<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 SEPTEMBER 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 - 160,559,691 shares as of October 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 September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,411,903 $ 1,345,483 $ 4,063,086 $ 3,857,421
Costs and expenses:
Cost of goods sold 785,808 735,649 2,279,273 2,160,111
Selling, general and administrative expenses 437,954 417,497 1,308,721 1,253,220
Interest expense 15,906 14,854 47,448 46,558
Interest and net investment income (1,123) (1,600) (3,079) (4,594)
Other expense - net 1,232 (727) 5,747 2,330
----------- ----------- ----------- -----------
1,239,777 1,165,673 3,638,110 3,457,625
----------- ----------- ----------- -----------
Income before income taxes 172,126 179,810 424,976 399,796
Income taxes 65,407 68,328 161,491 151,923
----------- ----------- ----------- -----------
Net income $ 106,719 $ 111,482 $ 263,485 $ 247,873
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.66 $ 0.67 $ 1.62 $ 1.47
=========== =========== =========== ===========
Diluted $ 0.66 $ 0.66 $ 1.61 $ 1.46
=========== =========== =========== ===========
</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>
SEPTEMBER 30, December 31, September 30,
2000 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,004 $ 18,623 $ 5,013
Accounts receivable, less allowance 741,747 606,046 735,629
Inventories:
Finished goods 567,708 591,912 542,933
Work in process and raw materials 103,459 111,476 106,158
---------------- ---------------- ----------------
671,167 703,388 649,091
Deferred income taxes 130,228 128,177 117,686
Other current assets 158,401 141,143 158,475
---------------- ---------------- ----------------
Total current assets 1,704,547 1,597,377 1,665,894
Goodwill 1,064,144 1,039,555 1,049,205
Intangible assets 263,824 274,924 279,769
Deferred pension assets 355,307 334,094 325,393
Other assets 147,346 94,464 76,428
Property, plant and equipment 1,529,495 1,447,927 1,487,639
Less allowances for depreciation and amortization 797,995 736,251 777,633
---------------- ---------------- ----------------
731,500 711,676 710,006
---------------- ---------------- ----------------
Total assets $ 4,266,668 $ 4,052,090 $ 4,106,695
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 215,296 $ 98,907
Accounts payable 459,935 $ 458,919 409,573
Compensation and taxes withheld 114,705 140,934 131,746
Current portion of long-term debt 26,260 122,270 161,968
Other accruals 372,202 382,343 377,641
Accrued taxes 132,196 85,396 129,357
---------------- ---------------- ----------------
Total current liabilities 1,320,594 1,189,862 1,309,192
Long-term debt 624,382 624,365 624,471
Postretirement benefits other than pensions 209,015 206,591 209,215
Other long-term liabilities 322,506 332,740 279,867
Shareholders' equity:
Common stock - $1.00 par value:
160,793,602, 165,663,601 and 166,416,181 shares
outstanding at Sept. 30, 2000, Dec. 31, 1999
and Sept. 30, 1999, respectively 206,639 206,309 206,212
Other capital 156,018 150,887 150,542
Retained earnings 2,217,922 2,020,851 1,984,769
Treasury stock, at cost (644,660) (533,891) (516,385)
Cumulative other comprehensive loss (145,748) (145,624) (141,188)
---------------- ---------------- ----------------
Total shareholders' equity 1,790,171 1,698,532 1,683,950
---------------- ---------------- ----------------
Total liabilities and shareholders' equity $ 4,266,668 $ 4,052,090 $ 4,106,695
================ ================ ================
</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>
Nine months ended September 30,
----------------------------------------
2000 1999
----------------- -----------------
OPERATIONS
<S> <C> <C>
Net income $ 263,485 $ 247,873
Adjustments to reconcile net income to net operating cash:
Depreciation 80,824 81,057
Amortization of goodwill, intangibles, and other assets 38,528 37,370
Increase in deferred pension assets (21,213) (21,387)
Net increase in postretirement liability 2,424 4,452
Other 7,439 9,398
Change in current assets and liabilities-net (98,530) (82,591)
Other (21,722) (24,052)
----------------- -----------------
Net operating cash 251,235 252,120
INVESTING
Capital expenditures (97,656) (101,811)
Acquisitions of assets (58,924) (12,663)
Increase in other investments (60,134) (11,645)
Proceeds from sale of assets 6,537 -
Other (3,608) 9,033
----------------- -----------------
Net investing cash (213,785) (117,086)
FINANCING
Net increase in short-term borrowings 215,296 98,907
Increase in long-term debt 15,897 -
Payments of long-term debt (111,736) (62,219)
Payments of cash dividends (66,414) (61,050)
Proceeds from stock options exercised 4,012 6,409
Treasury stock acquired (110,769) (129,920)
Other 520 1,058
----------------- -----------------
Net financing cash (53,194) (146,815)
----------------- -----------------
Effect of exchange rate changes on cash 125 (2,339)
----------------- -----------------
Net decrease in cash and cash equivalents (15,619) (14,120)
Cash and cash equivalents at beginning of year 18,623 19,133
----------------- -----------------
Cash and cash equivalents at end of period $ 3,004 $ 5,013
================= =================
Taxes paid on income $ 117,900 $ 77,129
Interest paid on debt 60,059 58,121
</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 September 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 nine months ended September 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 three 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 Nine months ended
(Thousands of dollars) September 30, September 30,
-------------------------- ---------------------
2000 1999 2000 1999
----- ----- ----- ----
<S> <C> <C> <C> <C>
Dividend and royalty income $(1,072) $(1,446) $(3,229) $(3,423)
Net expense from financing
and investing activities 2,069 1,283 10,249 6,063
Foreign currency exchange (gains) losses (130) 2,832 256 3,263
</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 Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 106,719 $ 111,482 $ 263,485 $ 247,873
Foreign currency translation adjustments (32,005) (16,545) (124) (96,261)
--------- --------- --------- ---------
Comprehensive income $ 74,714 $ 94,937 $ 263,361 $ 151,612
========= ========= ========= =========
</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 Nine months ended
September 30, September 30,
------------------------------- -------------------------------
(Thousands of dollars, except per share data) 2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic
Average common shares outstanding 161,320,695 167,356,435 162,750,088 168,811,753
============ ============ ============ ============
Net income $ 106,719 $ 111,482 $ 263,485 $ 247,873
============ ============ ============ ============
Net income per common share $ 0.66 $ 0.67 $ 1.62 $ 1.47
============ ============ ============ ============
Diluted
Average common shares outstanding 161,320,695 167,356,435 162,750,088 168,811,753
Non-vested restricted stock grants 278,400 234,400 278,400 258,622
Stock options - treasury stock method 562,759 839,227 439,950 869,033
------------ ------------ ------------ ------------
Average common shares assuming dilution 162,161,854 168,430,062 163,468,438 169,939,408
============ ============ ============ ============
Net income $ 106,719 $ 111,482 $ 263,485 $ 247,873
============ ============ ============ ============
Net income per common share $ 0.66 $ 0.66 $ 1.61 $ 1.46
============ ============ ============ ============
</TABLE>
Net income per common share has been computed in accordance with SFAS No. 128.
-6-
<PAGE> 7
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.
<TABLE>
<CAPTION>
Net External Sales/Operating Profit 2000 1999
----------------------------------- --------------------------- ---------------------------
NET SEGMENT Net Segment
(Thousands of dollars) EXTERNAL OPERATING External Operating
SALES PROFIT Sales Profit
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30:
--------------------------------
Paint Stores $ 899,268 $ 141,650 $ 842,760 $ 129,838
Consumer 307,084 39,414 307,314 52,128
Automotive Finishes 127,328 17,905 119,356 18,323
International Coatings 76,405 5,336 73,871 9,344
Administrative 1,818 (32,179) 2,182 (29,823)
---------- ---------- ---------- ----------
Consolidated totals $1,411,903 $ 172,126 $1,345,483 $ 179,810
========== ========== ========== ==========
NINE MONTHS ENDED SEPTEMBER 30:
-------------------------------
Paint Stores $2,467,340 $ 308,271 $2,290,160 $ 268,809
Consumer 987,341 148,986 986,799 160,612
Automotive Finishes 377,301 52,453 357,027 49,812
International Coatings 225,370 14,984 217,100 21,467
Administrative 5,734 (99,718) 6,335 (100,904)
---------- ---------- ---------- ----------
Consolidated totals $4,063,086 $ 424,976 $3,857,421 $ 399,796
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
=====================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
Intersegment Transfers SEPTEMBER 30, SEPTEMBER 30,
---------------------- -------------------------- -------------------------
(Thousands of dollars) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Paint Stores $ 2,788 $ 2,449 $ 7,241 $ 6,237
Consumer 241,216 231,138 677,591 636,041
Automotive Finishes 9,023 8,491 27,087 23,410
International Coatings (36) 51 175 183
Administrative 2,633 2,917 8,186 8,606
--------- --------- --------- ---------
Segment totals $ 255,624 $ 245,046 $ 720,280 $ 674,477
========= ========= ========= =========
=====================================================================================================
</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 $134.7 million and $8.1 million, respectively, for the third
quarter of 2000, and $125.8 million and $17.0 million, respectively, for the
third quarter of 1999. Net external sales and operating profits of theses
subsidiaries were $403.5 million and $25.0 million, respectively, for the first
nine months of 2000, and $363.9 million and $41.5 million, respectively, for the
first nine 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 $257.6
million and $243.2 million, respectively, at September 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.
-8-
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Consolidated net sales increased 4.9 percent during the third quarter and 5.3
percent for the first nine months in 2000 over the comparable periods in 1999.
Net sales in the Paint Stores Segment increased 6.7 percent for the third
quarter and 7.7 percent for the first nine months, due primarily to higher
volume sales of paint products with solid sales gains in all other sales
categories. Comparable-store sales were up 3.7 and 5.5 percent for the third
quarter and first nine months, respectively. The Consumer Segment's third
quarter net sales decreased 0.1 percent, due primarily to a continuing soft
domestic DIY market and inventory corrections by some major retail customers
that were partially offset by improved sales to other customers and a new
product line launch. The first nine months net sales for the Consumer Segment
increased 0.1 percent over last year, primarily due to new product launches, new
customers, and increased sales to certain existing customers that offset the
continued softness in the DIY market. The Automotive Finishes Segment's net
sales increased 6.7 and 5.7 percent for the third quarter and first nine months,
respectively. Third quarter and first nine months net sales in the International
Coatings Segment increased 3.4 and 3.8 percent, respectively, resulting
primarily from increases in Brazilian sales driven by volume gains offsetting
demand shifts to lower priced products and competitive pricing.
Consolidated gross profit as a percent of sales declined to 44.3 and 43.9
percent for the third quarter and first nine months, respectively, from 45.3 and
44.0 percent for the comparable periods in 1999. Margins in the Paint Stores
Segment were higher than last year for the third quarter and first nine months
primarily due to paint volume gains, selective selling price increases, and a
favorable paint product sales mix, partially offset by increased raw material
costs absorbed by this Segment. The Consumer and Automotive Finishes Segments'
margins were lower for the third quarter and first nine months due primarily to
raw material cost increases. These raw material cost increases were partially
offset by volume related manufacturing efficiencies, certain cost reductions,
and selling price increases in the Consumer Segment and first quarter selling
price increases in the Automotive Finishes Segment. Margins in the International
Coatings Segment were lower for the third quarter and first nine months,
primarily due to rising raw material costs in Brazil and the unfavorable product
sales mix shifts in various markets.
Consolidated selling, general and administrative expenses as a percent of sales
were flat to last year for the third quarter and 0.3 percentage points favorable
for the first nine months. In the Paint Stores Segment, SG&A expenses as a
percent of sales were unfavorable to last year for the third quarter and flat
for the first nine months primarily due to incremental increases in expenses
associated with the increased number of new stores opened in the last twelve
months, partially offset by higher sales. The Consumer Segment's SG&A ratios
were slightly favorable and flat to last year in the third quarter and first
nine months due to continued SG&A expense reduction efforts. The Automotive
Finishes Segment's SG&A ratio was favorable for the third quarter and first nine
months primarily due to increased sales and containment of SG&A spending. In the
International Coatings Segment, the SG&A ratio was affected by higher
commissions in Brazil relating to increased sales, partially offset by overall
sales increases.
-9-
<PAGE> 10
The increase in interest expense for the third quarter and first nine months
versus the same periods for 1999 occurred due to higher average outstanding
short-term debt balances and rates, partially offset by lower average
outstanding long-term debt balances.
Other expense - net for the third quarter represented expense for 2000 and
income for 1999 primarily due to increased net expense from financing and
investing activities in 2000 and higher miscellaneous income in 1999, partially
offset by foreign currency exchange losses in 1999. Other expense - net for the
first nine months was higher versus 1999 primarily due to increases in financing
and investing related expenses, partially offset by lower foreign currency
exchange losses.
Net income for the third quarter declined 4.3 percent while improving 6.3
percent for the first nine months. Diluted net income per common share for the
third quarter was flat at $0.66 per common share as compared to last year and
increased to $1.61 per common share from $1.46 per common share for the first
nine months.
FINANCIAL CONDITION
-------------------
During the first nine months of 2000, cash and cash equivalents decreased $15.6
million, net long-term debt decreased $96.0 million and short-term borrowings
increased $215.3 million. Short-term borrowings outstanding primarily relate to
the Company's commercial paper program, which had unused borrowing availability
of $517.5 million at September 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
of 2000. 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 $97.7 million,
treasury shares acquisitions of $110.8 million, acquisitions of net assets of
$58.9 million, and cash dividends of $66.4 million. Cash spent on acquisitions
of net assets was used to purchase a specialized coatings business, a chain of
stores that sells architectural and automotive refinish products, an automotive
refinish coatings business located in Italy, and a powder coatings business
located in Brazil. The Company's current ratio declined to 1.29 from 1.34 at
December 31, 1999. The decrease in this ratio occurred primarily due to the
increased short-term borrowings.
Since September 30, 1999, cash and cash equivalents decreased $2.0 million
primarily due to cash used to acquire treasury shares of $128.3 million, net
reductions to long-term debt of $135.7 million, capital expenditures of $130.0
million, payments of cash dividends of $86.3 million, acquisition of net assets
of $61.7 million, and normal working capital needs, funded primarily by $484.2
million of cash generated by operations and $116.4 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 first nine 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 administrative offices and a technical
lab facility for the Automotive Finishes Segment,
-10-
<PAGE> 11
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.
During the third quarter of 2000, the Company acquired 2,000,000 shares of its
common stock through open market purchases for treasury purposes, which brings
the total number of shares purchased in 2000 to 5,200,000 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 September 30, 2000, the
Company has authorization to purchase an additional 14,800,000 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.
-11-
<PAGE> 12
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 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. On November 8, 2000, the Company
entered into a Consent Decree with the People of the State of Illinois pursuant
to which the Company agreed, in part, to investigate and remediate, as
necessary, certain soil and/or groundwater contamination caused by historical
disposals, discharges, releases and/or events occurring at the facility. The
execution and filing of this Consent Decree in the state court action settled
the People of the State of Illinois' amended complaint against the Company.
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
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<PAGE> 13
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.
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 risks, 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 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) The Sherwin-Williams Company 1994 Stock
Plan, as amended and restated July 26, 2000
(filed herewith).
(10)(c) Amended and Restated Split-Dollar Life
Insurance Agreement, dated August 18, 2000,
between John G. Breen, the Company and
National City Bank (filed herewith).
(10)(d) Salary Continuation and Death Benefit Plan
Agreement, dated August 18, 2000, between
John G. Breen and the Company (filed
herewith).
(27) Financial Data Schedule for the period ended
September 30, 2000 (filed herewith).
(b) Reports on Form 8-K. The Company filed a Current Report on Form
8-K, dated September 13, 2000, reporting under Item 5 expected sales
and earnings for the third quarter of 2000 and full year 2000.
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
November 13, 2000 By: /s/ J.L. Ault
------------------------------
J.L. Ault
Vice President-Corporate
Controller
November 13, 2000 By: /s/ L.E. Stellato
------------------------------
L.E. Stellato
Vice President, General
Counsel and Secretary
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<PAGE> 17
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) The Sherwin-Williams Company 1994 Stock Plan, as
amended and restated July 26, 2000 (filed herewith).
(10)(c) Amended and Restated Split-Dollar Life Insurance
Agreement, dated August 18, 2000, between John G.
Breen, the Company and National City Bank (filed
herewith).
(10)(d) Salary Continuation and Death Benefit Plan Agreement,
dated August 18, 2000, between John G. Breen and the
Company (filed herewith).
(27) Financial Data Schedule for the period ended
September 30, 2000 (filed herewith).
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