total $612,800,000.00 100%
</TABLE>
3
<PAGE> 4
The Chase Manhattan Bank,
as the Competitive Advance Facility Agent
By: /s/
---------------------------------------------------
Name:
---------------------------------------------------
Title:
---------------------------------------------------
Date:
---------------------------------------------------
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Telephone:
---------------------------------------------------
Facsimile:
---------------------------------------------------
Date:
---------------------------------------------------
4
<PAGE> 5
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$19,200,000 3.13%
The Bank of Tokyo-Mitsubishi, Ltd.
Chicago Branch
By: /s/
-------------------------------------------------------
Name:
----------------------------------------------------
Title:
----------------------------------------------------
Date:
----------------------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd.
Chicago Branch
227 W. Monroe St., Suite 2300
Chicago, IL 60606
Telephone:
------------------------------------------------
Facsimile:
------------------------------------------------
5
<PAGE> 6
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$19,200,000 3.13%
Banca Commerciale Italiana
Chicago Branch
By: /s/
------------------------------------------------------
Name:
----------------------------------------------------
Title:
---------------------------------------------------
By: /s/
------------------------------------------------------
Name:
----------------------------------------------------
Title:
---------------------------------------------------
Banca Commerciale Italiana
Chicago Branch
150 N. Michigan Ave., Suite 1500
Chicago, IL 60601
Telephone:
-----------------------------------------------
Facsimile:
-----------------------------------------------
6
<PAGE> 7
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53%
Chase Bank of Texas, N.A.
By: /s/
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
7
<PAGE> 8
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$19,200,000 3.13%
Fifth Third Bank hereby agrees to each of the terms and conditions of that
certain Five Year Revolving Credit Agreement ("Agreement") dated as of January
3, 1997 as amended on March 31, 1997 and January 3, 1999, by and among The
Sherwin-Williams Company ("Company"), whose principal place of business is
located at 101 Prospect Avenue, N.W., Cleveland, Ohio 44115, Texas Commerce Bank
National Association, as Administrative Agent, The Chase Manhattan Bank as the
Competitive Advance Facility Agent, and the financial institutions listed on
Schedule A to that certain amendment to the Agreement dated January 3, 1999, a
copy of which has been delivered by the Company to Fifth Third Bank.
Fifth Third Bank
By: /s/
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Telephone:
---------------------------------
Facsimile:
---------------------------------
8
<PAGE> 9
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,400,000 4.96%
PNC Bank, National Association
By: /s/
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
PNC Bank, National Association
249 Fifth Ave., 2nd Floor
Pittsburgh, PA 15222
Telephone:
-------------------------------------
Facsimile:
-------------------------------------
9
<PAGE> 10
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53%
First Union National Bank of North Carolina
By: /s/
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
First Union National Bank of North Carolina
301 South College Street
Charlotte, NC 28288
Telephone:
------------------------------------
Facsimile:
------------------------------------
10
<PAGE> 11
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53% National City Bank
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
National City Bank
1900 E. Ninth Street
Cleveland, OH 44114-3484
Telephone:
-------------------------------
Facsimile:
-------------------------------
11
<PAGE> 12
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,400,000 4.96% Wachovia Bank of Georgia, N.A.
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
----------------------------------
Wachovia Bank of Georgia, N.A.
191 Peachtree St., N.E.
Atlanta, GA 30303
Telephone:
-------------------------------
Facsimile:
-------------------------------
12
<PAGE> 13
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53% The First National Bank of Chicago
By: /s/
-------------------------------------
Name:
------------------------------------
Title:
----------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
13
<PAGE> 14
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53% The Bank of New York
By: /s/
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
The Bank of New York
One Wall Street
New York, NY 10286
Telephone:
-------------------------------
Facsimile:
-------------------------------
14
<PAGE> 15
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$24,000,000 3.92% Bank Boston, N.A.
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
----------------------------------
Bank Boston, N.A.
100 Federal Street, 01-09-05
Boston, MA 02110
Telephone:
-------------------------------
Facsimile:
-------------------------------
15
<PAGE> 16
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.539% SunTrust Bank, Atlanta
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SunTrust Bank, Atlanta
25 Park Place
Atlanta, GA 30303
Telephone:
-------------------------------
Facsimile:
-------------------------------
16
<PAGE> 17
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$19,200,000 3.13% Mellon Bank, N.A.
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Telephone:
--------------------------------
Facsimile:
--------------------------------
17
<PAGE> 18
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,400,000 4.96% The Bank of Nova Scotia
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
----------------------------------
The Bank of Nova Scotia
600 Peachtree Street NE., Suite 2700
Atlanta, GA 30308
Telephone:
-------------------------------
Facsimile:
-------------------------------
18
<PAGE> 19
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,400,000 4.96% Wells Fargo Bank, N.A.
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Wells Fargo Bank, N.A.
707 Wilshire Blvd., 16th Floor
Los Angeles, CA 90017
Telephone:
------------------------------
Facsimile:
------------------------------
19
<PAGE> 20
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53% ABN AMRO Bank N.V.
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ABN Amro Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Telephone:
-------------------------------
Facsimile:
------------------------------
20
<PAGE> 21
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53% KeyBank National Association
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
KeyBank National Association
127 Public Square
Mail Code: OH 01-27-0606
Cleveland, OH 44114-1306
Telephone:
-------------------------------
Facsimile:
------------------------------
21
<PAGE> 22
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$40,000,000 6.53% Nationsbank, N.A.
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
----------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
22
<PAGE> 23
Amount of Percentage of
Commitment Commitments
- ---------- -----------
$30,400,000 4.96% Royal Bank of Canada
By: /s/
--------------------------------------
Name:
------------------------------------
Title:
----------------------------------
Royal Bank of Canada
1 Liberty Plaza, 5th Floor
New York, NY 10006-1404
Telephone:
-------------------------------
Facsimile:
-------------------------------
23
<PAGE> 1
EXHIBIT 10(d)
AGREEMENT
This Agreement is entered into this 13th day of November, 1999, by and
between The Sherwin-Williams Company ("Sherwin-Williams") and Thomas A. Commes
(hereinafter "Commes").
RECITALS:
---------
A. Commes has decided to retire from his position with Sherwin-Williams;
and
B. Sherwin-Williams desires to enter into a covenant not to compete with
Commes and to obtain certain releases from Commes.
NOW THEREFORE, in consideration of the promises set forth herein and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. CONSIDERATION. In consideration of Commes entering into the covenant
not to compete set forth in Section 2 hereof and the releases set forth
in Section 3 hereof, Sherwin-Williams agrees as follows:
a. As soon as practicable following your retirement,
Sherwin-Williams shall pay Commes, in a lump sum, the amount
of Thirty Four Thousand and 00/100 Dollars ($34,000.00); and
b. With respect to the Restricted Stock granted under the 1994
Stock Plan pursuant to the Amended and Restated Restricted
Stock Grant with a Date of Vesting of January 28, 2001, the
number of shares of Restricted Stock granted thereunder shall
be prorated to fifty percent (50%) of such number, that being
the portion of the Restriction Period completed as of the date
of Commes' retirement. Thereafter, all of Commes' rights to
the prorated Restricted Stock shall be determined in
accordance with such Amended and Restated Restricted Stock
Grant.
2. COVENANT NOT TO COMPETE. For a period of two (2) years commencing on
March 17, 1999 and ending on March 16, 2001, Commes agrees that he will
not, directly or indirectly, as principal, agent, employer, employee,
shareholder (except ownership of less than one percent (1%) of the
number of shares outstanding of any securities which are listed for
trading on any securities exchange), partner, director or otherwise
engage or be interested in any business engaged in the manufacture or
sale of paint, coatings or other products that are intended to be
marketed in competition with paint, coatings or other products
manufactured and sold by Sherwin-Williams, its affiliates or
subsidiaries
1
<PAGE> 2
anywhere in the world. If Commes violates the provisions of this
Section 2, Commes agrees that: (1) Sherwin-Williams shall be entitled
to obtain a court order preventing Commes from continuing such
violations; (2) all obligations of Sherwin-Williams pursuant to Section
1(b) above shall terminate and Sherwin-Williams shall have no
obligation to deliver any shares pursuant to the Restricted Stock Grant
described therein; and (3) Sherwin-Williams shall have the right to
pursue all other legal and equitable remedies which may be available.
The parties hereto further acknowledge and agree that the scope of this
Section 2 is fair and reasonable in light of Commes' position with
Sherwin-Williams and the nature and scope of Sherwin-Williams'
international business operations; provided however, it is the mutual
intention of the parties hereto, that if a court should determine that
the scope of this Section 2 is too broad in any manner, then the court
should narrow its effectiveness to the broadest extent permitted by law
and enforce the provisions of this Section 2 as narrowed.
3. RELEASE. SHERWIN-WILLIAMS, ON BEHALF OF ITSELF, ITS CURRENT OR FORMER
SUBSIDIARIES, THEIR DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES,
AGENTS, REPRESENTATIVES, INSURERS, SUCCESSORS AND ASSIGNS AND COMMES,
ON BEHALF OF HIMSELF, HIS HEIRS, AGENTS, SUCCESSORS, ASSIGNS AND
REPRESENTATIVES, HEREBY MUTUALLY WAIVE, RELEASE AND DISCHARGE EACH
OTHER (AND THE PERSONS AND ORGANIZATIONS PREVIOUSLY IDENTIFIED IN THIS
SENTENCE), WITH RESPECT TO ANY AND ALL CAUSES OF ACTION, CLAIMS,
LIABILITIES AND DEMANDS OF ANY NATURE, WHETHER KNOWN OR UNKNOWN,
RESULTING FROM OR BASED UPON, DIRECTLY OR INDIRECTLY, HIS EMPLOYMENT
RELATIONSHIP OR CONDUCT WITH THE ABOVE DESCRIBED PARTIES AND WITH
RESPECT TO COMMES INCLUDING, BUT NOT LIMITED TO, ANY ACTIONS, CLAIMS,
LIABILITIES OR DEMANDS CONCERNING, BASED UPON OR ARISING OUT OF THE
EMPLOYMENT AGREEMENT BETWEEN THE PARTIES DATED MARCH 16, 1979, AS
AMENDED BY THE AMENDMENT TO EMPLOYMENT AGREEMENT DATED FEBRUARY 22,
1996, ANY ALLEGED WRONGFUL TERMINATION, BREACH OF EMPLOYMENT CONTRACT,
BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING,
DEFAMATION, WORKERS' COMPENSATION, INTENTIONAL OR NEGLIGENT INFLICTION
OF EMOTIONAL DISTRESS, OR DISCRIMINATION BASED ON RACE, NATIONAL
ORIGIN, SEX, RELIGION, AGE OR HANDICAP, (INCLUDING, WITHOUT LIMITATION,
CLAIMS OR RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
AS AMENDED OR SIMILAR STATE LAWS). THIS RELEASE DOES NOT COVER ANY
RIGHTS EMPLOYEE MAY HAVE TO RECEIVE BENEFITS PURSUANT TO THE TERMS AND
CONDITIONS OF THE SHERWIN-WILLIAMS COMPANY SALARIED EMPLOYEES' REVISED
PENSION INVESTMENT PLAN, THE SHERWIN- WILLIAMS COMPANY EMPLOYEE STOCK
PURCHASE AND SAVINGS PLAN, THE SHERWIN-WILLIAMS COMPANY DEFERRED
COMPENSATION SAVINGS PLAN, THE SHERWIN-WILLIAMS COMPANY KEY MANAGEMENT
DEFERRED COMPENSATION PLAN AND THE SHERWIN-WILLIAMS COMPANY PENSION
INVESTMENT EQUALIZATION PLAN.
2
<PAGE> 3
4. ENTIRETY. This Agreement embodies the entire understanding and
agreement between the parties relative to the subject matter hereof.
Conditions and representations, oral or written, expressed or implied,
with reference to the subject matter hereof, that are inconsistent with
this Agreement shall be of no force or effect unless agreed to in
writing and signed by both parties hereto.
5. RIGHT TO REVIEW. Commes represents and agrees that:
a. He fully understands his right to have this Agreement reviewed
by and to discuss all aspects of this Agreement with his
private attorney and that to the extent, if any, he desires,
he has availed himself of this right;
b. He has been given a period of not less than twenty-one (21)
days to review and consider this Agreement and he may use as
much of this twenty-one (21) day period as he desires prior to
signing it;
c. He is voluntarily entering into this Agreement; and
d. He may revoke this agreement during the seven (7) day period
immediately following the date he executes it.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
THE SHERWIN-WILLIAMS COMPANY
By: /s/ T.E. Hopkins By: /s/ Thomas A Commes
Title: Vice President - Human Resources Printed Name: Thomas A. Commes
3
<PAGE> 1
EXHIBIT 13
PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS (PAGES 10 - 17, 20 - 33, 35)
NOTES TO FINANCIAL TABLE
Operating profit is total revenue, including realized profit on
intersegment transfers less operating costs and expenses. Corporate expenses
include interest which is unrelated to real estate leasing activities, certain
provisions for disposition and termination of operations and environmental
remediation which are not directly associated with any operating segment, and
other adjustments.
Identifiable assets are those directly identified with each segment's
operations. Corporate assets consist primarily of cash, investments, deferred
pension assets and headquarters property, plant and equipment.
The operating margin for each segment is based upon total external
sales and intersegment transfers. Intersegment transfers are accounted for at
values comparable to normal unaffiliated customer sales.
Net external sales and operating profits of consolidated foreign
subsidiaries were $521 million and $47 million, and $523 million and $55
million, respectively, for 1998 and 1997. Domestic operations account for the
remaining net sales and operating profits. Long-lived assets consist of net
property, plant and equipment, goodwill, and intangibles. Long-lived assets of
consolidated foreign subsidiaries totaled $312 million and $320 million,
respectively, at December 31, 1998 and 1997. The consolidated total of
long-lived assets for the Company was $2,134 million and $2,164 million at
December 31, 1998 and 1997, respectively. Corporate expenses do not include any
significant foreign operations. No single geographic area outside the United
States was significant relative to consolidated net external sales or operating
profits. Consolidated foreign operations were not material for any year prior to
1997.
Export sales and sales to any individual customer were each less than
10 percent of consolidated sales to unaffiliated customers during all years
presented.
10
<PAGE> 2
================================================================================
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
NET EXTERNAL SALES
<S> <C> <C> <C> <C> <C>
Paint Stores $ 2,786 $ 2,605 $ 2,410 $ 2,131 $ 1,986
Coatings 2,135 2,264 1,709 1,129 1,100
Other 13 12 14 14 14
------- ------- ------- ------- -------
Segment totals $ 4,934 $ 4,881 $ 4,133 $ 3,274 $ 3,100
OPERATING PROFITS
Paint Stores $ 249 $ 225 $ 206 $ 158 $ 141
Coatings 322 345 260 202 201
Other 14 12 13 13 8
Corporate expenses-net (145) (155) (104) (55) (51)
------- ------- ------- ------- -------
Income before income taxes $ 440 $ 427 $ 375 $ 318 $ 299
IDENTIFIABLE ASSETS
Paint Stores $ 725 $ 689 $ 634 $ 550 $ 517
Coatings 2,699 2,711 1,764 846 757
Other 76 73 45 45 44
Corporate 565 563 552 700 644
------- ------- ------- ------- -------
Consolidated totals $ 4,065 $ 4,036 $ 2,995 $ 2,141 $ 1,962
CAPITAL EXPENDITURES
Paint Stores $ 40 $ 27 $ 40 $ 29 $ 26
Coatings 84 114 68 68 46
Other 4 9 3 4 1
Corporate 18 14 12 7 6
------- ------- ------- ------- -------
Consolidated totals $ 146 $ 164 $ 123 $ 108 $ 79
DEPRECIATION
Paint Stores $ 29 $ 28 $ 26 $ 24 $ 23
Coatings 58 52 40 31 30
Other 4 3 3 2 3
Corporate 7 7 7 6 5
------- ------- ------- ------- -------
Consolidated totals $ 98 $ 90 $ 76 $ 63 $ 61
OPERATING MARGINS
Paint Stores 8.9% $ 8.7% 8.6% 7.4% 7.1%
Coatings 9.9% 10.5% 9.9% 10.5% 11.1%
Other 38.9% 37.1% 38.4% 39.1% 26.2%
------- ------- ------- ------- -------
Segment totals 9.6% 9.9% 9.4% 9.1% 9.1%
INTERSEGMENT TRANSFERS
Coatings $ 1,125 $ 1,015 $ 924 $ 801 $ 720
Other 24 21 21 19 18
------- ------- ------- ------- -------
Segment totals $ 1,149 $ 1,036 $ 945 $ 820 $ 738
</TABLE>
11
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - 1998
Net operating cash flow generated by the Company during 1998 was $478.5
million. This cash flow provided the funds to invest in property, plant and
equipment, reduce total debt, acquire treasury stock, and increase the annual
dividend. The Company's current ratio increased to 1.39 at December 31, 1998
from 1.37 at the end of 1997. The Company's Consolidated Balance Sheets and
Statements of Consolidated Cash Flows, on pages 21 and 22 of this report,
provide more detailed information on the Company's financial position and cash
flows.
There were no short-term borrowings outstanding at December 31, 1998.
Short-term borrowings outstanding at December 31, 1997 of $106.9 million,
primarily related to the Company's commercial paper program, were paid in 1998.
The commercial paper program had unused borrowing availability of $1.0 billion
at December 31, 1998. Borrowings under the commercial paper program are fully
backed by and limited to the borrowing availability under the Company's
revolving credit agreements which aggregated $760.0 million effective January 1,
1999.
The increase in the current portion of long-term debt was due primarily
to the reclassification of debt securities of $50.0 million, due October 15,
2027, which allow the holders to exercise a put option beginning on October 15,
1999. Inventories decreased $39.1 million due to planned reductions associated
with the Coatings Segment's sales decline in 1998. Increases in other components
of net working capital, which occurred during 1998, were primarily due to
timing.
Deferred pension assets of $304.0 million at December 31, 1998
represent the excess of the fair market value of the assets in the Company's
defined benefit pension plans over the actuarially-determined projected benefit
obligations. The 1998 increase in deferred pension assets of $27.9 million
represents primarily the recognition of the current year net pension credit,
described in Note 6 on pages 27 and 28 of this report, and the recording of a
settlement of a portion of the accumulated benefit obligations in two of its
defined benefit pension plans. The assumed discount rate used to compute the
actuarial present value of benefit obligations was lowered to 6.75 percent at
December 31, 1998 due to decreased rates of high-quality, long-term investments,
thereby increasing the benefit obligations and decreasing the unrecognized net
gain of the plans. The increase in the actual return on plan assets during 1998
over the assumed return of 8.5 percent was primarily the result of favorable
returns on equity investments. A portion of the increase was deferred which
caused an offsetting increase to the cumulative unrecognized net gain of the
plans. The net effect of these deferred items, combined with an increased asset
base, will increase the pension credit in 1999.
Goodwill, which represents the excess of cost over the fair value of
net assets acquired in purchase business combinations, decreased $38.0 million,
and intangible assets, which represent items such as trademarks and patents,
decreased $18.5 million from 1997. These decreases related primarily to
amortization expense of $50.1 million. Balance sheet reclassifications and other
adjustments to the value of assets acquired during 1997 of $6.4 million further
reduced goodwill and intangible assets. The increase in other assets of $16.6
million was primarily due to the capitalization of costs incurred related to
designing, developing, obtaining, and implementing internal use software in
accordance with Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use". Increases in other
investments, partially offset by the sale of the Company's joint venture
interest in American Standox, Inc., accounted for the remaining change in other
assets.
Net property, plant and equipment increased $26.6 million to $718.9
million at December 31, 1998 due to capital expenditures of $146.1 million,
offset by depreciation expense of $97.8 million and provisions for disposition
or retirement of certain assets. Capital expenditures in 1998 represented
primarily the costs of installing or upgrading customer service hardware in the
paint stores, upgrading and installing other computer hardware, and the
construction, capacity expansion or upgrade of manufacturing and distribution
centers. The increase in capital expenditures during 1998 in the Paint Stores
Segment was primarily attributable to increased new store openings and the
purchase and installation of state-of-the-art satellite and communication
systems used to improve customer service and merchandise management. The
Coatings Segment's decrease in capital expenditures during 1998 primarily
related to the volume of construction costs incurred in 1997 for three powder
coatings facilities, a manufacturing facility in Brazil, and a distribution
center in Nevada. These facilities were completed and placed in service in 1998.
Capital expenditures in the Other Segment decreased due to reduced property
refurbishing spending. In 1999, the Company expects that its most significant
capital expenditures will relate to construction or acquisition of a new
research and development technical lab facility, various capacity and
productivity improvement projects at manufacturing facilities, and new or
upgraded information systems equipment. The Company does not anticipate the need
for any specific long-term external financing to support these capital programs.
Long-term debt decreased $113.6 million during the year to $730.3
million at December 31, 1998, resulting primarily from principal payments and
current maturities. The Company filed a new universal shelf registration
statement to issue debt securities, common stock, and warrants of up to $1.5
billion. No securities have been issued pursuant to this shelf registration. The
Company expects to remain in a borrowing position throughout 1999.
12
<PAGE> 4
The increase in the Company's long-term postretirement benefit
liability occurred due to the excess of the net postretirement benefit expense
over the costs for benefit claims incurred. The current portion of the accrued
postretirement liability, amounting to $10.0 million at December 31, 1998, is
included in other accruals. The assumed discount rate used to calculate the
actuarial present value of the postretirement benefit obligations was lowered to
6.75 percent at December 31, 1998 due to decreased rates of high-quality,
long-term investments, thereby increasing the cumulative unrecognized net loss
for the postretirement plans. The effect of this change on the net
postretirement benefit expense for 1999 will be minimal as the cumulative
unrecognized net loss is below the threshold for required amortization. See Note
6, on pages 27 and 28 of this report, for further information on the Company's
postretirement benefit obligations.
Other long-term liabilities include accruals for environmental-related
liabilities and other non-current items. The increase of $18.3 million in other
long-term liabilities during 1998 primarily related to additional tax
liabilities partially offset by decreased accruals for environmental-related
liabilities. See Note 9, on page 29 of this report, for additional information
concerning the Company's other long-term liabilities.
The Company and certain other companies are defendants in a number of
lawsuits arising from the manufacture and sale of lead pigments and lead paints.
It is possible that additional lawsuits may be filed against the Company in the
future. The various existing lawsuits seek damages for personal injuries and
property damages, along with costs involving the abatement of lead related paint
from buildings and medical monitoring costs. The Company believes that such
lawsuits are without merit and is vigorously defending them. The Company does
not believe that any potential liability ultimately determined to be
attributable to the Company arising out of such lawsuits will have a material
adverse effect on the Company's business or financial condition.
The operations of the Company, like those of other companies in its
industry, are subject to various federal, state and local environmental laws and
regulations. These laws and regulations not only govern its current operations
and products, but also impose liability on the Company for past operations which
were conducted utilizing practices and procedures considered acceptable under
the laws and regulations existing at that time. The Company expects
environmental laws and regulations to impose increasingly stringent requirements
upon the Company and its industry in the future. The Company believes it
conducts its operations in compliance with applicable environmental laws and
regulations and has implemented various programs to protect the environment and
promote continued compliance.
Capital expenditures and other expenses related to ongoing
environmental compliance measures are included in the normal operating expenses
of conducting business. The Company's capital expenditures and other expenses
related to ongoing environmental compliance measures were not material to the
Company's financial condition or net income during 1998, and the Company does
not expect such capital expenditures and other expenses to be material to the
Company's financial condition or net income in the future.
The Company is involved with environmental compliance and remediation
activities at some of its current and former sites (including former sites which
were previously owned and/or operated by businesses acquired by the Company).
The Company, together with other parties, has also been designated a potentially
responsible party under federal and state environmental protection laws for the
remediation of hazardous waste at a number of third-party sites, primarily
Superfund sites. The Company may be similarly designated with respect to
additional third-party sites in the future.
The Company accrues for certain environmental remediation-related
activities relating to its past operations and third-party sites, including
Superfund sites, for which commitments or clean-up plans have been developed or
for which costs or minimum costs can be reasonably estimated. The Company
continuously assesses its potential liability for remediation-related activities
and adjusts its environmental-related accruals as information becomes available
upon which more accurate costs can be reasonably estimated and as additional
accounting guidelines are issued which require changing the estimated costs or
the procedure utilized in estimating such costs. Actual costs incurred may vary
from these estimates due to the inherent uncertainties involved including, among
others, the number and financial condition of parties involved with respect to
any given site, the volumetric contribution which may be attributed to the
Company relative to that attributable to other parties, the nature and magnitude
of the wastes involved, the various technologies that can be used for
remediation and the determination of acceptable remediation with respect to a
particular site.
Pursuant to a Consent Decree entered into with the United States of
America, on behalf of the Environmental Protection Agency, filed in the United
States District Court for the Northern District of Illinois, the Company has
agreed, in part, to (i) conduct an investigation at its southeast Chicago,
Illinois facility to determine the nature, extent and potential impact, if any,
of environmental contamination at the facility and (ii) implement remedial
action measures, if required, to address any environmental contamination
identified pursuant to the investigation. The Company is currently conducting
its investigation of the site.
The Company is a defendant in a lawsuit brought by PMC, Inc. regarding
the Company's former Chemical Division's manufacturing facility which was sold
to PMC, Inc. in 1985 and is located adjacent to the Company's southeast Chicago,
Illinois facility. PMC, Inc. is seeking an undisclosed amount for environmental
remediation costs and other damages based upon contractual and tort theories and
under various environmental laws. The United States District Court for the
Northern District of Illinois conducted a trial on the environmental law and
state law theories and generally held, in part,
13
<PAGE> 5
that the Company was responsible for all future remediation costs at the
facility pursuant to Section 113(f) of CERCLA. The above determination was
affirmed on appeal in July 1998 by the United States Court of Appeals for the
Seventh Circuit. The Company continues to vigorously defend the remaining
contractual and tort theories in this lawsuit.
With respect to the Company's southeast Chicago, Illinois facility and
its former Chemical Division's manufacturing facility adjacent thereto, the
Company has evaluated its potential liability and, based upon its preliminary
evaluation, has accrued an appropriate amount. However, due to the uncertainties
surrounding these facilities, the Company's ultimate liability may result in
costs that are significantly higher than currently accrued. In such event, the
recording of the liability may result in a significant impact on net income for
the annual or interim period during which the additional costs are accrued.
The Company does not believe that any potential liability ultimately
attributed to the Company for its environmental-related matters will have a
material adverse effect on the Company's financial condition, liquidity, cash
flow or, except as set forth in the preceding paragraph, net income. See Note 9,
on page 29 of this report, for discussion of the environmental-related accruals
included in the Company's consolidated balance sheets.
Shareholders' equity increased more than $123.8 million during 1998 due
primarily to the excess of current year net income over dividends paid to
shareholders, partially offset by the repurchase of 3,000,000 shares of treasury
stock at a cost of $85.0 million and other comprehensive losses related to
foreign currency translations. The Company acquires its own stock for general
corporate purposes and, depending on its future cash position and market
conditions, it may acquire additional shares in the future. In April 1997, the
Board of Directors authorized the Company to purchase, in the aggregate,
10,000,000 shares of common stock. At December 31, 1998, authorization remained
to acquire 7,000,000 shares.
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which
requires reporting comprehensive income on both an accumulated and period basis.
Prior to the adoption of SFAS No. 130, a company was required to report only the
accumulated balances of comprehensive income. Comprehensive income is comprised
of net income and the components of other comprehensive income, which include
foreign currency translation, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. See Note 16, on page 33 of this report. The decrease of $11.4
million in accumulated other comprehensive income occurred due primarily to the
strengthening of the U.S. dollar over the functional currencies of the Company's
international subsidiaries.
The Company's Mexican subsidiaries were the only foreign subsidiaries
accounted for under highly inflationary accounting rules during 1998. As of
January 1, 1999, the Mexican economy is not considered highly inflationary. As
of that date, the Mexican Peso became the functional currency for all Mexican
operations and any resulting translation adjustments will be included in Other
Comprehensive Income. In January 1999, the Brazilian Central Bank eliminated its
governmental policy of supporting and tightly managing the trading band of its
currency, the Real, and allowed it to trade freely in the open market against
other currencies. Shortly after this announcement the Real weakened
significantly in trading with the U.S. dollar and other foreign currencies. As a
result of the floating Real exchange rate, the Company may experience increased
losses in Other Comprehensive Income from foreign currency translation of its
Brazilian operations. Any such increases in losses from translation will be in
addition to the weakening of any other foreign currencies in countries where we
have operations. The ultimate amount of any increased losses from the floating
of the Real will not be known until certain policy decisions made by the
Brazilian government help stabilize the currency and improve the Brazilian
economy. However, the Company does not expect the devaluation of the Brazilian
Real, combined with other currency translation losses, to have a material
adverse effect on operating results, financial condition or cash flows for the
Company as a whole.
The Company is exposed to market risk through various financial
instruments, including fixed rate debt instruments and interest rate swaps. The
Company does not believe that any potential loss related to these financial
instruments will have a material adverse effect on the Company's financial
condition or results of operations.
Beginning in the fourth quarter of 1997, the Company commenced
multi-year information technology projects to enhance portions of the Company's
computer systems. The projects will provide efficiencies and further integration
of operations within the Coatings Segment. The Company expects that full
implementation of the projects will involve significant capital expenditures
over the next several years, although capital expenditures in 1998 related to
such projects were not material. Costs and expenses related to these projects,
including amortization costs, charged to operations in 1998 were not material.
Costs and expenses to be charged to operations in the future are not expected to
have a material adverse effect on the Company's annual results of operations.
Expenditures associated with these projects slightly impacted cash flows from
operations in 1998 and will have slightly more of an impact on cash flows from
operations in 1999. However, anticipated benefits beginning in 2000 are expected
to reduce the impact on cash flows.
14
<PAGE> 6
At a meeting held February 3, 1999, the Board of Directors increased
the quarterly dividend to $.12 per share. This represents the twentieth
consecutive annual increase and a compounded annual rate of increase of 26.0
percent since the dividend was reinstated in the fourth quarter of 1979. The
1998 annual dividend of $.45 per share marked the nineteenth consecutive year
that the dividend approximated our payout ratio target of 30.0 percent of the
prior year's earnings.
YEAR 2000 READINESS
The Company is engaged in a company-wide project to prepare its
business for the change in date from the year 1999 to 2000. The Company has
assembled a Year 2000 project team consisting of Company employees and third
party consultants. The goal of the Year 2000 project is to assure that there are
no major interruptions in the Company's business operations relating to the
transition to the year 2000. The scope of the Company's Year 2000 project
includes (i) identifying and taking appropriate corrective action to remedy the
Company's software, hardware and embedded technology, (ii) working with certain
key financial institutions, customers, suppliers and service providers, with
which the Company does business electronically, to help protect such business
from being adversely affected by the Year 2000, and (iii) contacting key vendors
and service providers and requesting assurances that such third parties will be
Year 2000 compliant. The status of the Year 2000 project is reported regularly
to senior management and the Board of Directors.
The Year 2000 project team has implemented a compliance process to
address Year 2000 issues in the Company's software and hardware systems and
embedded technology consisting of the following nine steps: (1) inventory, (2)
risk assessment, (3) prioritization, (4) impact analysis, (5) remediation, (6)
testing, (7) certification, (8) deployment, and (9) approval. The Company's
mission critical systems have been the project team's top priority. The
Company's mission critical systems include systems, which are the most essential
to the Company to continue its operations without interruption. The Company
believes it has completed its compliance process beyond the impact analysis
phase for approximately 84 percent of its mission critical software and hardware
systems, with approximately 62 percent of its mission critical software and
hardware systems having been remediated and 22 percent currently being
remediated. With regard to embedded technology, the Company has completed the
remediation and testing phases for 39 percent of its facilities. The Company's
target for completing its compliance process for all of its mission critical
systems is mid-1999. The Company's target for completing its compliance process
for its non-mission critical systems is the end of 1999.
The Company is in contact with certain key financial institutions,
customers, suppliers and service providers, with which the Company does business
electronically, to address potential Year 2000 issues. The Company is directly
working with certain key third parties to remediate and test affected systems
where practicable. The Company sent surveys to key vendors and service providers
requesting information regarding the status of their Year 2000 readiness. The
Company is also in the process of reviewing the public Year 2000 disclosures of
key customers. Based upon this information, the Company is in the process of
identifying potential critical Year 2000 issues involving key third parties, if
any, and either resolving those issues or developing contingency plans to the
extent practicable.
All costs and expenses incurred to address the Year 2000 issue are
charged against income on a current basis. The total cost of the project is
expected to be approximately $35 million, of which about $15 million has been
spent since the beginning of the project through December 31, 1998. These costs
include costs of internal employees and third-party consultants involved in the
project and the costs of software and hardware. The Company does not expect
these costs and expenses to have a material adverse effect on the Company's
financial condition.
While the Company continues to focus on solutions for Year 2000 issues,
and expects to complete its Year 2000 project in a timely manner, the Company is
in the process of identifying potential major business interruptions that could
reasonably likely result from Year 2000 issues and will develop contingency
plans designed to address such potential interruptions. The Company may also
develop contingency plans designed to generally help protect the Company from
unanticipated Year 2000 business interruptions. Contingency plans are
anticipated to include, for example, the identification of alternate suppliers
or service providers, increases in safety levels of raw material and finished
goods inventories, and the development of alternate procedures. The Company's
contingency plans will be developed and modified over time as it receives better
information regarding the Year 2000 status of its systems and embedded
technology and third party readiness.
The most reasonably likely worst case scenario which could result from
the failure of the Company or its customers, vendors or other key third parties
to adequately address Year 2000 issues would include a temporary interruption or
curtailment in the Company's manufacturing or distribution operations at one or
more of its facilities. Such failures could also cause a delay or curtailment in
the processing of orders and invoices and the collection of revenues, as well as
the inability to maintain accurate accounting records, and lead to increased
costs and loss of sales. If these failures would occur, depending upon their
duration and severity, they could have a material adverse effect on the
Company's business, results of operations and financial condition.
Management's estimates regarding expected completion dates and costs
involved in the Company's Year 2000 project are based upon various assumptions
regarding future events, including the availability of resources, the success of
third parties in addressing their Year 2000 issues, and other factors. While
management believes the Company is addressing the Year 2000 issue, there is no
guarantee that these estimated completion dates and costs will be achieved. In
the event that the estimated completion dates and costs differ materially from
the actual completion dates and costs, such could have a materially adverse
effect on the Company's financial condition and results of
15
<PAGE> 7
operations. In addition, the Company cannot reasonably estimate the impact of
Year 2000 on the Company if key third parties, including financial institutions,
suppliers, customers, service providers, public utilities and governments, are
unsuccessful in completing their Year 2000 efforts.
RESULTS OF OPERATIONS - 1998 VS 1997
Consolidated net sales increased 1.1 percent over 1997 to $4.93 billion
in 1998, due to increased Paint Stores and Other Segment sales, partially offset
by decreased Coatings Segment sales.
The Paint Stores Segment's sales during 1998 increased 6.9 percent due
primarily to increased paint gallons sold to both retail and wholesale
customers, combined with sales gains in each of the remaining major product
lines (wallcoverings, floorcoverings, spray equipment and associated products).
Comparable-store sales were up 4.9% in 1998. The Company plans to increase the
number of paint store openings in 1999 and expects sales growth in the Paint
Stores Segment to continue.
External sales in the Coatings Segment decreased 5.7 percent during
1998 due primarily to weak do-it-yourself coatings sales, poor market conditions
in South America, and the continuing effects of the 1997 loss of certain
coatings, aerosol and detergent business. The Company expects that sales from
new product introductions and expansion of its presence at several retailers
will result in sales growth in 1999. Reduced gallons sold to national accounts
and home center customers, due to the weak do-it-yourself sales, accounted for a
significant portion of the sales decline in this Segment. Reduced sales to some
customers in the cleaning solutions businesses affected Coatings Segment sales
of related products. External sales in the Coatings Segment's consolidated
foreign subsidiaries decreased slightly during 1998 and represented 10.6 percent
of the Company's consolidated net sales. Revenue generated by real estate
operations in the Other Segment was higher than last year as vacated space was
leased to new tenants.
Consolidated gross profit as a percent of sales increased to 43.2
percent from 43.0 percent in 1997. The Paint Stores Segment's 1998 gross profit
margin was slightly higher than last year due primarily to a favorable product
mix. Gross profit margin in the Coatings Segment was slightly higher than last
year due to selective selling price increases and the favorable effects of
replacing lower margin business with more profitable sales. Provision for plant
closings included in cost of goods sold and lower fixed and overhead cost
absorption resulting from decreased sales volume partially offset the gross
profit margin gains.
Consolidated selling, general and administrative expenses as a percent
of sales increased to 32.4 percent from 32.2 percent in 1997 primarily as a
result of increased expenses related to Year 2000 compliance efforts. The Paint
Stores Segment's SG&A expenses as a percent of sales improved slightly over last
year due to effective cost containment. A slightly favorable SG&A ratio in the
Coatings Segment for 1998 compared to 1997 was primarily a result of reduced
promotional expenses.
Consolidated operating profits increased 3.0 percent in 1998. Operating
profits of the Paint Stores Segment increased 10.4 percent, due primarily to
increased sales volume and gross profit, partially offset by higher selling,
general and administrative expenses. The Coatings Segment's operating profits
were 6.7 percent lower than last year due primarily to decreased sales volume
and gross profit, partially offset by lower selling, general and administrative
expenses. Operating profits of the Coatings Segment's consolidated foreign
subsidiaries declined approximately $8.0 million in 1998 and represented 10.7
percent of the Company's consolidated operating profits. There are certain risks
in transacting business internationally, such as changes in applicable laws and
regulatory requirements, political instability, general economic and labor
conditions, fluctuations in currency exchange rates and expatriation
restrictions, which could adversely affect the financial condition or results of
operation of the Company's consolidated foreign subsidiaries. The operating
profits of the Other Segment increased in 1998 due primarily to the leasing of
office space which was vacant in 1997. Corporate expenses decreased in 1998 due
primarily to decreased interest expense and net losses relating to translation
of certain foreign investments which are not directly associated with any
individual operating segment. Refer to pages 5 through 11 of this report for
additional reportable segment information.
Interest expense decreased in 1998 due primarily to lower average
outstanding debt balances. As a result, interest coverage increased to 7.1 times
from 6.3 times in 1997. Fixed charge coverage, which is calculated using
interest and rent expense, increased to 3.3 times from 3.2 times in 1997.
Net interest and investment income decreased in 1998 due primarily to
lower average cash and short-term investment balances and lower average yields.
See Note 4, on page 26 of this report, for further detail on other costs and
expenses. As shown in Note 13, on page 32 of this report, the effective income
tax rate in 1998 decreased to 38%, from 39% in 1997, due to the effects of
changes in tax credits from investment vehicles and other, net items.
Net income increased 4.7 percent in 1998 to $272.9 million from $260.6
million in 1997. Net income per common share-diluted, calculated in accordance
with SFAS No. 128, increased 4.7 percent to $1.57 from $1.50. See Note 15, on
page 33 of this report for detailed computations.
Although the costs and expenses of the Company's Year 2000 project and
the expenses associated with the information technology project will impact
operating profits and net income in 1999, the Company doesn't expect that it
will have a material adverse effect on operating results, financial condition or
cash flows for the Company as a whole.
16
<PAGE> 8
RESULTS OF OPERATIONS - 1997 VS 1996
Consolidated net sales increased 18.1 percent over 1996 to $4.88
billion in 1997. Excluding incremental sales from Thompson Minwax Holding Corp.
and other smaller domestic and foreign acquisitions (collectively, the 1997
Acquisitions) which occurred at various times since December 31, 1996, net sales
for 1997 increased 3.7 percent.
The Paint Stores Segment's sales during 1997 increased 8.1 percent, or
6.6 percent excluding the 1997 Acquisitions, due primarily to increased paint
gallons sold to wholesale customers combined with wholesale volume increases in
the remaining major product lines. Although volume sales to retail customers
were soft in the second half of the year, overall retail sales increased in 1997
compared to 1996, thereby contributing to the sales improvement in the Paint
Stores Segment.
External sales in the Coatings Segment increased 32.5 percent during
1997 due primarily to incremental sales from the 1997 Acquisitions. Excluding
the 1997 Acquisitions, sales declined 0.5 percent. Sales were affected by the
loss of certain business due to the Company's unwillingness to match or exceed
the low prices offered by our competition. Reduced gallons sold to national
accounts and home center customers, which resulted from poor out-the-door sales
and the loss of certain product lines at one of its customers, accounted for a
slight sales decline in this Segment's consumer products after excluding the
1997 Acquisitions. Coatings Segment's automotive product sales were higher than
1996, on both an as-reported basis and excluding the 1997 Acquisitions, due
primarily to sales gains in its automotive branches and at original equipment
manufacturers combined with foreign sales gains resulting from increased market
penetration in those areas. Coatings Segment's product sales gains in the
industrial and applicator product lines were offset by reduced sales to some
customers in the retail national (formerly hardware) and cleaning solutions
businesses, leading to slightly lower sales excluding the 1997 Acquisitions as
compared to last year. External sales in the Coatings Segment's consolidated
foreign subsidiaries increased significantly during 1997 and represented 11.3
percent of the Company's consolidated net sales due primarily to the Company's
acquisition activity. Revenue generated by real estate operations in the Other
Segment was lower than 1996 due to the loss of a large tenant in one of its
office buildings at the end of 1996.
Consolidated gross profit as a percent of sales increased to 43.0
percent from 41.8 percent in 1996 due in part to the effects of the 1997
Acquisitions, although improved gross profit margins were also obtained
excluding the 1997 Acquisitions. The Paint Stores Segment's 1997 gross margin
excluding the 1997 Acquisitions was higher than 1996 due primarily to sales
gains in its higher-margin paint and paint-related product lines. Margins in the
Coatings Segment were higher than 1996 due to above-average margins realized
from some of the 1997 Acquisitions' businesses combined with a favorable sales
mix and favorable factory operations.
Consolidated selling, general and administrative expenses as a percent
of sales increased to 32.2 percent from 31.7 percent in 1996. Excluding the 1997
Acquisitions, SG&A expenses as a percent of sales were even with last year. The
Paint Stores Segment's SG&A expenses as a percent of sales were favorable to
1996 on both an as-reported basis and excluding the 1997 Acquisitions due to
cost containment combined with the sales gains achieved. Increased merchandising
and administrative costs related to new products, new customers and improved
service levels led to an unfavorable SG&A ratio in the Coatings Segment for 1997
compared to 1996.
Consolidated operating profits increased 21.6 percent in 1997, or 7.2
percent excluding the 1997 Acquisitions. Operating profits of the Paint Stores
Segment increased 9.3 percent, or 8.9 percent excluding the 1997 Acquisitions,
due primarily to increased paint volume combined with containment of selling,
general and administrative expenses. The Coatings Segment's operating profits
excluding the 1997 Acquisitions were 6.6 percent higher than last year due
primarily to the realization of manufacturing efficiencies in certain business
units. Operating profits of the Coatings Segment's consolidated foreign
subsidiaries represented 12.6 percent of the Company's consolidated operating
profits due primarily to profits from the Company's acquisitions. The operating
profits of the Other Segment decreased in 1997 due primarily to vacant lease
space during part of the year related to the loss of a large tenant in one of
its office buildings. Corporate expenses increased in 1997 due primarily to
increased interest expense and net losses relating to translation of certain
foreign investments which are not directly associated with or allocable to any
individual operating segment.
Interest expense increased significantly in 1997 due to the increases
in long-term debt related to the financing of the 1997 Acquisitions. As a
result, interest coverage decreased to 6.3 times from 16.3 times in 1996. Our
fixed charge coverage, which is calculated using interest and rent expense,
declined to 3.2 times from 3.9 times in 1996.
Net interest and investment income increased in 1997 due primarily to
higher average cash and short-term investment balances and higher average
yields. See Note 4, on page 26 of this report, for further detail on other costs
and expenses. The effective income tax rate in 1997 remained unchanged from the
1996 rate.
Net income increased 13.7 percent in 1997 to $260.6 million from $229.2
million in 1996. Excluding the 1997 Acquisitions, net income increased 14.9
percent. Net income per common share-diluted, calculated in accordance with SFAS
No. 128 adopted during the fourth quarter ended December 31, 1997, increased
12.8 percent to $1.50 from $1.33 (as restated to conform to SFAS No. 128). See
Note 1, on page 24 of this report, for additional discussion on the Company's
adoption of SFAS No. 128 and Note 15, on page 33 of this report, for detailed
computations.
17
<PAGE> 9
STATEMENTS OF CONSOLIDATED INCOME
================================================================================
(Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 4,934,430 $ 4,881,103 $ 4,132,879
Costs and expenses:
Cost of goods sold 2,804,459 2,784,392 2,405,178
Selling, general and administrative expenses 1,598,333 1,573,510 1,309,086
Interest expense 71,971 80,837 24,537
Interest and net investment income (6,482) (8,278) (6,819)
Other 26,046 23,365 25,520
----------- ----------- -----------
4,494,327 4,453,826 3,757,502
----------- ----------- -----------
Income before income taxes 440,103 427,277 375,377
Income taxes 167,239 166,663 146,220
----------- ----------- -----------
Net income $ 272,864 $ 260,614 $ 229,157
=========== =========== ===========
Net income per common share:
Basic $ 1.58 $ 1.51 $ 1.34
=========== =========== ===========
Diluted $ 1.57 $ 1.50 $ 1.33
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
================================================================================
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,133 $ 3,530 $ 1,880
Accounts receivable, less allowance 604,516 546,314 452,421
Inventories:
Finished goods 568,328 587,680 529,148
Work in process and raw materials 114,195 133,988 113,539
----------- ----------- -----------
682,523 721,668 642,687
Deferred income taxes 117,720 124,669 105,065
Other current assets 123,398 136,072 214,134
----------- ----------- -----------
Total current assets 1,547,290 1,532,253 1,416,187
Goodwill 1,123,128 1,161,129 546,461
Intangible assets 291,715 310,221 104,206
Deferred pension assets 304,006 276,086 254,376
Other assets 80,466 63,854 123,969
Property, plant and equipment:
Land 67,567 64,367 53,705
Buildings 422,902 383,485 312,954
Machinery and equipment 906,501 841,343 716,015
Construction in progress 43,274 68,649 51,258
----------- ----------- -----------
1,440,244 1,357,844 1,133,932
Less allowances for depreciation 721,387 665,586 584,541
----------- ----------- -----------
718,857 692,258 549,391
----------- ----------- -----------
Total Assets $ 4,065,462 $ 4,035,801 $ 2,994,590
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 106,913 $ 168,001
Accounts payable $ 408,144 424,184 385,928
Compensation and taxes withheld 125,698 118,709 103,353
Current portion of long-term debt 118,178 53,926 2,133
Other accruals 383,149 367,392 325,635
Accrued taxes 76,804 44,539 65,957
----------- ----------- -----------
Total current liabilities 1,111,973 1,115,663 1,051,007
Long-term debt 730,283 843,919 142,679
Postretirement benefits other than pensions 204,763 199,839 184,551
Other long-term liabilities 302,503 284,200 215,121
Shareholders' equity:
Common stock - $1.00 par value: 171,033,231, 172,907,418
and 171,831,178 shares outstanding at December 31, 1998,
1997 and 1996, respectively 205,701 204,538 101,650
Other capital 143,686 119,695 203,223
Retained earnings 1,797,945 1,602,882 1,411,295
Treasury stock, at cost (386,465) (301,418) (295,954)
Cumulative other comprehensive loss (44,927) (33,517) (18,982)
----------- ----------- -----------
Total shareholders' equity 1,715,940 1,592,180 1,401,232
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 4,065,462 $ 4,035,801 $ 2,994,590
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 11
STATEMENTS OF CONSOLIDATED CASH FLOWS
================================================================================
(Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS
Net income $ 272,864 $ 260,614 $ 229,157
Adjustments to reconcile net income to net operating cash:
Depreciation 97,821 90,202 76,176
Deferred income tax expense 30,557 59,247 (13,798)
Provisions for disposition of operations 23,557 4,152 17,366
Provisions for environmental-related matters 4,295 7,607 15,494
Amortization of intangible assets 50,067 49,044 27,447
Defined benefit pension plans net credit (30,851) (20,173) (15,298)
Net increase in postretirement liability 5,424 5,452 3,258
Other 14,753 15,133 8,408
Change in current items-net:
Increase in accounts receivable (58,202) (22,190) (20,338)
Decrease (increase) in inventories 39,145 (30,940) (85,911)
(Decrease) increase in accounts payable (16,040) 6,841 60,410
Increase (decrease) in accrued taxes 32,778 (24,671) 33,147
Other current items 33,211 4,398 11,869
Proceeds of insurance settlement 53,900
Increase in long-term accrued taxes 8,211 12,174 4,735
Costs incurred for environmental-related matters (14,275) (18,052) (9,400)
Costs incurred for disposition of operations (14,571) (17,585) (6,993)
Other (245) 4,377 3,586
----------- ----------- -----------
Net operating cash 478,499 439,530 339,315
----------- ----------- -----------
INVESTING
Capital expenditures (146,129) (163,955) (122,720)
Decrease in short-term investments 20,000
Acquisitions of assets (884,525) (670,755)
(Increase) decrease in other investments (19,281) (5,633) 37,829
Other (3,264) (6,375) 9,148
----------- ----------- -----------
Net investing cash (168,674) (1,060,488) (726,498)
----------- ----------- -----------
FINANCING
Net (decrease) increase in short-term borrowings (106,913) (61,692) 134,654
Increase in long-term debt 4,559 750,653 101,792
Payments of long-term debt (54,673) (2,194) (72,426)
Payments of cash dividends (77,801) (69,027) (60,029)
Proceeds from stock options exercised 16,818 14,760 12,800
Treasury stock acquired (85,047) (8,437) (3,149)
Other financing of acquisitions 4,542 22,000
Debt issue costs (6,050)
Other 8,835 53 3,937
----------- ----------- -----------
Net financing cash (294,222) 622,608 139,579
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 15,603 1,650 (247,604)
Cash and cash equivalents at beginning of year 3,530 1,880 249,484
----------- ----------- -----------
Cash and cash equivalents at end of year $ 19,133 $ 3,530 $ 1,880
=========== =========== ===========
Taxes paid on income $ 85,746 $ 115,801 $ 141,821
Interest paid on debt 71,970 59,572 22,950
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 12
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
================================================================================
(Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>
Cumulative
Other
Common Other Retained Treasury Comprehensive
Stock Capital Earnings Stock Loss Total
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 101,110 $ 182,311 $ 1,242,167 $(292,805) $ (20,657) $ 1,212,126
Comprehensive income:
Net income 229,157 229,157
Other comprehensive income 1,675 1,675
------------
Comprehensive income 230,832
Stock issued 540 20,912 (3,149) 18,303
Cash dividends -- $.35 per share (60,029) (60,029)
---------- ---------- ------------ ---------- ---------- ------------
Balance at December 31, 1996 101,650 203,223 1,411,295 (295,954) (18,982) 1,401,232
Comprehensive income:
Net income 260,614 260,614
Other comprehensive loss (14,535) (14,535)
------------
Comprehensive income 246,079
Two-for-one stock split 101,876 (101,876)
Stock issued 1,012 21,321 (5,464) 16,869
Stock acquired for trust (2,973) (2,973)
Cash dividends -- $.40 per share (69,027) (69,027)
---------- ---------- ------------ ---------- ---------- ------------
Balance at December 31, 1997 204,538 119,695 1,602,882 (301,418) (33,517) 1,592,180
Comprehensive income:
Net income 272,864 272,864
Other comprehensive loss (11,410) (11,410)
------------
Comprehensive income 261,454
Stock issued 1,163 25,231 (85,047) (58,653)
Stock acquired for trust (1,240) (1,240)
Cash dividends -- $.45 per share (77,801) (77,801)
---------- ---------- ------------ ---------- ---------- ------------
Balance at December 31, 1998 $ 205,701 $ 143,686 $ 1,797,945 $(386,465) $ (44,927) $ 1,715,940
========== ========== ============ ========== ========== ============
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(Thousands of Dollars Unless Otherwise Indicated)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements include all controlled
subsidiaries. Inter-company accounts and transactions have been eliminated.
REPORTABLE SEGMENTS. Reportable segment information appears on pages 5 through
11 of this report.
FOREIGN CURRENCY TRANSLATION. All consolidated non-highly inflationary foreign
operations use the local currency of the country of operation as the functional
currency and translate the local currency asset and liability accounts at
year-end exchange rates while income and expense accounts are translated at
average exchange rates. The resulting translation adjustments are included in
"Cumulative other comprehensive income", a component of Shareholders' Equity.
All consolidated highly inflationary foreign operations use the Company's
currency as the functional currency.
CASH FLOWS. The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
NATURE OF OPERATIONS. The Company is engaged in the manufacture, distribution
and sale of coatings and related products to professional, industrial,
commercial and retail customers primarily in North and South America.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ENVIRONMENTAL MATTERS. Capital expenditures for ongoing environmental compliance
measures are recorded in the consolidated balance sheets and related expenses
are included in the normal operating expenses of conducting business. The
Company is involved with environmental compliance and remediation activities at
some of its current and former sites and at a number of third-party sites. The
Company accrues for certain environmental remediation-related activities for
which commitments or clean-up plans have been developed or for which costs can
be reasonably estimated. All accrued amounts are recorded on an undiscounted
basis. Accrued environmental remediation-related expenses include direct costs
of remediation and indirect costs related to the remediation effort, such as
compensation and benefits for employees directly involved in the remediation
activities and fees paid to outside engineering, consulting and law firms. See
Note 4 and Note 9 for discussions of the environmental remediation-related
expense and accruals included in the financial statements.
STOCK-BASED COMPENSATION. The Company uses the intrinsic value method of
accounting for stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25. See Note 12 for pro forma disclosure of net income and
earnings per share under the fair value method of accounting for stock-based
compensation as proscribed by SFAS No. 123, "Accounting for Stock-Based
Compensation".
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated on the
basis of cost. Depreciation is provided principally by the straight-line method.
The major classes of assets and ranges of depreciation rates are as follows:
Buildings 2% - 6-2/3%
Machinery and equipment 4% - 20%
Furniture and fixtures 5% - 20%
Automobiles and trucks 10% - 33-1/3%
INVESTMENT IN LIFE INSURANCE. The Company invests in broad-based corporate owned
life insurance. The cash surrender values of the policies, net of policy loans,
are included in Other Assets. The net expense associated with such investment is
included in Other Costs and Expenses. Such expense is immaterial to income
before income taxes.
GOODWILL. Goodwill represents the cost in excess of fair value of net assets
acquired in business combinations accounted for by the purchase method and is
amortized on a straight-line basis over periods not exceeding 40 years. The
Company evaluates the recoverability of goodwill at each balance sheet date and
would record an impairment if necessary. Accumulated amortization of goodwill
was $78,983, $48,596 and $18,186 at December 31, 1998, 1997 and 1996,
respectively.
INTANGIBLES. Accumulated amortization of intangible assets was $102,359, $85,242
and $74,450 at December 31, 1998, 1997 and 1996, respectively. These assets are
amortized by the straight-line method over the expected period of benefit. The
Company reviews such assets for impairment at each balance sheet date and
revises the related estimated remaining lives if necessary.
TECHNICAL EXPENDITURES. Total technical expenditures include research and
development costs, quality control, product formulation expenditures and other
similar items. Research and development costs included in technical expenditures
were $20,430, $24,748 and $18,661 for 1998, 1997 and l996, respectively.
ADVERTISING EXPENSES. The cost of advertising is expensed as incurred. The
Company incurred $282,817, $295,942 and $212,448 in advertising costs during
1998, 1997 and 1996, respectively.
EARNINGS PER SHARE. The Company adopted SFAS No. 128, "Earnings Per Share"
during the quarter ended December 31, 1997. Accordingly, basic net income per
share is computed based on the weighted-average number of common shares
outstanding during the year, and diluted net income per share is computed based
on the weighted-average number of common shares outstanding plus all potentially
dilutive securities outstanding during the year. All per share amounts shown for
periods prior to adoption have been restated to conform to the provisions of
SFAS No. 128. See Note 15 for computation.
24
<PAGE> 14
LETTERS OF CREDIT. The Company occasionally enters into standby letter of credit
agreements to guarantee various operating activities. These agreements, which
expire in 1999, provide credit availability to the various beneficiaries if
certain contractual events occur. Amounts outstanding under these agreements
totaled $15,042, $18,844 and $17,092 at December 31, 1998, 1997 and 1996,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate
fair value.
SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheets for marketable debt and equity securities
are based on quoted market prices and approximate fair value.
INVESTMENTS IN SECURITIES: The Company maintains certain long-term
investments, classified as available for sale securities, in a fund to
provide for payment of health care benefits of certain qualified
employees. The estimated fair values of these securities, included in
other assets, of $25,523, $28,751 and $31,785 at December 31, 1998,
1997 and 1996, respectively, are based on quoted market prices.
LONG-TERM DEBT (INCLUDING CURRENT PORTION): The fair values of the
Company's publicly traded debentures, shown below, are based on quoted
market prices. The fair values of the Company's non-traded debt, also
shown below, are estimated using discounted cash flow analyses, based
on the Company's current incremental borrowing rates for similar types
of borrowing arrangements.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- -------------------------- --------------------------
CARRYING FAIR Carrying Fair Carrying Fair
AMOUNT VALUE Amount Value Amount Value
------------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Publicly traded debt $764,806 $825,989 $764,725 $826,400 $ 15,900 $ 18,670
Non-traded debt 83,559 80,929 133,012 122,354 130,460 110,295
</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,
-----------------------------------------------------------
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Carrying amount $ (808)
Fair value $ 17 $ 443 770
Notional amount 50,000 100,000 109,669
Number of agreements outstanding 1 2 3
</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 $20,034, $17,587 and $100,797 at
December 31, 1998, 1997 and 1996, respectively, represent the Company's
best estimate of current economic values of these investments.
RECLASSIFICATION. Certain amounts in the 1997 and 1996 financial statements have
been reclassified to conform with the 1998 presentation.
NOTE 2--ACQUISITION AND MERGER
Effective January 7, 1997, the Company, through a wholly-owned
subsidiary, acquired all shares outstanding of Thompson Minwax Holding Corp.
(Thompson Minwax). The total amount of funds required to acquire the shares and
pay off certain indebtedness of Thompson Minwax was approximately $830,000. The
excess purchase price over the fair value of the net assets acquired is being
amortized over 40 years using the straight-line method. For financial statement
purposes, the acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of operations of Thompson Minwax since the
date of acquisition are included in the Company's statements of consolidated
income.
Effective January 10, 1996, the Company, through a wholly-owned
subsidiary, acquired all shares outstanding of Pratt & Lambert United, Inc.
(Pratt & Lambert) for a total cash purchase price of approximately $400,000. The
excess purchase price over the fair value of the net assets acquired is being
amortized over 40 years using the straight-line method. For financial statement
purposes, the acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of operations of Pratt & Lambert since the
date of acquisition are included in the Company's statements of consolidated
income.
In addition, during the three-year period ended December 31, 1998, the
Company purchased various domestic automotive and retail paint distributors,
coatings manufacturers, and aerosol and liquid filling businesses. Various
foreign architectural and automotive paint manufacturing and aerosol filling
businesses located in South America were also acquired during the three-year
period.
25
<PAGE> 15
NOTE 3--INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally on the last-in, first-out (LIFO) method which provides a
better matching of current costs and revenues. The following presents the effect
on inventories, net income and net income per basic share had the Company used
the first-in, first-out (FIFO) and average cost methods of inventory valuation
adjusted for income taxes at the statutory rate and assuming no other
adjustments. This information is presented to enable the reader to make
comparisons with companies using the FIFO method of inventory valuation.
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Percentage of total inventories on LIFO 91% 93% 96%
Excess of FIFO and average cost over LIFO $ 96,235 $104,637 $ 94,138
Increase (decrease) in net income due to LIFO 4,685 (3,604) 4,698
Increase (decrease) in net income per basic share due to LIFO .03 (.02) .03
</TABLE>
NOTE 4 -- OTHER COSTS AND EXPENSES
A summary of significant items included in Other Costs and Expenses is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend and royalty income $ (3,069) $ (3,361) $ (5,127)
Net expense of financing and investing activities 122 3,688 8,429
Provisions for environmental matters - net (see Note 9) 695 107 15,494
Provisions for disposition and termination of operations
(see Note 5) 12,290 4,152 5,506
Foreign exchange losses 11,773 15,580 3,335
Miscellaneous 4,235 3,199 (2,117)
-------- -------- --------
$ 26,046 $ 23,365 $ 25,520
======== ======== ========
</TABLE>
The net expense of financing and investing activities represents the
net realized gains and losses from disposing of fixed assets, the net gain or
loss associated with the investment of certain long-term asset funds, the net
pre-tax expense associated with the Company's investment in broad-based
corporate owned life insurance, and in 1998, the net gain related to the sale of
the Company's joint venture interest in American Standox, Inc.
The provisions for environmental matters reflect the increased
estimated costs of environmental remediation at current, former and third-party
sites which were partially offset by settlements with certain insurance carriers
pertaining to environmental-related matters totaling $3,600, $7,500 and $56,000
during 1998, 1997 and 1996, respectively.
The provisions for disposition and termination of operations reduce
property, plant and equipment at closed facilities to its estimated net
realizable value and adjust all previous provisions to current estimates as
closure or disposition occurs. The increase in 1998 is primarily due to
provisions recorded for closing four manufacturing facilities.
NOTE 5--DISPOSITION AND TERMINATION OF OPERATIONS
The Company is continually re-evaluating its operating facilities with
regard to the long-term strategic goals established by management and the board
of directors. Operating facilities which are not expected to sufficiently
contribute to the Company's future plans are closed or sold.
At the time of the decision to close or sell a facility, a provision is
made and the expense included in Other Costs and Expenses to reduce property,
plant and equipment to its estimated net realizable value. Similarly, provisions
are made which reduce all other assets to their estimated net realizable values
and provide for all qualified exit costs such as lease cancellation penalties,
post-closure rent expenses, incremental post-closure expenses, and the estimated
costs of employee termination benefits if management has approved a termination
plan and communicated such plan to the affected employees. The expenses
associated with the provisions for all other assets and for such exit costs and
termination benefits are included in Cost of Goods Sold. Adjustments to all
previous accruals, as closure or disposition occurs, are included in Other Costs
and Expenses.
The provisions made during 1998 provided for the reduction to net
realizable value of certain assets and for the exit costs related to four
redundant manufacturing facilities within the reorganized Consumer Group. There
were no new provisions made in 1997. The provisions made during 1996 provided
for the reduction to net realizable value of certain assets and exit costs
related to one manufacturing facility and consolidations of certain redundant
distribution and administrative facilities.
A summary of the financial data related to the closing or sale of the
facilities is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Beginning accruals -- January 1 $ 47,111 $ 60,544 $ 27,545
Provisions included in cost of goods sold 11,267 11,860
Provisions and adjustments to prior accruals
included in costs and expenses - other 12,290 4,152 5,506
-------- -------- ----------
Total charges 23,557 4,152 17,366
Accruals related to acquired sites 22,626
Actual expenditures (14,571) (17,585) (6,993)
-------- -------- ----------
Ending accruals - December 31 $ 56,097 $ 47,111 $ 60,544
======== ======== ========
Net after-tax charges to current operations $ 15,312 $ 2,699 $ 11,288
Net after-tax charges per basic share $ .09 $ .02 $ .07
</TABLE>
26
<PAGE> 16
NOTE 6 -- PENSION AND OTHER BENEFITS
The Company provides pension benefits to substantially all employees through
noncontributory defined benefit or defined contribution plans. In addition,
certain health care and life insurance benefits are provided by
company-sponsored plans for certain active and retired employees. Effective
December 31, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits". The disclosures required by SFAS No. 132 supersede
previous disclosure requirements without affecting measurement or recognition
criteria. Accordingly, all disclosures for prior periods shown below have been
restated to conform to the disclosure requirements of SFAS No. 132.
<TABLE>
<CAPTION>
Defined Benefit Pension Plans Other Postretirement Benefits
---------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BENEFIT OBLIGATION:
Balance at beginning of year $ 175,204 $ 158,876 $ 128,335 $ 206,007 $ 183,179 $ 171,910
Service cost 2,564 2,570 3,516 3,877 3,720 3,327
Interest cost 11,942 11,859 10,933 13,909 13,708 12,483
Actuarial (gain) loss 1,702 402 95 3,184 15,366 (2,235)
Plan amendments 2,003 201 1,037
Acquisitions 19,644 26,149 5,701
Benefits paid (24,316) (18,348) (11,189) (9,350) (9,966) (8,007)
---------- ---------- ---------- ----------- ----------- -----------
Balance at end of year 169,099 175,204 158,876 217,627 206,007 183,179
PLAN ASSETS:
Balance at beginning of year 446,271 391,865 323,216
Actual return on plan assets 71,188 60,143 49,923
Acquisitions 10,574 30,778
Other, net (759) 2,037 (863)
Benefits paid (24,316) (18,348) (11,189)
---------- ---------- ----------
Balance at end of year 492,384 446,271 391,865
EXCESS (DEFICIENT) PLAN ASSETS 323,285 271,067 232,989 (217,627) (206,007) (183,179)
Unrecognized net asset (2,792) (4,304) (6,943)
Unrecognized actuarial (gain) loss (20,348) 3,195 27,472 20,171 16,784 11,288
Unrecognized prior service cost (credit) 2,330 808 858 (17,307) (20,116) (21,570)
---------- ---------- ---------- ----------- ----------- -----------
NET ASSET (LIABILITY) RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETS $ 302,475 $ 270,766 $ 254,376 $ (214,763) $ (209,339) $ (193,461)
========== ========== ========== =========== =========== ===========
NET ASSET (LIABILITY) RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETS CONSIST OF:
Prepaid benefit cost $ 304,006 $ 276,086 $ 254,376
Accrued benefit liability (1,136) $ (204,763) $ (199,839) $ (184,551)
Amount included in current liabilities (1,531) (4,612) (10,000) (9,500) (8,910)
Accumulated other comprehensive
income, net of tax 428
---------- ---------- ---------- ----------- ----------- -----------
$ 302,475 $ 270,766 $ 254,376 $ (214,763) $ (209,339) $ (193,461)
========== ========== ========== =========== =========== ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS
OF DECEMBER 31:
Discount rate 6.75% 7.00% 7.25% 6.75% 7.00% 7.25%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
Rate of compensation increase 5.00% 5.00% 5.00%
Health care cost trend rate 6.70% 7.20% 7.75%
NET PERIODIC BENEFIT (CREDIT) COST:
Service and interest cost $ 14,506 $ 14,429 $ 14,449 $ 17,786 $ 17,428 $ 15,810
Net amortization and deferral (2,524) (1,008) (145) (2,809) (2,689) (2,696)
Expected return on assets (37,531) (33,594) (29,602)
Settlement gain (5,302)
---------- ---------- ---------- ----------- ----------- -----------
Net periodic benefit (credit) cost $ (30,851) $ (20,173) $ (15,298) $ 14,977 $ 14,739 $ 13,114
========== ========== ========== =========== =========== ===========
</TABLE>
27
<PAGE> 17
Plan assets include 1,938,800 shares of the Company's common stock at December
31, 1998. The ending market value and dividends received during the year for
those shares was $56,952 and $872, respectively.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $15,612, $15,573 and $11,541, respectively, as of
December 31, 1997.
The Company's annual contribution for its defined contribution pension plans,
which is based on a level percentage of compensation for covered employees, was
$27,004 for 1998, $28,255 for 1997, and $24,730 for 1996.
The health care plans are contributory and contain cost-sharing features such as
deductibles and coinsurance. There were 15,894, 16,049, and 16,935 active
employees entitled to receive benefits under these plans as of December 31,
1998, 1997 and 1996, respectively. The cost of these benefits for active
employees is recognized as claims are incurred and amounted to $47,563, $47,484,
and $44,221 for 1998, 1997, and 1996, respectively. The Company has a fund, to
which it no longer intends to contribute, that provides for payment of health
care benefits of certain qualified employees. Distributions from the fund
amounted to $4,928 in 1998, $5,025 in 1997, and $4,618 in 1996.
Employees of the Company who were hired prior to January 1, 1993 and who
are not members of a collective bargaining unit, and certain groups of employees
added through acquisitions, are eligible for certain health care and life
insurance benefits upon retirement from active service, subject to the terms,
conditions and limitations of the applicable plans. There were 4,800, 4,229, and
4,152 retired employees entitled to receive benefits as of December 31, 1998,
1997 and 1996, respectively. The plans are unfunded.
The health care cost trend rate is assumed to decrease gradually to 5.5 percent
for 2003 and thereafter. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following effects
as of December 31, 1998:
<TABLE>
<CAPTION>
ONE-PERCENTAGE-POINT
----------------------
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest
cost components $ 1,300 $ 1,290
Effect on the postretirement benefit
obligation $16,040 $14,870
</TABLE>
NOTE 7--LONG-TERM DEBT
<TABLE>
<CAPTION>
Amount Outstanding
---------------------------------------------------
Due Date 1998 1997 1996
------------------ --------------- ---------------- ---------------
<S> <C> <C> <C>
6.85% Notes 2007 $ 199,742 $ 199,710
7.375% Debentures 2027 149,903 149,900
7.45% Debentures 2097 149,396 149,390
6.5% Notes 2002 99,966 99,955
6.25% Notes 2000 99,974 99,948
Floating Rate Notes 50,000 $ 100,000
5.5% Notes 2027 49,922
9.875% Debentures 2007 to 2016 15,900 15,900 15,900
6% to 9% Promissory Notes Through 2004 10,623 23,791 22,618
8% to 12% Promissory Notes partially secured by
certain land and buildings and other Through 2005 3,884 4,495 3,242
4.75% Promissory Note 2000 800 800 800
Other Obligations 95 108 119
--------------- ---------------- ---------------
$ 730,283 $843,919 $ 142,679
=============== ================ ===============
</TABLE>
Maturities of long-term debt are as follows for the next five years:
$118,178 in 1999; $105,958 in 2000; $4,141 in 2001; $102,960 in 2002; and $1,542
in 2003.
Interest expense on long-term debt amounted to $59,137, $52,351 and
$8,602 for 1998, 1997 and 1996, respectively. There were no interest charges
capitalized during the periods presented.
Effective January 3, 1997, the Company entered into new revolving
credit agreements aggregating a maximum borrowing amount of $1,450,000.
Amendments in 1997 and 1998 reduced the aggregate maximum borrowing amount under
these agreements to $1,080,000 and $1,064,000, respectively. Effective January
1, 1999, the agreements were further amended to reflect the following: 1) a
364-day agreement aggregating $147,200; and 2) a five-year agreement aggregating
$612,800, with $104,000 expiring January 3, 2003 and $508,800 expiring January
3, 2004. There were no outstanding borrowings under any revolving credit
agreement for all periods presented.
The aggregate principal amount of unsecured short-term notes that may
be issued under the Company's commercial paper program was increased from
$600,000 to $1,450,000 in January 1997 and subsequently decreased to $1,000,000
in May 1997. The Company uses the revolving credit agreements to satisfy this
program's dollar for dollar liquidity requirement. At December 31, 1997 and
1996, outstanding borrowings under this program totaled $106,748 and $166,246,
respectively, and are included in short-term borrowings on the respective
balance sheets. The weighted-average interest rates related to these borrowings
were 5.89% and 5.71% at December 31, 1997 and 1996, respectively. There were no
outstanding borrowings under this program at December 31, 1998. Effective
January 1, 1999, this program will be limited to $760,000, since the revolving
credit agreements' aggregate maximum borrowing limit has fallen below this
program's limit.
28
<PAGE> 18
On February 10, 1997, the Company issued $400,000 of debt securities
under its $450,000 shelf registration with the Securities and Exchange
Commission consisting of $100,000 of 6.25% notes due February 1, 2000, $100,000
of 6.5% notes due February 1, 2002 and $200,000 of 6.85% notes due February 1,
2007. In addition, on February 10, 1997, the Company issued $150,000 of 7.375%
debentures due February 1, 2027 and $150,000 of 7.45% debentures due February 1,
2097 in a private offering not registered under the Securities Act of 1933, as
amended (Securities Act). In July 1997, the Company completed offers to exchange
all of its outstanding $300,000 of debentures for an equal principal amount of
newly-issued debentures containing identical terms except that the newly-issued
debentures were registered under the Securities Act. The net proceeds from these
borrowings were used to refinance a portion of the Company's commercial paper
debt.
On October 6, 1997, the Company issued the remaining $50,000 of debt
securities under this shelf registration consisting of 5.5% notes, due October
15, 2027, with provisions that the holders, individually or in the aggregate,
may exercise a put option which would require the Company to repay the
securities at an earlier date. This option is first available to the holders on
October 15, 1999, and then annually on each October 15 thereafter. Accordingly,
these debt securities have been reclassified to current at December 31, 1998.
The net proceeds from this borrowing were used to refinance short-term
commercial paper debt.
On December 24, 1997, the Company filed a shelf registration with the
Securities and Exchange Commission covering $150,000 of unsecured debt
securities with maturities greater than nine months from the date of issue. The
Company may issue these securities from time to time in one or more series and
will offer the securities on terms determined at the time of sale. There were no
outstanding borrowings under this registration.
On August 18, 1998, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission to issue debt securities,
common stock and warrants up to the amount of $1,500,000. The registration was
effective September 8, 1998. There were no outstanding borrowings under this
registration.
NOTE 8--LEASES
The Company leases certain stores, warehouses, manufacturing
facilities, office space and equipment. Renewal options are available on the
majority of leases and, under certain conditions, options exist to purchase some
properties. Rental expense for operating leases was $117,762, $113,339 and
$104,894 for 1998, 1997 and 1996, respectively. Certain store leases require the
payment of contingent rentals based on sales in excess of specified minimums.
Contingent rentals included in rent expense were $10,329 in 1998, $10,396 in
1997 and $9,877 in 1996. Rental income, as lessor, from real estate leasing
activities and sublease rental income for all years presented was not
significant.
Following is a schedule, by year and in the aggregate, of future
minimum lease payments under noncancellable operating leases having initial or
remaining terms in excess of one year at December 31, 1998:
<TABLE>
<S> <C>
1999 $ 89,051
2000 75,342
2001 60,610
2002 44,190
2003 27,253
Later years 84,336
-----------
Total minimum lease payments $ 380,782
===========
</TABLE>
NOTE 9--OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Environmental-related $127,613 $143,276 $139,057
Other 174,890 140,924 76,064
-------- -------- --------
$302,503 $284,200 $215,121
======== ======== ========
</TABLE>
The accrual for environmental-related long-term liabilities represents
the Company's provisions for estimated costs associated with extended
environmental remediation-related activities at some of its current and former
sites. Also, the Company, together with other parties, has been designated a
potentially responsible party under federal and state environmental protection
laws for the remediation of hazardous waste at a number of third-party sites,
primarily Superfund sites. In general, these laws provide that potentially
responsible parties may be held jointly and severally liable for investigation
and remediation costs regardless of fault. The Company provides for, and
includes in long-term liabilities, its estimated potential long-term liability
for investigation and remediation costs with respect to such third-party sites.
The Company initially provides for the estimated cost of certain
environmental-related activities relating to its current, former and third-party
sites when costs can be reasonably estimated. These estimates are determined
based on currently available facts regarding each site. If the best estimate of
costs can only be identified as a range and no specific amount within that range
can be determined more likely than any other amount within the range, the
minimum of the range is accrued. Actual costs incurred may vary from these
estimates due to the inherent uncertainties involved. The Company believes that
any additional liability in excess of amounts provided which may result from the
resolution of such matters will not have a material adverse effect on the
financial condition, liquidity or cash flow of the Company.
The decrease in the accrual for environmental-related long-term
liabilities in 1998 represents primarily the excess of current year expenditures
over current year provisions and adjustments to the previous accrual resulting
from the ongoing evaluation of environmental matters at certain current, former
and third-party sites.
In addition to the environmental-related long-term liabilities shown
above, certain current environmental-related liabilities are included in other
accruals on the consolidated balance sheets.
29
<PAGE> 19
NOTE 10--STOCK PURCHASE PLAN
As of December 31, 1998, 14,413 employees participated through regular
payroll deductions in the Company's Employee Stock Purchase and Savings Plan.
The Company's contribution charged to operations amounted to $32,679, $33,582
and $29,935 for 1998, 1997 and 1996, respectively. Additionally, the Company
made contributions on behalf of participating employees, which represent salary
reductions for income tax purposes, amounting to $20,250 in 1998, $18,905 in
1997 and $15,282 in 1996.
At December 31, 1998, there were 24,765,710 shares of the Company's
stock being held by this plan, representing 14.5 percent of the total number of
voting shares outstanding. Shares of company stock credited to each member's
account under the plan are voted by the trustee under instructions from each
individual plan member. Shares for which no instructions are received are voted
by the trustee in the same proportion as those for which instructions are
received.
NOTE 11--CAPITAL STOCK
<TABLE>
<CAPTION>
Shares Shares
in Treasury Outstanding
------------ ------------
<S> <C> <C>
Balance at January 1, 1996 31,310,828 170,909,626
Stock issued upon:
Exercise of stock options 158,688 918,552
Restricted stock grants 3,000
------------ ------------
Balance at December 31, 1996 31,469,516 171,831,178
Stock issued upon:
Exercise of stock options 160,739 967,040
Restricted stock grants 109,200
------------ ------------
Balance at December 31, 1997 31,630,255 172,907,418
Stock issued upon:
Exercise of stock options 37,663 1,163,813
Restricted stock grants/(cancellations) (38,000)
Treasury stock acquired 3,000,000 (3,000,000)
------------ ------------
Balance at December 31, 1998 34,667,918 171,033,231
============ ============
</TABLE>
An aggregate of 20,389,127, 21,594,603, and 8,686,286 shares of stock
at December 31, 1998, 1997 and 1996, respectively, were reserved for future
grants of restricted stock and the exercise and future grants of stock options.
Shares outstanding include 159,800 and 115,000 shares of stock held in a
revocable trust at December 31, 1998 and 1997, respectively. At December 31,
1998, there were 300,000,000 shares of common stock and 30,000,000 shares of
serial preferred stock authorized for issuance (3,000,000 shares of the
authorized serial preferred stock have been designated as cumulative redeemable
serial preferred stock which may be issued pursuant to the Company's
shareholders' rights plan if the Company becomes the target of coercive and
unfair takeover tactics).
NOTE 12--STOCK PLAN
The Company's 1994 Stock Plan permits the granting of stock options,
stock appreciation rights and restricted stock to eligible employees. The 1994
Stock Plan succeeded the 1984 Stock Plan which expired on February 15, 1994.
Although no further grants may be made under the 1984 Stock Plan, all rights
granted under such plan remain. In April 1997, the 1994 Stock Plan was amended
to authorize an additional 14,000,000 shares to the shares then available for
future grants. Non-qualified and incentive stock options have been granted to
certain officers and key employees under the plans at prices not less than fair
market value of the shares, as defined by the plans, at the date of grant. The
options generally become exercisable to the extent of one-third of the optioned
shares for each full year following the date of grant and generally expire ten
years after the date of grant. In April 1997, the 1997 Stock Plan for
Nonemployee Directors was adopted. This plan provides for the granting of stock
options and restricted stock to members of the Board of Directors who are not
employees of the Company. There were 400,000 shares authorized as available for
grant under the 1997 Stock Plan. Grants made pursuant to the 1997 Stock Plan are
authorized by the Board of Directors. The number of options and any period of
service required before the options may be exercised is determined by the Board
of Directors at the time of grant. No options may be exercised more than ten
years from the date of grant.
Restricted stock grants, which generally require four years of
continuous employment from the date of grant before vesting and receiving the
shares without restriction, have been awarded to certain officers and key
employees under the 1994 Stock Plan. The number of shares to be received without
restriction is based on the Company's performance relative to a peer group of
companies. During 1997, 123,200 shares of restricted stock vested and were
delivered to officers and employees. No shares vested during 1998 or 1996. At
December 31, 1998, there were 323,000 shares of restricted stock outstanding.
Unamortized deferred compensation expense with respect to the restricted stock
grants amounted to $2,781, $5,401 and $2,962 at December 31, 1998, 1997 and
1996, respectively, and is being amortized over the four-year vesting period.
Deferred compensation expense aggregated $2,090, $528 and $3,983 in 1998, 1997
and 1996, respectively. No stock appreciation rights have been granted.
A summary of restricted stock granted during 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Shares granted 4,000 232,500 3,000
Weighted-average fair value
of restricted shares granted
during year $33.06 $27.91 $20.72
</TABLE>
30
<PAGE> 20
The Company has elected to follow Accounting Principles Board Opinion
(APBO) No. 25, "Accounting for Stock Issued to Employees", and related
interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", requires use of highly subjective assumptions in
option valuation models. Under APBO No. 25, because the exercise price of the
Company's employee stock options is not less than fair market price of the
shares at the date of grant, no compensation is recognized in the financial
statements. Pro forma information regarding net income and earnings per share,
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, is required by that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for all
options granted:
<TABLE>
<CAPTION>
1998 1997 1996
------------ -------------- --------------
<S> <C> <C> <C>
Risk-free interest rate 5.14% 6.10% 5.99%
Expected life of option 3 YEARS 3 years 3 years
Expected dividend yield of stock 2.00% 2.00% 2.00%
Expected volatility of stock 0.194 0.164 0.201
</TABLE>
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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income $ 269,838 $ 257,757 $ 228,126
Pro forma net income per common share:
Basic $ 1.57 $ 1.50 $ 1.33
Diluted $ 1.56 $ 1.49 $ 1.32
</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, 1998, 1997 and 1996, is shown in
the following table:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ---------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
OPTIONED EXERCISE Optioned Exercise Optioned Exercise
SHARES PRICE Shares Price Shares Price
-------------- ------------ ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 5,810,471 $18.47 5,434,596 $14.91 4,976,268 $12.35
Granted 1,867,500 29.10 1,746,500 27.93 1,648,500 20.82
Exercised (1,201,476) 14.00 (1,127,779) 12.88 (1,077,240) 11.28
Canceled (216,793) 26.68 (242,846) 22.68 (112,932) 18.36
-------------- ------------ ------------ -------------- -------------- ------------
Outstanding end of year 6,259,702 $22.89 5,810,471 $18.47 5,434,596 $14.91
============== ============ ============ ============== ============== ============
Exercisable at end of year 3,019,873 $17.77 2,924,515 $13.96 3,011,242 $11.99
Weighted-average fair value of
options granted during year $5.12 $4.53 $3.57
Reserved for future grants 14,129,425 15,784,132 3,251,686
</TABLE>
A summary by range of exercise prices for optioned shares outstanding as of
December 31, 1998 from $6.47 to $35.34 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> <C>
less than $12.00 639,175 $ 9.34 639,175 $ 9.34 1.89
$12.00 - $19.99 1,126,701 15.89 1,126,701 15.89 5.25
$20.00 - $26.00 1,276,779 21.17 762,153 20.94 7.28
greater than $26.00 3,217,047 28.72 491,844 27.19 8.82
-------------- -------------- -------------- -------------- --------------
6,259,702 $ 22.89 3,019,873 $ 17.77 7.51
============== ============== ============== ============== ==============
</TABLE>
31
<PAGE> 21
NOTE 13--INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are currently in
effect.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of December
31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $ 51,997 $ 38,605 $ 24,393
Deferred employee benefit items 35,163 26,128 27,873
---------- ---------- ---------
Total deferred tax liabilities $ 87,160 $ 64,733 $ 52,266
========== ========== =========
Deferred tax assets:
Dispositions, environmental and other similar items $ 61,857 $ 61,537 $ 55,143
Other items (each less than 5% of total assets) 88,432 99,120 100,679
---------- ---------- ---------
Total deferred tax assets $ 150,289 $ 160,657 $ 155,822
========== ========== =========
</TABLE>
Significant components of the provisions for income taxes are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal $ 106,538 $ 87,626 $ 124,847
Foreign 6,982 3,472 8,125
State and Local 23,162 16,318 27,046
---------- ---------- ---------
Total Current 136,682 107,416 160,018
Deferred:
Federal 20,946 46,890 (12,169)
Foreign 5,587 2,375 417
State and Local 4,024 9,982 (2,046)
---------- ---------- ---------
Total Deferred 30,557 59,247 (13,798)
---------- ---------- ---------
Total income tax expense $ 167,239 $ 166,663 $ 146,220
========== ========== =========
</TABLE>
Significant components of income before income taxes as
used for income tax purposes, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Domestic $ 382,469 $ 382,325 $ 343,445
Foreign 57,634 44,952 31,932
---------- ---------- ---------
$ 440,103 $ 427,277 $ 375,377
========== ========== =========
</TABLE>
A reconciliation of the statutory federal income tax rate and the
effective tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Effect of:
State and local taxes 4.0 4.0 4.3
Investment vehicles (2.7) (3.3) (2.9)
Other, net 1.7 3.3 2.6
---------- ---------- ---------
Effective tax rate 38.0% 39.0% 39.0%
========== ========== =========
</TABLE>
The provision includes estimated taxes payable on that portion of
retained earnings of foreign subsidiaries expected to be received by the
Company. A provision was not made with respect to $6,862 of retained earnings at
December 31, 1998 that have been invested by foreign subsidiaries. It is not
practicable to estimate the amount of unrecognized deferred tax liability for
undistributed foreign earnings.
Netted against the Company's other deferred tax assets are valuation
reserves of $16,703, $19,836 and $19,158 at December 31, 1998, 1997 and 1996,
respectively, resulting from the uncertainty as to the realization of the tax
benefits resulting from certain foreign net operating losses and other foreign
assets.
NOTE 14--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1998
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER NET INCOME PER
QUARTER NET SALES GROSS PROFIT NET INCOME SHARE - BASIC SHARE - DILUTED
- -------------- ------------------ ------------------ ------------------ --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1ST $ 1,104,147 $ 454,939 $ 25,198 $.15 $.14
2ND 1,377,785 599,465 99,450 .58 .57
3RD 1,341,431 587,902 100,748 .59 .58
4TH 1,111,067 487,665 47,468 .28 .28
</TABLE>
Net income during the fourth quarter was increased by $883 (no per share
effect) due to certain year-end adjustments. Cost of goods sold decreased by
$13,962 ($9,075 after-tax, $.05 per share) as a result of physical inventory
adjustments of $17,411 ($11,317 after-tax, $.06 per share) and other year-end
adjustments of $7,818 ($5,082 after-tax, $.03 per share). These adjustments were
partially offset by provisions for the closing costs associated with certain
operations of $11,267 ($7,324 after-tax, $.04 per share). Administrative
expenses increased $295 ($192 after-tax, no per share effect) due to other
year-end adjustments. Other costs and expenses increased $12,785 ($8,310
after-tax, $.05 per share) due to the provision of $12,290 ($7,988 after-tax,
$.05 per share) for the adjustment to net realizable value of certain net fixed
assets and due to the net provisions for environmental-related matters at
current, former and third-party sites of $495 ($322 after-tax, no per share
effect).
32
<PAGE> 22
<TABLE>
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------------------------------
Net Income per Net Income per
Quarter Net Sales Gross Profit Net Income Share - Basic Share - Diluted
- -------------- ------------------ ------------------ ------------------ --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1st $ 1,069,787 $ 443,614 $ 23,134 $.13 $.13
2nd 1,373,351 597,556 93,203 .54 .54
3rd 1,346,531 583,391 99,211 .58 .57
4th 1,091,434 472,150 45,066 .26 .26
</TABLE>
Year-end adjustments during the fourth quarter slightly decreased net
income with no effect on net income per share. Cost of goods sold decreased by a
net of $2,998 ($1,949 after-tax, $.01 per share) as a result of physical
inventory adjustments of $6,967 ($4,529 after-tax, $.03 per share) which were
partially offset by various year end charges of $3,969 ($2,580 after-tax, $.02
per share). Administrative expenses were reduced $2,451 ($1,593 after-tax, $.01
per share) due to other year-end adjustments. Other costs and expenses increased
$5,525 ($3,591 after-tax, $.02 per share) due to provisions for
environmental-related matters at certain current, former and third-party sites
of $493 ($320 after-tax, no per share effect) and increases to prior accruals
for the disposition and termination of operations of $5,032 ($3,271 after-tax,
$.02 per share).
NOTE 15--NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
BASIC
Average common shares outstanding 172,162,472 172,107,459 171,117,390
============ ============ ============
Net income $ 272,864 $ 260,614 $ 229,157
============ ============ ============
Net income per common share $ 1.58 $ 1.51 $ 1.34
============ ============ ============
DILUTED
Average common shares outstanding 172,162,472 172,107,459 171,117,390
Non-vested restricted stock grants (see Note 12) 235,317 312,988 300,000
Stock options -- treasury stock method 1,137,890 1,611,895 1,408,386
------------ ------------ ------------
Average common shares assuming dilution 173,535,679 174,032,342 172,825,776
============ ============ ============
Net income $ 272,864 $ 260,614 $ 229,157
============ ============ ============
Net income per common share $ 1.57 $ 1.50 $ 1.33
============ ============ ============
</TABLE>
Net income per common share has been computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 adopted during the quarter ended
December 31, 1997. Net income per common share amounts shown for 1996 have been
restated to conform to the provisions of SFAS No. 128.
NOTE 16--COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires other
comprehensive income to include foreign currency translation adjustments and
minimum pension liability adjustments, which prior to adoption were reported
separately in shareholders' equity. The December 31, 1997 and 1996 financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
Cumulative other comprehensive loss consists of the following
components:
<TABLE>
<CAPTION>
Foreign Minimum Cumulative
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustments Loss
----------- ----------- -------------
<S> <C> <C> <C>
Balance at January 1, 1996 $ (20,657) $ (20,657)
Other comprehensive income 1,675 1,675
----------- ----------
Balance at December 31, 1996 (18,982) (18,982)
Other comprehensive loss (14,107) $ (428) (14,535)
----------- ------- ----------
Balance at December 31, 1997 (33,089) (428) (33,517)
Other comprehensive loss (11,838) 428 (11,410)
----------- ------- ----------
Balance at December 31, 1998 $ (44,927) $ 0 $ (44,927)
=========== ======= ==========
</TABLE>
33
<PAGE> 23
QUARTERLY STOCK PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------- -----------------------------------------
QUARTER HIGH LOW DIVIDEND Quarter High Low Dividend
--------- ---------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1ST $35.625 $25.750 $.1125 1st $29.125 $25.938 $.10
2ND 37.875 30.063 .1125 2nd 32.375 24.125 .10
3RD 35.000 19.438 .1125 3rd 33.375 27.063 .10
4TH 29.813 20.563 .1125 4th 30.188 25.188 .10
</TABLE>
35
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARIES ORGANIZATION
------------ ---------------------
<S> <C>
DOMESTIC SUBSIDIARIES
Contract Transportation Systems Co. Delaware
DIMC, Inc. Delaware
Dupli-Color Products Company Delaware
Sherwin-Williams Automotive Finishes Corp. Delaware
SW Racing Corp. Delaware
SWIMC, Inc. Delaware
The Sherwin-Williams Acceptance Corporation Nevada
Thompson Minwax International Corp. Delaware
FOREIGN SUBSIDIARIES
Compania Sherwin-Williams, S.A. de C.V. Mexico
Distribuidora Excelo, S.A. de C.V. Mexico
Globo Tintas Ltda. Brazil
Kriesol, S.A. Uruguay
Macromol, S.A. de C.V. Mexico
Marson Chilena, S.A. Chile
Pinturas Excelo, S.A. de C.V. Mexico
Productos Quimicos y Pinturas, S.A. de C.V. Mexico
Proquipsa, S.A. de C.V. Mexico
Quetzal Pinturas, S.A. de C.V. Mexico
Ronseal (Ireland) Limited Ireland
Ronseal Limited United Kingdom
Sherwin-Williams Argentina I.y C.S.A. Argentina
Sherwin-Williams do Brasil Industria e Comercio Ltda. Brazil
Sherwin-Williams Canada Inc. Canada
Sherwin-Williams (Caribbean) N.V. Curacao
Sherwin-Williams Cayman Islands Limited Cayman Islands
Sherwin-Williams Chile S.A. Chile
Sherwin-Williams Foreign Sales Corporation Limited U.S. Virgin Islands
Sherwin-Williams Japan Co., Ltd. Japan
Sherwin-Williams (West Indies) Limited Jamaica
SW Paints Ltda. Brazil
The Sherwin-Williams Company Resources Limited Jamaica
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 25, 1999 included in
this Annual Report (Form 10-K) of The Sherwin-Williams Company with respect to
the consolidated financial statements of The Sherwin-Williams Company which are
incorporated by reference in this Annual Report (Form 10-K) from the 1998
Annual Report to Shareholders of The Sherwin-Williams Company.
We also consent to the incorporation by reference in the following
registration statements and related prospectuses of our report dated January
25, 1999, included in this Annual Report (Form 10-K) of The Sherwin-Williams
Company with respect to the consolidated financial statements of The
Sherwin-Williams Company which are incorporated by reference in this Annual
Report (Form 10-K) from the 1998 Annual Report to Shareholders of The
Sherwin-Williams Company and schedule included in this Annual Report (Form
10-K) of The Sherwin-Williams Company:
<TABLE>
<CAPTION>
REGISTRATION
NUMBER DESCRIPTION
- ------------ -----------
<S> <C>
333-66295 The Sherwin-Williams Company Deferred Compensation Savings
Plan, The Sherwin-Williams Company Key Management Deferred
Compensation Plan and The Sherwin-Williams Company
Director Deferred Fee Plan Form S-8 Registration Statement
333-61735 The Sherwin-Williams Company Form S-3 Registration Statement
333-41659 The Sherwin-Williams Company Form S-3 Registration Statement
333-25671 The Sherwin-Williams Company 1997 Stock Plan for Nonemployee
Directors Form S-8 Registration Statement
333-25669 The Sherwin-Williams Company 1994 Stock Plan Form S-8
Registration Statement
333-25607 The Sherwin-Williams Company S-4 Registration Statement
333-01093 The Sherwin-Williams Company Form S-3 Registration Statement
333-00725 The Sherwin-Williams Company Form S-4 Registration Statement
33-62229 The Sherwin-Williams Company Employee Stock Purchase and
Savings Plan Form S-8 Registration Statement
2-80510 Post-Effective Amendment Number 5 to Form S-8 Registration
Statement relating to The Sherwin-Williams Company
Employee Stock Purchase and Savings Plan
33-52227 The Sherwin-Williams Company 1994 Stock Plan Form S-8
Registration Statement
33-28585 The Sherwin-Williams Company 1984 Stock Plan Form S-8
Registration Statement
33-22705 The Sherwin-Williams Company Form S-3 Registration Statement
</TABLE>
Cleveland, Ohio
March 8, 1999
ERNST & YOUNG LLP
<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 under the provisions of the Securities Exchange Act of
1934, as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints T.A. Commes, L.J. Pitorak and L.E.
Stellato, or any of them, with full power of substitution and resubstitution, as
attorneys or attorney to sign for me and in my name, in the capacities indicated
below, said Annual Report on Form 10-K and any and all amendments, supplements,
and exhibits thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission or any national securities
exchange pertaining thereto, with full power and authority to do and perform any
and all acts and things whatsoever required and necessary to be done in the
premises, hereby ratifying and approving the acts of said attorneys and any of
them and any such substitute.
Executed the date set opposite my name.
Date: February 1, 1999 /s/ J. G. Breen
------------------- ------------------------------------
J. G. Breen
Chairman and Chief Executive Officer,
Director
<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 under the provisions of the Securities Exchange Act of
1934, as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, L.J. Pitorak and L.E.
Stellato, or any of them, with full power of substitution and resubstitution, as
attorneys or attorney to sign for me and in my name, in the capacities indicated
below, said Annual Report on Form 10-K and any and all amendments, supplements,
and exhibits thereto, and any and all applications or other documents to be
filed with the Securities and Exchange Commission or any national securities
exchange pertaining thereto, with full power and authority to do and perform any
and all acts and things whatsoever required and necessary to be done in the
premises, hereby ratifying and approving the acts of said attorneys and any of
them and any such substitute.
Executed the date set opposite my name.
Date: February 2, 1999 /s/ T. A. Commes
----------------------- ------------------------------------
T. A. Commes
President and Chief Operating
Officer, Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes and L.E. Stellato,
or any of them, with full power of substitution and resubstitution, as attorneys
or attorney to sign for me and in my name, in the capacities indicated below,
said Annual Report on Form 10-K and any and all amendments, supplements, and
exhibits thereto, and any and all applications or other documents to be filed
with the Securities and Exchange Commission or any national securities exchange
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises,
hereby ratifying and approving the acts of said attorneys and any of them and
any such substitute.
Executed the date set opposite my name.
Date: February 3, 1999 /s/ L. J. Pitorak
----------------------- ------------------------------------
L. J. Pitorak
Senior Vice President - Finance, Treasurer
and Chief Financial Officer
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 3, 1999 /s/ J. L. Ault
----------------------- ------------------------------------
J. L. Ault
Vice President - Corporate Controller
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 31, 1999 /s/ J. M. Biggar
----------------------- ------------------------------------
J. M. Biggar
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 3, 1999 /s/ J. C. Boland
----------------------- ------------------------------------
J. C. Boland
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 30, 1999 /s/ D. E. Collins
----------------------- ------------------------------------
D. E. Collins
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 30, 1999 /s/ D. E. Evans
----------------------- ------------------------------------
D. E. Evans
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 2, 1999 /s/ R. W. Mahoney
----------------------- ------------------------------------
R. W. Mahoney
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 3, 1999 /s/ W. G. Mitchell
----------------------- ------------------------------------
W. G. Mitchell
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 3, 1999 /s/ A. M. Mixon, III
----------------------- ------------------------------------
A. M. Mixon, III
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 1, 1999 /s/ C. E. Moll
----------------------- ------------------------------------
C. E. Moll
Director
<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 under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: January 29, 1999 /s/ H. O. Petrauskas
----------------------- ------------------------------------
H. O. Petrauskas
Director
<PAGE> 14
POWER OF ATTORNEY
THE SHERWIN-WILLIAMS COMPANY
----------------------------
The undersigned Director of The Sherwin-Williams Company, an Ohio
corporation, which corporation anticipates filing with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of 1934,
as amended, and any rules and regulations of the Securities and Exchange
Commission, an Annual Report on Form 10-K for the fiscal year ended December 31,
1998, hereby constitutes and appoints J.G. Breen, T.A. Commes, L.J. Pitorak and
L.E. Stellato, or any of them, with full power of substitution and
resubstitution, as attorneys or attorney to sign for me and in my name, in the
capacities indicated below, said Annual Report on Form 10-K and any and all
amendments, supplements, and exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission or any
national securities exchange pertaining thereto, with full power and authority
to do and perform any and all acts and things whatsoever required and necessary
to be done in the premises, hereby ratifying and approving the acts of said
attorneys and any of them and any such substitute.
Executed the date set opposite my name.
Date: February 3, 1999 /s/ R. K. Smucker
----------------------- ------------------------------------
R. K. Smucker
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DEC. 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000089800
<NAME> THE SHERWIN-WILLIAMS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,133
<SECURITIES> 0
<RECEIVABLES> 629,909
<ALLOWANCES> 25,393
<INVENTORY> 682,523
<CURRENT-ASSETS> 1,547,290
<PP&E> 1,440,244
<DEPRECIATION> 721,387
<TOTAL-ASSETS> 4,065,462
<CURRENT-LIABILITIES> 1,111,973
<BONDS> 730,283
0
0
<COMMON> 205,701
<OTHER-SE> 1,510,239
<TOTAL-LIABILITY-AND-EQUITY> 4,065,462
<SALES> 4,934,430
<TOTAL-REVENUES> 4,934,430
<CGS> 2,804,459
<TOTAL-COSTS> 2,804,459
<OTHER-EXPENSES> 26,046
<LOSS-PROVISION> 15,176
<INTEREST-EXPENSE> 71,971
<INCOME-PRETAX> 440,103
<INCOME-TAX> 167,239
<INCOME-CONTINUING> 272,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272,864
<EPS-PRIMARY> 1.58<F1>
<EPS-DILUTED> 1.57<F2>
<FN>
<F1>Represents net income per common share - basic in accordance with SFAS
No. 128.
<F2>Represents net income per common share - diluted in accordance with SFAS
No. 128.
</FN>
</TABLE>
