<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to ______
Commission file number 1-4851
------
THE SHERWIN-WILLIAMS COMPANY
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0526850
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Prospect Avenue, N.W., Cleveland, Ohio 44115-1075
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(Address of principal executive offices) (Zip Code)
(216) 566-2000
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.00 Par Value - 162,667,335 shares as of July 31, 2000.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Thousands of dollars, except per share data
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,429,267 $ 1,384,071 $ 2,651,183 $ 2,511,938
Costs and expenses:
Cost of goods sold 787,793 773,681 1,493,465 1,424,462
Selling, general and administrative expenses 434,846 424,110 870,767 835,723
Interest expense 16,665 15,934 31,542 31,704
Interest and net investment income (917) (1,302) (1,956) (2,994)
Other expense - net 4,035 (1,892) 4,515 3,057
----------- ----------- ----------- -----------
1,242,422 1,210,531 2,398,333 2,291,952
----------- ----------- ----------- -----------
Income before income taxes 186,845 173,540 252,850 219,986
Income taxes 71,002 65,946 96,084 83,595
----------- ----------- ----------- -----------
Net income $ 115,843 $ 107,594 $ 156,766 $ 136,391
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.71 $ 0.64 $ 0.96 $ 0.80
=========== =========== =========== ===========
Diluted $ 0.71 $ 0.63 $ 0.96 $ 0.80
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars
<TABLE>
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,726 $ 18,623 $ 7,416
Accounts receivable, less allowance 767,785 606,046 744,608
Inventories:
Finished goods 607,335 591,912 554,486
Work in process and raw materials 112,282 111,476 121,679
---------------- ---------------- ----------------
719,617 703,388 676,165
Deferred income taxes 130,242 128,177 117,351
Other current assets 211,782 141,143 154,973
---------------- ---------------- ----------------
Total current assets 1,831,152 1,597,377 1,700,513
Goodwill 1,060,937 1,039,555 1,065,244
Intangible assets 267,955 274,924 283,414
Deferred pension assets 348,240 334,094 318,167
Other assets 116,588 94,464 78,515
Property, plant and equipment 1,516,141 1,447,927 1,475,633
Less allowances for depreciation and amortization 779,697 736,251 760,086
---------------- ---------------- ----------------
736,444 711,676 715,547
---------------- ---------------- ----------------
Total assets $ 4,361,316 $ 4,052,090 $ 4,161,400
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 292,763 $ 75,972
Accounts payable 503,132 $ 458,919 475,888
Compensation and taxes withheld 116,181 140,934 105,252
Current portion of long-term debt 22,603 122,270 160,144
Other accruals 364,939 382,343 393,974
Accrued taxes 128,015 85,396 138,699
---------------- ---------------- ----------------
Total current liabilities 1,427,633 1,189,862 1,349,929
Long-term debt 621,094 624,365 626,806
Postretirement benefits other than pensions 208,207 206,591 207,731
Other long-term liabilities 325,979 332,740 290,840
Shareholders' equity:
Common stock - $1.00 par value:
162,641,951, 165,663,601 and 169,501,425 shares
outstanding at June 30, 2000, Dec. 31, 1999
and June 30, 1999, respectively 206,487 206,309 206,172
Other capital 153,928 150,887 149,232
Retained earnings 2,133,155 2,020,851 1,893,540
Treasury stock, at cost (601,424) (533,891) (438,207)
Cumulative other comprehensive loss (113,743) (145,624) (124,643)
---------------- ---------------- ----------------
Total shareholders' equity 1,778,403 1,698,532 1,686,094
---------------- ---------------- ----------------
Total liabilities and shareholders' equity $ 4,361,316 $ 4,052,090 $ 4,161,400
================ ================ ================
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of dollars
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net income $ 156,766 $ 136,391
Adjustments to reconcile net income to net operating cash:
Depreciation 53,254 50,826
Amortization of goodwill, intangibles, and other assets 26,115 24,919
Increase in deferred pension assets (14,146) (14,161)
Net increase in postretirement liability 1,616 2,968
Other 6,928 3,598
Change in current assets and liabilities-net (199,059) (49,629)
Other (13,638) (11,845)
----------------- -----------------
Net operating cash 17,836 143,067
INVESTING
Capital expenditures (78,655) (67,841)
Acquisitions of assets (43,210) (12,651)
Increase in other investments (18,437) (8,627)
Proceeds from sale of assets 7,670
Other 17,301 7,055
----------------- -----------------
Net investing cash (115,331) (82,064)
FINANCING
Net increase in short-term borrowings 292,763 75,972
Increase in long-term debt 6,533
Payments of long-term debt (109,491) (61,581)
Payments of cash dividends (44,462) (40,796)
Proceeds from stock options exercised 2,195 5,499
Treasury stock acquired (67,533) (51,742)
Other 479 648
----------------- -----------------
Net financing cash 80,484 (72,000)
----------------- -----------------
Effect of exchange rate changes on cash 114 (720)
----------------- -----------------
Net decrease in cash and cash equivalents (16,897) (11,717)
Cash and cash equivalents at beginning of year 18,623 19,133
----------------- -----------------
Cash and cash equivalents at end of period $ 1,726 $ 7,416
================= =================
Taxes paid on income $ 55,925 $ 35,137
Interest paid on debt 34,111 32,290
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended June 30, 2000 and 1999
Note A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the fiscal year ended December
31, 1999. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The consolidated results for the six months ended June 30, 2000 are
not necessarily indicative of the results to be expected for the fiscal year
ending December 31, 2000.
Note B--DIVIDENDS
Dividends paid on common stock during each of the first two quarters of 2000 and
1999 were $.135 per share and $.12 per share, respectively.
Note C--OTHER EXPENSE - NET
Significant items included in Other expense - net are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
(Thousands of dollars) June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
----- ---- ------ ----
<S> <C> <C> <C> <C>
Dividend and royalty income $ (749) $ (744) $(2,157) $(1,977)
Net expense from financing
and investing activities 2,548 1,766 8,180 4,780
Foreign currency exchange losses (gains) 1,671 (2,901) 386 431
</TABLE>
The net expense from financing and investing activities represents the realized
gains or losses associated with disposing of fixed assets, the net gain or loss
associated with the investment of certain long-term asset funds, the net pre-tax
expense associated with the Company's investment in broad-based corporate owned
life insurance and other related fees.
Note D--COMPREHENSIVE INCOME
The Company complies with Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components, which include
net income and foreign currency translation adjustments. Comprehensive income is
summarized as follows:
<TABLE>
<CAPTION>
(Thousands of dollars) Three months ended June 30, Six months ended June 30,
-------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net income $ 115,843 $ 107,594 $ 156,766 $ 136,391
Foreign currency translation adjustments 19,206 20,849 31,881 (79,716)
---------- ---------- ---------- ---------
Comprehensive income $ 135,049 $ 128,443 $ 188,647 $ 56,675
========== ========== ========== =========
</TABLE>
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<PAGE> 6
Note E--RECLASSIFICATION
Certain amounts in the 1999 financial statements have been reclassified to
conform with the 2000 presentation.
Note F--NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
(Thousands of dollars, except per share data) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic
Average common shares outstanding 162,624,909 169,431,686 163,464,785 169,539,412
============ ============ ============ ============
Net income $ 115,843 $ 107,594 $ 156,766 $ 136,391
============ ============ ============ ============
Net income per common share $ 0.71 $ 0.64 $ 0.96 $ 0.80
============ ============ ============ ============
Diluted
Average common shares outstanding 162,624,909 169,431,686 163,464,785 169,539,412
Non-vested restricted stock grants 278,400 248,400 278,400 270,733
Stock options - treasury stock method 970,984 1,158,303 383,636 841,255
------------ ------------ ------------ ------------
Average common shares assuming dilution 163,874,293 170,838,389 164,126,821 170,651,400
============ ============ ============ ============
Net income $ 115,843 $ 107,594 $ 156,766 $ 136,391
============ ============ ============ ============
Net income per common share $ 0.71 $ 0.63 $ 0.96 $ 0.80
============ ============ ============ ============
</TABLE>
Net income per common share has been computed in accordance with SFAS No. 128.
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Note G--REPORTABLE SEGMENT INFORMATION
The Company reports segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
requires an enterprise to report segment information in the same way that
management internally organizes its business for assessing performance and
making decisions regarding allocation of resources. During the fourth quarter of
1999, following the appointment of a new chief operating decision maker, the
Company adopted revised segment reporting guidelines that changed the number and
composition of its reportable segments and changed the value of goods that are
transferred domestically between segments. The 1999 amounts displayed below have
been restated to conform to this new presentation.
Net External Sales/Operating Profit
-----------------------------------
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
(Thousands of dollars) Net Segment Net Segment
External Operating External Operating
Sales Profit Sales Profit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Three months ended June 30:
---------------------------
Paint Stores $ 868,016 $ 123,017 $ 812,927 $ 106,084
Consumer 354,870 72,500 376,796 73,053
Automotive Finishes 129,021 20,102 122,074 17,307
International Coatings 75,523 2,741 70,193 8,731
Administrative 1,837 (31,515) 2,081 (31,635)
---------- ---------- ---------- ----------
Consolidated totals $1,429,267 $ 186,845 $1,384,071 $ 173,540
========== ========== ========== ==========
Six months ended June 30:
-------------------------
Paint Stores $1,568,072 $ 166,621 $1,447,400 $ 138,971
Consumer 680,257 109,572 679,485 108,484
Automotive Finishes 249,973 34,548 237,671 31,489
International Coatings 148,965 9,648 143,229 12,123
Administrative 3,916 (67,539) 4,153 (71,081)
---------- ---------- ---------- ----------
Consolidated totals $2,651,183 $ 252,850 $2,511,938 $ 219,986
========== ========== ========== ==========
==========================================================================================
</TABLE>
Intersegment Transfers
----------------------
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ----------------------
(Thousands of dollars) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Paint Stores $ 2,235 $ 1,716 $ 4,453 $ 3,788
Consumer 247,050 230,479 436,375 404,903
Automotive Finishes 9,317 7,776 18,064 14,919
International Coatings 134 75 211 132
Administrative 2,710 2,875 5,553 5,689
-------- -------- -------- --------
Segment totals $261,446 $242,921 $464,656 $429,431
======== ======== ======== ========
==========================================================================================
</TABLE>
Segment operating profit is total revenue, including intersegment transfers,
less operating costs and expenses. The Administrative Segment's expenses include
interest which is unrelated to certain financing activities of the Operating
Segments, certain foreign currency transaction losses related to
dollar-denominated debt and other financing activities, certain provisions for
disposition and termination of operations and environmental remediation which
are not directly associated with any Operating Segment, and other adjustments.
Net external sales and operating profits of all consolidated foreign
subsidiaries were $138.1 million and $9.0 million, respectively, for the second
quarter of 2000, and $120.2 million and $14.7 million, respectively, for the
second quarter of 1999. Net external sales and operating profits of theses
subsidiaries were $268.8 million and $16.9 million, respectively, for the first
six months of 2000, and $238.1 million and $24.5 million, respectively, for the
first six months of 1999. Operating profits for 1999 have been restated to
include certain expenses and eliminate intra-company profit to conform to the
2000 presentation. Long-lived assets of these subsidiaries totaled $252.4
million and $254.0 million, respectively, at June 30, 2000 and 1999. Domestic
operations account for the remaining net external sales, operating profits and
long-lived assets. The Administrative Segment's 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
consolidated long-lived assets.
Export sales and sales to any individual customer were each less than 10% of
consolidated sales to unaffiliated customers during all periods presented.
Domestic intersegment transfers are accounted for at the approximate fully
absorbed manufactured cost plus distribution costs. International intersegment
transfers are accounted for at values comparable to normal unaffiliated customer
sales.
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<PAGE> 8
Note H--IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board (FASB) SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133 requires all derivative
instruments to be recorded as either assets or liabilities and at fair value.
Gains or losses resulting from changes in the values of those derivative
instruments may be recognized immediately or deferred depending on the use of
the derivative or whether it qualifies as a hedge. The Company will adopt SFAS
No. 133 effective January 1, 2001, as required. Management is currently
assessing the impact of this statement on the Company's results of operations
and financial position.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which applies generally accepted accounting principles to selected
revenue recognition issues. The deferred effective date of SAB No. 101 is the
fourth quarter of 2000 for companies with fiscal years beginning between
December 16, 1999 and March 15, 2000. Management is currently assessing the
impact of this statement on the Company's results of operations and financial
position.
In March 2000, the FASB issued Interpretation (FIN) No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," which provides accounting
guidance on certain practice issues relating to Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." FIN No. 44 is
generally required to be applied prospectively beginning July 1, 2000.
Management has completed an assessment of the impact of this statement and does
not believe that it will have a material adverse effect on the Company's results
of operations and financial position.
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<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Consolidated net sales increased 3.3 percent during the second quarter and 5.5
percent for the first six months in 2000 over the comparable periods in 1999.
Net sales in the Paint Stores Segment increased 6.8 percent for the second
quarter and 8.3 percent for the first six months, due primarily to higher volume
sales of paint products with solid sales gains in all other sales categories.
Comparable-store sales were up 4.5 and 6.2 percent for the second quarter and
first six months, respectively. The Consumer Segment's second quarter net sales
decreased 5.8 percent, due primarily to a soft domestic retail sales market,
inventory reductions during the quarter by some retail customers, and the loss
of a major retail customer late last year. The first six months net sales for
the Consumer Segment increased 0.1 percent over last year, primarily due to new
product launches and additions to the customer base offsetting the sluggish
retail sales. The Automotive Finishes Segment's net sales increased 5.7 and 5.2
percent for the second quarter and first six months, respectively. Second
quarter and first six months net sales in the International Coatings Segment
increased 7.6 and 4.0 percent, respectively, resulting primarily from increases
in Brazilian sales driven by volume gains offsetting weaker sales in Argentina
caused by poor economic conditions.
Consolidated gross profit as a percent of sales improved to 44.9 and 43.7
percent for the second quarter and first six months, respectively, from 44.1 and
43.3 percent for the comparable periods in 1999. Margins in the Paint Stores
Segment were higher than last year for the second quarter and first six months,
primarily due to paint volume gains as well as favorable paint product sales
mix. The Consumer and Automotive Finishes Segments' margins were higher for the
second quarter but essentially flat for the first six months. The Consumer
Segment's second quarter margins were favorably impacted by costs savings
achieved by closing four plants during 1999 which helped to offset rising raw
material costs in 2000. The Automotive Finishes Segment's margins improved in
the second quarter due to volume gains and favorable product mix shifts,
partially offset by increased raw material costs. Margins in the International
Coatings Segment were lower for the second quarter and first six months,
primarily due to rising raw material costs in Brazil and unfavorable product mix
shifts in Argentina.
Consolidated selling, general and administrative expenses as a percent of sales
were 0.2 percentage points favorable to last year for the second quarter and 0.4
percentage points favorable for the first six months. In the Paint Stores
Segment, SG&A expenses as a percent of sales were favorable to last year for the
second quarter and first six months, primarily due to increased sales partially
offset by incremental increases in expenses associated with the increased number
of new stores opened. The Consumer and International Coatings Segments' SG&A
ratios were unfavorable to last year in the second quarter and first six months.
The Consumer Segment's second quarter unfavorable SG&A ratio was primarily due
to decreased sales, partially offset by continued SG&A expense reductions. In
the International Coatings Segment, the SG&A ratio was affected by higher
bonuses and commissions in Brazil relating to increased sales,
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<PAGE> 10
partially offset by overall sales increases. The Automotive Finishes Segment's
SG&A ratio was favorable for the second quarter and first six months, primarily
due to increased sales.
The increase in interest expense from the second quarter of 1999 occurred due to
higher average outstanding short-term debt balances and rates. The first six
months interest expense decrease versus 1999 was due to lower average
outstanding long-term debt balances partially offset by higher outstanding
short-term debt balances and rates.
Other expense - net for the second quarter represented expense for 2000 and
income for 1999, primarily due to foreign currency exchange losses in 2000
versus foreign currency exchange gains in 1999. Other expense - net for the
first six months was higher versus 1999, primarily due to increases in financing
and investing related expenses.
Net income for the second quarter and first six months increased 7.7 and 14.9
percent, respectively, while diluted net income per common share for the second
quarter and first six months increased to $0.71 per share from $0.63 per share
and $0.96 per share from $0.80 per share, respectively.
FINANCIAL CONDITION
During the first six months of 2000, cash and cash equivalents decreased $16.9
million, net long-term debt decreased $103.0 million and short-term borrowings
increased $292.8 million. Short-term borrowings outstanding primarily relate to
the Company's commercial paper program, which had unused borrowing availability
of $440.0 million at June 30, 2000. This program is backed by the Company's
revolving credit agreements. The decrease in long-term debt is primarily related
to the payment of 6.25% notes totaling $100.0 million during the first quarter.
The proceeds from the issuance of short-term borrowings were used for repayment
of long-term debt, normal operating needs for seasonally higher accounts
receivable and inventories, capital expenditures of $78.7 million, treasury
shares acquisition of $67.5 million, acquisitions of assets of $43.2 million,
and cash dividends of $44.5 million. Cash spent on acquisitions of assets was
used to purchase a specialized coatings business located domestically and an
automotive refinish coatings business located in Italy. The Company's current
ratio declined to 1.28 from 1.34 at December 31, 1999. The decrease in this
ratio occurred primarily due to the increased short-term borrowings.
Since June 30, 1999, cash and cash equivalents decreased $5.7 million primarily
due to cash used to acquire treasury shares of $163.2 million, net reductions to
long-term debt of $143.4 million, capital expenditures of $145.0 million,
payments of cash dividends of $84.6 million, acquisition of assets of $46.0
million, and normal working capital needs, funded primarily by $359.9 million of
cash generated by operations and $216.8 million net increase in short-term
borrowings. The Company expects to remain in a short-term borrowing position
throughout most of 2000.
Capital expenditures during the second quarter and first six months of 2000
represented primarily the costs associated with new store openings in the Paint
Stores Segment, the purchase of land and building related to a technical lab
facility for the Automotive Finishes Segment, and plant and facility upgrades
and expansions in the Consumer Segment. We do not anticipate the need for any
specific external financing to support our capital programs during the remainder
of 2000.
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<PAGE> 11
During the second quarter of 2000, the Company acquired 1,200,000 shares of its
common stock through open market purchases for treasury purposes, which brings
the total number of shares purchased in 2000 to 3,200,000 shares. The Company
acquires shares of its common stock for general corporate purposes and,
depending upon its cash position and market conditions, the Company may acquire
additional shares of its common stock in the future. At June 30, 2000, the
Company has authorization to purchase an additional 16,800,000 shares of its
common stock.
The Company and certain other companies are defendants in a number of lawsuits,
including five purported class actions, separate actions brought by the State of
Rhode Island, and actions brought by other governmental entities, arising from
the manufacture and sale of lead pigments and lead paints. The plaintiffs are
seeking recovery based upon various legal theories, including negligence, strict
liability, breach of warranty, negligent misrepresentations and omissions,
fraudulent misrepresentations and omissions, concert of action, civil
conspiracy, violations of unfair trade practices and consumer protection laws,
enterprise liability, market share liability, nuisance, unjust enrichment and
other theories. The lawsuits seek various damages and relief, including personal
injury and property damage, costs involving the detection and abatement of lead
paint from buildings, costs associated with a public education campaign, medical
monitoring costs and others. The Company believes that such lawsuits are without
merit and is vigorously defending them. It is also possible that additional
lawsuits may be filed against the Company based upon similar or different legal
theories and seeking similar or different types of damages and relief.
Litigation is inherently subject to many uncertainties. Adverse rulings or
determinations of liability, as well as changes in laws, could affect the lead
pigment and lead paint lawsuits against the Company and encourage an increase in
the number and nature of future claims and proceedings. Due to the uncertainties
involved, management is unable to predict the outcome of such lawsuits or the
number or nature of possible future claims and proceedings. In addition,
management cannot determine the scope or amount of the potential costs and
liabilities related to such lawsuits, claims or proceedings. However, based upon
the outcome of previous similar lawsuits, management does not currently believe
that the costs or 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 results of operations, liquidity or financial condition.
The operations of the Company, like those of other companies in our industry,
are subject to various federal, state and local environmental laws and
regulations. These laws and regulations not only govern our current operations
and products, but also impose potential liability on the Company for past
operations which were conducted utilizing practices and procedures that were
considered acceptable under the laws and regulations existing at that time. The
Company expects environmental laws and regulations to impose increasingly
stringent requirements upon the Company and our industry in the future. The
Company believes it conducts its operations in compliance with applicable
environmental laws and regulations and has implemented various programs designed
to protect the environment and promote continued compliance.
The Company is involved with environmental compliance, investigation 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
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<PAGE> 12
environmental protection laws for the investigation and remediation of
environmental contamination and 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 environmental-related activities relating to its past
operations and third-party sites, including Superfund sites, for which costs or
minimum costs can be reasonably estimated. These estimated costs are determined
based on currently available facts regarding each site. The Company continuously
assesses its potential liability for investigation and 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 attributed 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 entered into a settlement agreement with PMC, Inc. settling a
lawsuit brought by PMC regarding the Company's former manufacturing facility in
Chicago, Illinois which was sold to PMC in 1985. Pursuant to the terms of the
settlement agreement, the Company agreed, in part, to investigate and remediate,
as necessary, certain soil and/or groundwater contamination caused by historical
disposal, discharges, releases or events occurring at the facility. In February,
1999, the People of the State of Illinois filed an amended complaint in a state
court action against PMC joining the Company and alleging, in part, that the
Company has caused certain soil and underground contamination at the facility
and seeking, in part, that the Company investigate and remediate, as necessary,
any such soil and groundwater contamination. The Company has entered into
discussions with the State of Illinois to address these allegations.
With respect to the Company's southeast Chicago, Illinois facility and the PMC
facility, the Company has evaluated its potential liability and, based upon its
preliminary evaluation, has accrued appropriate amounts. 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 any additional liability may result in a material impact
on net income for the annual or interim period during which the additional costs
are accrued.
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<PAGE> 13
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.
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<PAGE> 14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations", 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; risk 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 nature, cost, quantity and outcome of
pending and future litigation and other claims, including the lead pigment and
lead paint lawsuits; and unusual weather conditions.
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.
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<PAGE> 15
Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk through various financial instruments,
including fixed rate debt instruments. 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, results of operations or
liquidity. There were no material changes in the Company's exposure to market
risk since December 31, 1999.
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<PAGE> 16
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A. The Company's 2000 Annual Meeting of Shareholders was held on April
26, 2000.
B. The following persons were nominated to serve, and were elected, as
directors of the Company to serve until the next annual meeting and until their
successors are elected: J.C. Boland, J.G. Breen, D.E. Collins, C.M. Connor, D.E.
Evans, R.W. Mahoney, W.G. Mitchell, A.M. Mixon, III, C.E. Moll, H.O. Petrauskas,
J. M. Scaminace and R.K. Smucker. The voting results of the Annual Meeting for
each nominee were as follows:
Name For Withheld
---- --- --------
J.C. Boland 136,717,710 5,135,600
J.G. Breen 139,481,647 2,371,663
D.E. Collins 136,758,521 5,094,789
C.M. Connor 139,592,550 2,260,760
D.E. Evans 139,595,941 2,257,369
R.W. Mahoney 139,706,274 2,147,036
W.G. Mitchell 139,606,211 2,247,099
A.M. Mixon, III 136,697,030 5,156,280
C.E. Moll 139,682,169 2,171,141
H.O. Petrauskas 139,674,937 2,178,373
J.M. Scaminace 139,405,745 2,447,565
R.K. Smucker 139,603,446 2,249,864
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(10)(a) Schedule of Certain Executive Officers who
are Parties to the Severance Pay Agreements
in the Forms Attached as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q
For the Period Ended June 30, 1997 (filed
herewith).
(10)(b) Consulting Agreement, dated May 1, 2000,
between John G. Breen and the Company (filed
herewith).
(27) Financial Data Schedule for the period ended
June 30, 2000 (filed herewith).
(b) Reports on Form 8-K.
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<PAGE> 17
(i) The Company filed a Current Report on Form 8-K, dated
April 12, 2000, reporting under Item 5 expected sales
and earnings for the first quarter of 2000 and two
specialty coatings acquisitions.
(ii) The Company filed a Current Report on Form 8-K, dated
April 26, 2000, reporting under Item 5 that John G.
Breen has retired as Chairman of the Company and
Christopher M. Connor has been elected as Chairman of
the Company.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SHERWIN-WILLIAMS COMPANY
August 14, 2000 By: /s/ J.L. Ault
--------------------------------
J.L. Ault
Vice President-Corporate Controller
August 14, 2000 By: /s/ L.E. Stellato
--------------------------------
L.E. Stellato
Vice President, General Counsel and
Secretary
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<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
----------- -------
(10)(a) Schedule of Certain Executive Officers who are
Parties to the Severance Pay Agreements in the Forms
Attached as Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q For the Period Ended June 30,
1997 (filed herewith).
(10)(b) Consulting Agreement, dated May 1, 2000, between John
G. Breen and the Company (filed herewith).
(27) Financial Data Schedule for the period ended June 30,
2000 (filed herewith).
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