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, 2003
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
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(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 - 145,777,038 shares as of October 31, 2003.
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
Three months ended September 30, Nine months ended September 30,
---------------------------------- ----------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Net sales $ 1,503,086 $ 1,426,266 $ 4,123,225 $ 4,028,642
Cost of goods sold 824,440 780,974 2,277,063 2,239,435
Gross profit 678,646 645,292 1,846,162 1,789,207
Percent to net sales 45.2% 45.2% 44.8% 44.4%
Selling, general and administrative expenses 480,076 456,101 1,404,608 1,343,804
Percent to net sales 31.9% 32.0% 34.1% 33.4%
Interest expense 9,501 9,001 29,545 29,820
Interest and net investment income (1,255) (1,151) (3,664) (2,891)
Other expense - net 880 1,772 4,292 9,372
-------------- -------------- -------------- --------------
Income before income taxes and cumulative
effect of change in accounting principle 189,444 179,569 411,381 409,102
Income taxes 69,147 68,236 150,154 155,459
-------------- -------------- -------------- --------------
Income before cumulative effect
of change in accounting principle 120,297 111,333 261,227 253,643
Cumulative effect of change in accounting
principle - net of income taxes of $64,476 (183,136)
-------------- -------------- -------------- --------------
Net income $ 120,297 $ 111,333 $ 261,227 $ 70,507
============== ============== ============== ==============
Income per share:
Basic:
Before cumulative effect of
change in accounting principle $ 0.83 $ 0.74 $ 1.80 $ 1.68
Cumulative effect of change in accounting
principle - net of income taxes (1.21)
-------------- -------------- -------------- --------------
Net income $ 0.83 $ 0.74 $ 1.80 $ 0.47
============== ============== ============== ==============
Diluted:
Before cumulative effect of
change in accounting principle $ 0.82 $ 0.73 $ 1.77 $ 1.66
Cumulative effect of change in accounting
principle - net of income taxes (1.20)
-------------- -------------- -------------- --------------
Net income $ 0.82 $ 0.73 $ 1.77 $ 0.46
============== ============== ============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars
SEPTEMBER 30, December 31, September 30,
2003 2002 2002
-------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 148,718 $ 164,012 $ 49,856
Accounts receivable, less allowance 657,167 493,935 637,289
Inventories:
Finished goods 518,177 534,984 517,799
Work in process and raw materials 91,828 89,666 77,997
-------------- -------------- --------------
610,005 624,650 595,796
Deferred income taxes 116,540 116,228 107,747
Other current assets 135,151 107,168 121,570
-------------- -------------- --------------
Total current assets 1,667,581 1,505,993 1,512,258
Goodwill 551,772 552,207 554,740
Intangible assets 180,674 186,039 195,872
Deferred pension assets 414,595 414,589 413,278
Other assets 151,880 108,884 103,200
Property, plant and equipment 1,634,729 1,577,505 1,572,793
Less allowances for depreciation 962,171 912,905 916,004
-------------- -------------- --------------
672,558 664,600 656,789
-------------- -------------- --------------
Total assets $ 3,639,060 $ 3,432,312 $ 3,436,137
============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 552,341 $ 522,339 $ 526,982
Compensation and taxes withheld 127,666 146,987 121,859
Current portion of long-term debt 11,595 15,001 14,000
Other accruals 310,641 297,991 316,165
Accrued taxes 194,266 101,178 171,420
-------------- -------------- --------------
Total current liabilities 1,196,509 1,083,496 1,150,426
Long-term debt 505,123 506,682 508,022
Postretirement benefits other than pensions 216,108 213,749 213,838
Other long-term liabilities 289,356 286,495 226,190
Shareholders' equity:
Preferred stock - convertible, participating, no par value:
320,665, 41,806 and 71,476 shares outstanding at
September 30, 2003, December 31, 2002
and September 30, 2002, respectively 320,665 41,806 71,476
Unearned ESOP compensation (320,665) (41,806) (71,476)
Common stock - $1.00 par value:
145,188,497, 148,910,487 and 150,192,140 shares
outstanding at September 30, 2003, December 31, 2002
and September 30, 2002, respectively 211,201 209,836 209,606
Other capital 286,835 265,635 232,185
Retained earnings 2,350,552 2,157,485 2,122,927
Treasury stock, at cost (1,172,355) (1,029,894) (988,091)
Cumulative other comprehensive loss (244,269) (261,172) (238,966)
-------------- -------------- --------------
Total shareholders' equity 1,431,964 1,341,890 1,337,661
-------------- -------------- --------------
Total liabilities and shareholders' equity $ 3,639,060 $ 3,432,312 $ 3,436,137
============== ============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of dollars
Nine months ended September 30,
---------------------------------
2003 2002
-------------- --------------
OPERATING ACTIVITIES
Net income $ 261,227 $ 70,507
Adjustments to reconcile net income to net operating cash:
Cumulative effect of change in accounting principle 183,136
Impairment of long-lived assets held for use 8,996
Depreciation 77,894 76,566
Amortization of intangibles and other assets 8,391 9,038
Increase in deferred pension assets (6) (19,691)
Net increase in postretirement liability 2,359 3,875
Other 4,537 8,392
Change in current assets and liabilities-net (53,754) 23,209
Other (23,555) (25,884)
-------------- --------------
Net operating cash 277,093 338,144
INVESTING ACTIVITIES
Capital expenditures (87,867) (89,876)
Acquisitions of businesses (843) (26,248)
Increase in other investments (5,931) (15,040)
Proceeds from sale of assets 2,809 12,146
Other (7,983) (5,405)
-------------- --------------
Net investing cash (99,815) (124,423)
FINANCING ACTIVITIES
(Decrease) increase in long-term debt (660) 6,894
Payments of long-term debt (3,941) (101,850)
Payments of cash dividends (68,159) (68,507)
Proceeds from stock options exercised 20,192 32,835
Treasury stock purchased (140,019) (150,807)
Other (1,694) (2,598)
-------------- --------------
Net financing cash (194,281) (284,033)
-------------- --------------
Effect of exchange rate changes on cash 1,709 1,354
-------------- --------------
Net decrease in cash and cash equivalents (15,294) (68,958)
Cash and cash equivalents at beginning of year 164,012 118,814
-------------- --------------
Cash and cash equivalents at end of period $ 148,718 $ 49,856
============== ==============
Income taxes paid $ 55,362 $ 103,447
Interest paid 38,312 40,294
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended September 30, 2003 and 2002
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles generally accepted in the United States 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, 2002. 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 third quarter and nine months ended September 30,
2003 are not necessarily indicative of the results to be expected for the fiscal
year ending December 31, 2003.
NOTE B--DIVIDENDS
Dividends paid on common stock during each of the first three quarters of 2003
and 2002 were $.155 per common share and $.15 per common share, respectively.
NOTE C--OTHER EXPENSE - NET
Items included in Other expense - net are as follows:
Three months ended Nine months ended
September 30, September 30,
---------------------------------- ----------------------------------
(Thousands of dollars) 2003 2002 2003 2002
-------------- -------------- -------------- --------------
Dividend and royalty income $ (709) $ (825) $ (1,867) $ (2,273)
Net expense from financing
and investing activities 1,808 1,321 3,024 4,982
Foreign currency related (gains) losses (150) 1,521 2,239 7,014
Other income (495) (1,397) (1,238) (3,269)
Other expense 426 1,152 2,134 2,918
The net expense from financing and investing activities represents the gains or
losses associated with the disposal of fixed assets, the net pre-tax expense
associated with the Company's investment in broad-based corporate owned life
insurance and other related fees.
Other income and other expense include miscellaneous items that are not related
to the primary business purpose of the Company.
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NOTE D--DISPOSITION AND TERMINATION OF OPERATIONS
The Company is continually re-evaluating its operating facilities against its
long-term strategic goals. Prior to January 1, 2003, upon commitment to a formal
shutdown plan of an operating facility, provisions were made for all estimated
qualified exit costs in accordance with Emerging Issues Task Force (EITF) No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity." Effective January 1, 2003, the Company recognizes
liabilities associated with exit or disposal activities as incurred in
accordance with Statement of Financial Accounting Standards (SFAS) No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." Qualifying
exit costs primarily include post-closure rent expenses, incremental
post-closure costs and costs of employee terminations. Adjustments may be made
to prior provisions for qualified exit costs if information becomes available
upon which more accurate amounts can be reasonably estimated. Concurrently,
property, plant and equipment is tested for impairment in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and,
if impairment exists, the carrying value of the related assets is reduced to
estimated fair value. Adjustments may be made for subsequent revisions in
estimated fair value, not to exceed original asset carrying value before
impairment.
The following table summarizes the remaining liabilities for qualified exit
costs at September 30, 2003 and activity for the nine month period then ended:
(Thousands of dollars)
Actual
Balance at expenditures Balance at
December 31, charged to September 30,
Exit Plan 2002 accrual 2003
------------------------------------ -------------- ----------------- --------------
Consumer manufacturing facility:
Severance and related costs $ 133 $ (133)
Other exit costs 2,790 (552) $ 2,238
Paint Stores manufacturing facility:
Other exit costs 333 (105) 228
Automotive Finishes research centers:
Other exit costs 574 574
Exit costs initiated prior to 2000 12,647 (579) 12,068
-------------- -------------- --------------
Totals $ 16,477 $ (1,369) $ 15,108
============== ============== ==============
For further details regarding the disposition and termination of operations, see
Note 4 to the Consolidated Financial Statements in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002.
NOTE E--PRODUCT WARRANTIES
Changes in the Company's accrual for product warranty claims during the first
nine months of 2003, including customer satisfaction settlements during the
year, were as follows:
(Thousands of dollars)
Balance at December 31, 2002 $ 15,510
Charges to expense 19,671
Settlements (18,590)
----------------
Balance at September 30, 2003 $ 16,591
================
For further details regarding the Company's accrual for product warranty claims,
see Note 1 to the Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
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NOTE F--COMPREHENSIVE INCOME
Comprehensive income is summarized as follows:
Three months ended Nine months ended
September 30, September 30,
---------------------------------- ----------------------------------
(Thousands of dollars) 2003 2002 2003 2002
-------------- -------------- -------------- --------------
Net income $ 120,297 $ 111,333 $ 261,227 $ 70,507
Foreign currency translation adjustments (4,487) (17,622) 16,903 (34,413)
-------------- -------------- -------------- --------------
Comprehensive income $ 115,810 $ 93,711 $ 278,130 $ 36,094
============== ============== ============== ==============
NOTE G--STOCK-BASED COMPENSATION
At September 30, 2003, the Company had stock-based compensation plans accounted
for under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as more fully described in the consolidated financial
statements and footnotes included in the Company's Form 10-K for the year ended
December 31, 2002. Pro forma information regarding the impact of stock-based
compensation on net income and earnings per share is required by SFAS No. 123,
"Accounting for Stock-Based Compensation." Such pro forma information,
determined as if the Company had accounted for its employee stock options under
the fair value method of that statement, is illustrated in the following table:
Three months ended Nine months ended
September 30, September 30,
---------------------------------- ----------------------------------
(Thousands of dollars except per share data) 2003 2002 2003 2002
-------------- -------------- -------------- --------------
Net income, as reported $ 120,297 $ 111,333 $ 261,227 $ 70,507
Add: Total stock-based compensation expense
included in the determination of net income
as reported, net of related tax effects 568 488 1,543 1,463
Less: Total stock-based compensation expense
determined under fair value based method for
all awards, net of related tax effects (2,918) (2,752) (9,544) (8,372)
-------------- -------------- -------------- --------------
Pro forma net income $ 117,947 $ 109,069 $ 253,226 $ 63,598
============== ============== ============== ==============
Net income per share:
Basic - as reported $ .83 $ .74 $ 1.80 $ .47
Basic - pro forma $ .82 $ .73 $ 1.74 $ .42
Diluted - as reported $ .82 $ .73 $ 1.77 $ .46
Diluted - pro forma $ .80 $ .72 $ 1.72 $ .42
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NOTE H--INCOME PER COMMON SHARE
Three months ended September 30, Nine months ended September 30,
---------------------------------- ----------------------------------
(Thousands of dollars except per share data) 2003 2002 2003 2002
-------------- -------------- -------------- --------------
Income before cumulative effect
of change in accounting principle $ 120,297 $ 111,333 $ 261,227 $ 253,643
Cumulative effect of change in accounting
principle - net of income taxes of $64,476 (183,136)
-------------- -------------- -------------- --------------
Net income $ 120,297 $ 111,333 $ 261,227 $ 70,507
============== ============== ============== ==============
Basic
Average common shares outstanding 144,486,083 149,771,211 145,258,497 151,085,841
============== ============== ============== ==============
Income per common share:
Income before cumulative effect
of change in accounting principle $ 0.83 $ 0.74 $ 1.80 $ 1.68
Cumulative effect of change in
accounting principle (1.21)
-------------- -------------- -------------- --------------
Net income $ 0.83 $ 0.74 $ 1.80 $ 0.47
============== ============== ============== ==============
Diluted
Average common shares outstanding 144,486,083 149,771,211 145,258,497 151,085,841
Non-vested restricted stock grants 603,000 318,400 618,278 317,511
Stock options - treasury stock method 1,769,226 1,542,589 1,522,903 1,658,527
-------------- -------------- -------------- --------------
Average common shares assuming dilution 146,858,309 151,632,200 147,399,678 153,061,879
============== ============== ============== ==============
Income per common share:
Income before cumulative effect
of change in accounting principle $ 0.82 $ 0.73 $ 1.77 $ 1.66
Cumulative effect of change in
accounting principle (1.20)
-------------- -------------- -------------- --------------
Net income $ 0.82 $ 0.73 $ 1.77 $ 0.46
============== ============== ============== ==============
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NOTE I--REPORTABLE SEGMENT INFORMATION
The Company reports segment information in the same manner that management
internally organizes its business for assessing performance and making decisions
regarding the allocation of resources, in accordance with SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Net External Sales/ Operating Profit
2003 2002
---------------------------------- ----------------------------------
NET SEGMENT Net Segment
EXTERNAL OPERATING External Operating
(Thousands of dollars) SALES PROFIT Sales Profit
-------------- -------------- -------------- --------------
THREE MONTHS ENDED SEPTEMBER 30:
Paint Stores $ 989,003 $ 140,972 $ 938,261 $ 139,951
Consumer 328,910 63,412 314,292 60,213
Automotive Finishes 115,122 12,397 113,795 13,224
International Coatings 68,237 3,219 58,264 (255)
Administrative 1,814 (30,556) 1,654 (33,564)
-------------- -------------- -------------- --------------
Consolidated totals $ 1,503,086 $ 189,444 $ 1,426,266 $ 179,569
============== ============== ============== ==============
NINE MONTHS ENDED SEPTEMBER 30:
Paint Stores $ 2,639,096 $ 293,556 $ 2,545,915 $ 303,608
Consumer 941,045 168,838 943,984 169,621
Automotive Finishes 342,865 37,820 348,990 42,383
International Coatings 194,852 3,577 185,074 (5,771)
Administrative 5,367 (92,410) 4,679 (100,739)
-------------- -------------- -------------- --------------
Consolidated totals $ 4,123,225 $ 411,381 $ 4,028,642 $ 409,102
============== ============== ============== ==============
Intersegment Transfers
Three months ended September 30, Nine months ended September 30,
---------------------------------- ----------------------------------
(Thousands of dollars) 2003 2002 2003 2002
-------------- -------------- -------------- --------------
Paint Stores $ 137 $ 242 $ 376 $ 953
Consumer 295,131 281,814 794,305 768,846
Automotive Finishes 11,922 9,940 28,955 25,792
International Coatings 405 173 782 723
Administrative 1,108 1,114 3,289 3,255
-------------- -------------- -------------- --------------
Segment totals $ 308,703 $ 293,283 $ 827,707 $ 799,569
============== ============== ============== ==============
Segment operating profit is total revenue, including intersegment transfers,
less operating costs and expenses. 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. 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, and other adjustments.
Net external sales and operating profits of all consolidated foreign
subsidiaries were $135.9 million and $4.5 million, respectively, for the third
quarter of 2003, and $120.4 million and $5.9 million, respectively, for the
third quarter of 2002. Net external sales and operating profits of these
subsidiaries were $387.0 million and $14.6 million, respectively, for the first
nine months of 2003, and $372.7 million and $13.6 million, respectively, for the
first nine months of 2002. Long-lived assets of these subsidiaries totaled
$108.4 million and $100.1 million at September 30, 2003 and 2002, respectively.
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.
-9-
NOTE J--CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets,"
effective January 1, 2002. Goodwill and intangible assets deemed to have
indefinite lives are no longer being amortized but are subject to impairment
tests in accordance with SFAS No. 142. During the first quarter of 2002, the
Company recognized a transitional impairment charge of $247.6 million ($183.1
million after tax or $1.21 per share) as the cumulative effect of a change in
accounting principle to reduce the carrying values of certain indefinite-lived
intangible assets and goodwill to estimated fair values as required by SFAS No.
142. Impairment of indefinite-lived intangible assets amounted to $118.2 million
($77.4 million after tax or $.51 per share) and impairment of goodwill amounted
to $129.4 million ($105.7 million after tax or $.70 per share). The impairment
of indefinite-lived intangible assets was due primarily to a shortfall in sales
from levels anticipated at the time of acquisition and related principally to
trademarks in the Consumer Segment associated with the acquisition of Thompson
Minwax Holding Corp. In addition, certain trademarks in the International
Coatings Segment were impaired. The impairment of goodwill relates primarily to
international operations in the International Coatings and Automotive Finishes
Segments. Weakening foreign currency exchange rates and economic conditions,
particularly in South America, negatively impacted profit and cash flow in U.S.
dollars. Fair values of indefinite-lived intangible assets and goodwill were
estimated using a discounted cash flow valuation model, incorporating a discount
rate commensurate with the risks involved for each group of assets.
NOTE K--STOCK PURCHASE PLAN AND PREFERRED STOCK
On April 18, 2001, the Company issued 250,000 shares of convertible
participating serial preferred stock (preferred stock), no par value with
cumulative quarterly dividends of ten dollars per share, for $250.0 million to
The Sherwin-Williams Company Employee Stock Purchase and Savings Plan (ESOP).
The ESOP financed the acquisition of the preferred stock by borrowing $250.0
million from the Company at the rate of 8 percent per annum. Each share of
preferred stock was entitled to one vote upon all matters presented to the
Company's shareholders, and the holders of the preferred stock and the holders
of the common stock generally voted together as one class. The preferred stock
was held in an unallocated account by the ESOP until compensation expense
related to the Company's contributions was earned at which time contributions
were credited to the members' accounts. The ESOP redeemed the remaining 41,806
shares of preferred stock for cash during the first two quarters of 2003.
On August 27, 2003, the Company issued 350,000 shares of preferred stock, no par
value with cumulative quarterly dividends of ten dollars per share, for $350.0
million to the ESOP. The ESOP financed the acquisition of the preferred stock by
borrowing $350.0 million from the Company at the rate of 4.5 percent per annum.
This borrowing is payable over ten years in equal quarterly installments. Each
share of preferred stock is entitled to one vote upon all matters presented to
the Company's shareholders, and the holders of the preferred stock and the
holders of the common stock generally vote together as one class. The preferred
stock is held in an unallocated account by the ESOP until compensation expense
related to the Company's contributions is earned at which time contributions
will be credited to the members' accounts. The preferred stock is redeemable and
convertible into the Company's common stock at the option of the ESOP based on
the relative fair value of the preferred and common stock at time of conversion.
The ESOP redeemed 29,335 shares of preferred stock during the third quarter of
2003.
NOTE L--IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2002, the Emerging Issues Task Force issued EITF No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor," which states that cash consideration received from a
vendor is presumed to be a reduction of the prices of the vendor's products or
services and should, therefore, be characterized as a reduction of cost of goods
sold when recognized in the Statement of Consolidated Income. That presumption
is overcome when the consideration is either a reimbursement of specific,
incremental and identifiable costs incurred to sell the vendor's products, or a
payment for assets or services delivered to the vendor. The Company previously
treated these funds as a reduction of advertising expense. EITF No. 02-16 became
effective for the Company for all vendor reimbursement agreements entered into
or modified after December 31, 2002. Adoption of this EITF in 2003 did not have
a material effect on the Company's results of operations, financial condition or
liquidity.
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities."
Interpretation No. 46 requires unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse the risks and rewards of ownership among their owners and other parties
-10-
involved. The effective date of application of Interpretations No. 46 to
variable interest entities created before February 1, 2003 was deferred by the
FASB until the end of the first accounting period ending after December 15, 2003
in order to allow companies more time to completely analyze those entities.
Accordingly, the Company will adopt Interpretation No. 46 with respect to such
variable interest entities created prior to February 1, 2003 as of December 31,
2003. As of September 30, 2003, the Company had not created or entered into any
variable interest entities after January 31, 2003. From time-to-time, the
Company participates in the U.S. affordable and historic renovation real estate
markets. The Company has participated in these markets through (i) partnership
arrangements in which it is a limited partner and (ii) limited liability
companies in which it is not a managing member. The partnerships and limited
liability companies obtain permanent debt financing from third parties to invest
in and own various real estate projects. The debt is secured solely by the real
estate with no recourse to the Company and is not supported, guaranteed or
otherwise subsidized by the Company. These partnerships and limited liability
companies have been determined to be variable interest entities as defined by
Interpretation No. 46. At September 30, 2003, the Company's maximum loss
exposure related to these variable interest entities is its net invested equity
of $8.4 million and income tax credit recapture risk of $19.6 million.
Management is currently analyzing these variable interest entities to determine
if consolidation is required.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 clarifies under
what circumstances a contract with an initial net investment meets the
characteristic of a derivative as discussed in SFAS No. 133, clarifies when a
derivative contains a financing component, amends the definition of an
"underlying" to conform it to the language used in FASB Interpretation No. 45,
"Guarantor Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" and amends certain other existing
pronouncements. The Company has only limited involvement with derivative
financial instruments, does not use them for trading purposes and is not a party
to any leveraged derivatives. However, the Company periodically enters into
forward exchange contracts to hedge some of its foreign currency exposure. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003
and for designated hedging relationships after June 30, 2003. Management does
not believe the adoption of SFAS No. 149 will have a material effect on the
Company's results of operations, financial condition or liquidity.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
requires that certain financial instruments, which under previous guidance could
be accounted for as equity, be classified as liabilities in statements of
financial position. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003. Adoption of SFAS No. 150 did not have a
material effect on the Company's results of operations, financial condition or
liquidity.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements and accompanying footnotes included in
this report have been prepared in accordance with accounting principles
generally accepted in the United States with certain amounts based on
management's best estimates and judgments. To determine appropriate carrying
values of assets and liabilities that are not readily available from other
sources, management uses assumptions based on historical results and other
factors that they believe are reasonable. Actual results could differ from those
estimates. Also, materially different amounts may result under materially
different conditions or from using materially different assumptions. However,
management currently believes that any materially different amounts resulting
from materially different conditions or material changes in facts or
circumstances are unlikely.
There have been no significant changes in critical accounting policies or
management estimates since the year ended December 31, 2002. There have been no
significant changes in the Company's accruals for environmental
remediation-related activities or qualified exit costs since the year ended
December 31, 2002. A comprehensive discussion of the Company's critical
accounting policies and management estimates is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
FINANCIAL CONDITION
Cash and cash equivalents decreased $15.3 million during the first nine months
of 2003. During the first nine months, net operating cash of $277.1 million was
used primarily for capital expenditures of $87.9 million, payments of cash
dividends of $68.2 million and treasury stock purchases of $140.0 million. There
were no short-term borrowings related to the Company's commercial paper program
outstanding at September 30, 2003. The Company had unused maximum borrowing
availability of $718.0 million at September 30, 2003 under the commercial paper
program that is backed by the Company's revolving credit agreements. At
September 30, 2003, the Company's current ratio was 1.39, essentially unchanged
from December 31, 2002.
Since September 30, 2002, cash generated by operations of $497.9 million was
used primarily for capital expenditures of $124.5 million, treasury stock
purchases of $179.5 million and cash dividends of $90.7 million.
Capital expenditures during the first nine months of 2003 primarily represented
expenditures associated with 28 new store openings, normal equipment replacement
in the Paint Stores Segment and a new distribution center in the Consumer
Segment. We do not anticipate the need for any specific external financing to
support our capital expenditure programs during the remainder of 2003.
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During the third quarter of 2003, the Company purchased 1,472,045 shares of its
common stock for treasury purposes, which brings the total number of shares
purchased in 2003 to 5,000,000. 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. In October 2003, the Company's Board of Directors rescinded the previous
authorization limit and issued a new authorization for the Company to purchase,
in the aggregate, 20.0 million shares of its common stock.
The Company's past operations included the manufacture and sale of lead pigments
and lead-based paints. The Company, along with other companies, is a defendant
in a number of legal proceedings, including purported class actions, separate
actions brought by the State of Rhode Island, and actions brought by various
counties, cities, school districts and other government-related entities,
arising from the manufacture and sale of lead pigments and lead-based 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 plaintiffs seek various damages and relief, including
personal injury and property damage, costs relating to the detection and
abatement of lead-based paint from buildings, costs associated with a public
education campaign, medical monitoring costs and others. The Company believes
that the litigation is without merit and is vigorously defending such
litigation. The Company expects that additional lead pigment and lead-based
paint litigation may be filed against the Company in the future asserting
similar or different legal theories and seeking similar or different types of
damages and relief. Legal proceedings pending in certain jurisdictions have been
scheduled for trial during 2004, and the Company believes it is possible that
additional legal proceedings could be scheduled for trial during 2004 and
subsequent years.
Litigation is inherently subject to many uncertainties. Adverse court rulings or
determinations of liability, among other factors, could affect the lead pigment
and lead-based paint litigation against the Company and encourage an increase in
the number and nature of future claims and proceedings. In addition, from time
to time, various legislation and administrative regulations have been enacted or
proposed to impose obligations on manufacturers of lead pigments and lead-based
paints respecting asserted health concerns associated with such products and to
overturn court decisions in which the Company and other manufacturers have been
successful. Due to the uncertainties involved, management is unable to predict
the outcome of the lead pigment and lead-based paint litigation, the number or
nature of possible future claims and proceedings, or the affect that any
legislation and/or administrative regulations may have on the litigation or
against the Company. In addition, management cannot reasonably determine the
scope or amount of the potential costs and liabilities related to such
litigation, or any such legislation and regulations. The Company has not accrued
any amounts for such litigation. Any costs that may be incurred or potential
liabilities that may result from such litigation or such legislation and
regulations cannot reasonably be estimated. However, based upon, among other
things, the outcome of such litigation to date, management does not currently
believe that the costs or potential liabilities ultimately determined to be
attributable to the Company arising out of such litigation will have a material
adverse effect on the Company's results of operations, liquidity or financial
condition.
-13-
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 that 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 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
commitments or clean-up plans have been developed and for which 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. The Company's environmental-related liabilities are expected to
be resolved over an extended period of time. There were no significant changes
in currently available facts or in the accrual for environmental-related
activities during the first nine months of 2003.
Pursuant to a Consent Decree entered into with the United States of America in
1997, 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. While the Company continues to
investigate this site, certain initial remedial actions have occurred at this
site.
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In 1999, 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
disposals, discharges, releases and/or events occurring at this facility. In
2000, the Company entered into a Consent Decree with the People of the State of
Illinois settling an action brought by the State of Illinois against the Company
regarding the PMC facility. Under the Consent Decree, 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 this facility. The Company is currently conducting
its investigation of this facility.
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
investigations to date, has accrued appropriate amounts. The Company expects the
liabilities related to these facilities to be resolved over an extended period
of time.
Due to the uncertainties surrounding the investigations and remediation
activities at some of the Company's sites and third-party sites, 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
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 or cash flow.
There have been no significant changes to the Company's contractual obligations
and commercial commitments in the third quarter or first nine months of 2003 as
summarized in Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.
There have been no significant changes to the Company's accrual for product
warranty claims in the first nine months of 2003 as disclosed in Note E.
RESULTS OF OPERATIONS
Consolidated net sales increased 5.4 percent for the quarter to $1.50 billion
from $1.43 billion in the third quarter last year and increased 2.3 percent for
the first nine months to $4.12 billion from $4.03 billion in the first nine
months of 2002. During the third quarter of 2003, increased consolidated net
sales were primarily a result of strengthening domestic architectural paint
sales. Excluding the effects of currency exchange fluctuations relative to last
year, consolidated net sales increased 5.0 percent for the third quarter and 2.9
percent for the first nine months of 2003. Net sales in the Paint Stores Segment
increased 5.4 percent to $989.0 million in the quarter and 3.7 percent to $2.64
billion in the first nine months due primarily to strengthening architectural
paint sales. Comparable-store sales, which are sales from stores open for more
than twelve calendar months, were up 4.5 percent in the third quarter and 2.7
percent in the first nine months. Net sales of the Consumer Segment increased
4.7 percent to $328.9 million in the quarter and decreased 0.3 percent to $941.0
million in the first nine months compared to last year. The third
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quarter sales increase was due primarily to stronger architectural sales at
some of this Segment's largest retailers and increased sales of aerosol and wood
care products. The Automotive Finishes Segment's net sales increased 1.2 percent
to $115.1 million in the third quarter but declined 1.8 percent to $342.9
million for the first nine months. Currency exchange fluctuations relative to
last year had an insignificant effect on third quarter sales and a negative
impact on sales for the first nine months. Excluding the impact of such
fluctuations, net sales for the Automotive Finishes Segment increased 0.5
percent for the first nine months. This Segment's sales increase in the third
quarter resulted primarily from sales increases in the international operating
units of the Segment. Net sales in the International Coatings Segment increased
17.1 percent to $68.2 million in the quarter and 5.3 percent to $194.9 million
in the first nine months of 2003. Excluding the impact on sales during the third
quarter from favorable currency exchange fluctuations relative to last year, net
sales for the Segment increased 12.6 percent in the quarter. For the first nine
months of the year, currency exchange fluctuations had a negative effect on
sales comparisons. Excluding the effect of such currency fluctuations relative
to last year, net sales for the Segment increased 15.1 percent in the first nine
months. The poor economic conditions that have existed in South America show
some signs of improving, particularly in Argentina, but continue to constrain
the improvement in architectural and product finishes sales. Our subsidiary in
the United Kingdom registered double-digit sales gains in the third quarter and
first nine months of 2003.
Consolidated gross profit increased $33.4 million and $57.0 million in the third
quarter and first nine months of 2003, respectively. As a percent of
consolidated net sales, consolidated gross profit during the third quarter of
2003 remained flat with the third quarter of 2002 at 45.2 percent and increased
to 44.8 percent for the first nine months of 2003 compared to 44.4 percent for
the first nine months of 2002. Excluding a charge of $6.5 million included in
cost of goods sold in the first quarter of 2002 related to the impairment of
long-lived assets in accordance with SFAS No. 144, gross profit for the first
nine months of 2003 increased $50.5 million as compared with last year. The
Paint Stores Segment's gross profit for the third quarter and first nine months
of 2003 increased $25.7 million and $57.3 million, respectively, due primarily
to good architectural paint sales. The Consumer Segment's gross profit for the
third quarter increased $2.1 million due to higher sales volume partially offset
by an unfavorable sales mix. For the first nine months of 2003, the Consumer
Segment's gross profit decreased $6.9 million due primarily to increased raw
material prices and an unfavorable sales mix. The Automotive Finishes Segment's
gross profit increased slightly during the third quarter and first nine months
of 2003 due to selective price increases and improved product mix. Excluding the
impairment charge during the first quarter of 2002, the International Coatings
Segment's gross profit for the third quarter and first nine months of 2003
increased by $3.0 million and $1.2 million, respectively, as a result of
stronger sales in Argentina and the United Kingdom.
Consolidated selling, general and administrative expenses as a percent of sales
decreased to 31.9 percent in the third quarter of 2003 from 32.0 percent in the
third quarter of 2002 and increased to 34.1 percent in the first nine months of
2003 from 33.4 percent in the first nine months of 2002. Consolidated selling,
general and administrative expenses increased $24.0 million and $60.8 million
compared to last year for the third quarter and the first nine months,
respectively. In the Paint Stores Segment, increased spending of $23.9 million
in the third quarter and $67.7 million for the first nine months was due
primarily to incremental expenses associated with new and acquired stores,
increased pension expense, continued investment in the Asia/Pacific market
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and normal increased operating costs. The Consumer Segment's SG&A ratio was
favorable to last year in the third quarter and first nine months of 2003
primarily due to continued cost control in spite of increased pension expense.
The Automotive Segment's SG&A expense as a percent of sales increased for both
the third quarter and first nine months of 2003 due to lower sales levels and
increased pension expense. SG&A expense as a percent of sales for the
International Coatings Segment in the third quarter and for the first nine
months of 2003 was unfavorable with last year due to continued economic
pressures and increased pension expense.
Interest expense in the third quarter and first nine months of 2003 versus 2002
remained essentially flat.
Other expense - net was lower for the third quarter and first nine months of
2003 compared to 2002 primarily due to the stabilization of foreign currencies
resulting in a foreign currency related gain for the third quarter and a lower
foreign currency related loss for the first nine months of 2003.
Net income increased $9.0 million, or 8.1 percent, in the third quarter of 2003
compared to the third quarter last year. Income before the cumulative effect of
change in accounting principle, increased $7.6 million, or 3.0 percent, for the
first nine months of 2003 over last year. Diluted net income per common share
increased to $.82 per share in the quarter compared to $.73 per share in 2002.
Before the cumulative effect of change in accounting principle for the first
nine months, diluted net income per common share increased to $1.77 per share
from $1.66 per share in 2002.
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 current
expectations, estimates, assumptions and beliefs concerning future events and
conditions and may discuss, among other things, anticipated future performance
(including sales and earnings), expected growth, future business plans and the
costs and potential liability for environmental-related matters and the lead
pigment and lead-based paint litigation. Any statement that is not historical in
nature is a forward-looking statement and may be identified by the use of words
and phrases such as "expects," "anticipates," "believes," "will," "will likely
result," "will continue," "plans to" and similar expressions. 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 and from the
Company's historical results and experience.
These risks, uncertainties and other factors include such things as: (a) general
business conditions, strengths of retail and manufacturing economies and the
growth in the coatings industry; (b) competitive factors, including pricing
pressures and product innovation and quality; (c) changes in raw material
availability and pricing; (d) changes in the Company's relationships with
customers and suppliers; (e) the ability of the Company to attain cost savings
from productivity initiatives; (f) the ability of the Company to successfully
integrate past and future
-17-
acquisitions into its existing operations, as well as the performance of the
businesses acquired; (g) changes in general domestic economic conditions such as
inflation rates, interest rates and tax rates; (h) risks and uncertainties
associated with the Company's expansion into and its operations in China, South
America and other foreign markets, including inflation rates, recessions,
foreign currency exchange rates, foreign investment and repatriation
restrictions, unrest and other external economic and political factors; (i) the
achievement of growth in developing markets, such as China, Mexico and South
America; (j) increasingly stringent domestic and foreign governmental
regulations including those affecting the environment; (k) inherent
uncertainties involved in assessing the Company's potential liability for
environmental remediation-related activities; (l) other changes in governmental
policies, laws and regulations, including changes in accounting policies and
standards and taxation requirements (such as new tax laws and new or revised tax
law interpretations); (m) the nature, cost, quantity and outcome of pending and
future litigation and other claims, including the lead pigment and lead-based
paint litigation and the affect of any legislation and administrative
regulations relating thereto; and (n) unusual weather conditions.
Readers are cautioned that it is not possible to predict or identify all of the
risks, uncertainties and other factors that may affect future results and that
the above list should not be considered to be a complete list. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
-18-
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk associated with interest rates and value
changes in foreign currencies. The Company utilizes derivative instruments as
part of its overall financial risk management policy, but does not use
derivative instruments for speculative or trading purposes. The Company has
partially hedged risks associated with fixed interest rate debt by entering into
various interest rate swap agreements. The Company does not believe that any
potential loss related to interest rate exposure would have a material adverse
effect on the Company's financial condition, results of operations or cash
flows. The Company also enters into foreign currency option and forward
contracts to hedge against value changes in foreign currency. The Company
believes it may experience continuing losses relating to changes in foreign
currencies. However, the Company does not expect foreign currency translation,
transaction or hedging contract losses to have a material adverse effect on the
Company's financial condition, results of operations or cash flows. There were
no material changes in the Company's exposure to market risk since the
disclosure included in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on Form 10-K
for the year ended December 31, 2002.
-19-
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
Chairman and Chief Executive Officer and the Company's Senior Vice President -
Finance and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the Company's
Chairman and Chief Executive Officer and Senior Vice President - Finance and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in alerting them to material information relating to
the Company (including its consolidated subsidiaries) required to be disclosed
by the Company in its periodic SEC reports. There were no changes in the
Company's internal control over financial reporting identified in connection
with the evaluation that occurred during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
-20-
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On August 27, 2003, the Company issued 350,000 shares of convertible
participating serial preferred stock, no par value with cumulative quarterly
dividends of $10.00 per share, for $350.0 million to The Sherwin-Williams
Company Employee Stock Purchase and Savings Plan ("Plan"). The Plan financed the
acquisition of the preferred stock by borrowing $350.0 million from the Company
at the rate of 4.5% per annum. This borrowing is payable over ten years in equal
quarterly installments. The preferred stock was issued to a trust for an
employee benefit plan and qualified as a private placement under Section 4(2) of
the Securities Act of 1933, as amended. Each share of preferred stock is
entitled to one vote upon all matters presented to the Company's shareholders,
and the holders of the preferred stock and the holders of the common stock
generally vote together as one class. The preferred stock will be held in an
unallocated suspense account by the Plan until the value of the compensation
expense related to the Company's contribution is earned at which time
contributions will be credited to the members' accounts. The preferred stock is
redeemable for cash and convertible into common stock at the option of the Plan
based on the relative fair value of the preferred and common stock at time of
conversion. The redemption and conversion formulas are fully set forth in the
Company's Amendment to Amended and Restated Articles of Incorporation, dated
August 26, 2003. At September 30, 2003 the Plan had redeemed 29,335 shares of
preferred stock for cash, and 320,665 shares of preferred stock were issued and
outstanding.
Item 5. Other Information
During the fiscal quarter ended September 30, 2003, the Audit Committee
of the Board of Directors of the Company approved certain non-audit services to
be performed by Ernst & Young LLP, the Company's independent auditors. These
non-audit services are for domestic and foreign tax-related compliance and
advisory services and other foreign accounting and advisory services.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(4) Amendment to Amended and Restated Articles
of Incorporation of the Company, dated
August 26, 2003 (filed herewith).
(10)(a) Form of Individual Grantor Trust
Participation Agreement (filed herewith).
(10)(b) Schedule of Certain Executive Officers who
are Parties to the Individual Grantor Trust
Participation Agreements in the Form
Attached as Exhibit 10(a) (filed herewith).
(31)(a) Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer
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(filed herewith).
(31)(b) Rule 13a-14(a)/15d-14(a) Certification of
Chief Financial Officer (filed herewith).
(32)(a) Section 1350 Certification of Chief
Executive Officer (filed herewith).
(32)(b) Section 1350 Certification of Chief
Financial Officer (filed herewith).
(b) Reports on Form 8-K. The Company did not file any Current
Reports on Form 8-K during the quarter ended September 30,
2003. The Company furnished a Current Report on Form 8-K,
dated July 22, 2003, reporting under Item 12 that the Company
had issued a press release regarding its financial results for
the second quarter of 2003 and certain other information.
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 12, 2003 By: /s/ J. L. Ault
--------------
J. L. Ault
Vice President-Corporate Controller
November 12, 2003 By: /s/ L. E. Stellato
------------------
L. E. Stellato
Vice President, General Counsel and
Secretary
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
(4) Amendment to Amended and Restated Articles of Incorporation of
the Company, dated August 26, 2003 (filed herewith).
(10)(a) Form of Individual Grantor Trust Participation Agreement
(filed herewith).
(10)(b) Schedule of Certain Executive Officers who are Parties to the
Individual
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Grantor Trust Participation Agreements in the Form Attached as
Exhibit 10(a) (filed herewith).
(31)(a) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer (filed herewith).
(31)(b) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer (filed herewith).
(32)(a) Section 1350 Certification of Chief Executive Officer (filed
herewith).
(32)(b) Section 1350 Certification of Chief Financial Officer (filed
herewith).
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