1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended June 30, 1997
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from _______________ to_______________
Commission file number 1-4851
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THE SHERWIN-WILLIAMS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0526850
- ------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Prospect Avenue, N.W., Cleveland, Ohio 44115-1075
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(216) 566-2000
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.00 Par Value - 172,640,418 shares as of July 31, 1997.
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
Three months ended June 30, Six months ended June 30,
--------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 1,373,351 $ 1,145,254 $ 2,443,138 $ 2,003,025
Costs and expenses:
Cost of goods sold 775,795 675,273 1,401,968 1,195,551
Selling, general and administrative expenses 419,013 330,453 806,889 630,112
Interest expense 21,339 7,014 42,137 12,450
Interest and net investment income (2,078) (1,701) (5,038) (3,298)
Other 6,491 2,116 6,466 4,509
- -------------------------------------------------------------------------------------------------------------------
1,220,560 1,013,155 2,252,422 1,839,324
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 152,791 132,099 190,716 163,701
Income taxes 59,588 50,197 74,379 62,206
- -------------------------------------------------------------------------------------------------------------------
Net income $ 93,203 $ 81,902 $ 116,337 $ 101,495
===================================================================================================================
Net income per share $ 0.54 $ 0.47 $ 0.67 $ 0.59
===================================================================================================================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars
JUNE 30, Dec. 31, June 30,
1997 1996 1996
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 7,406 $ 1,880 $ 12,666
Short-term investments 0 0 0
Accounts receivable, less allowance 688,732 452,421 602,200
Inventories:
Finished goods 607,282 529,148 481,607
Work in process and raw materials 144,383 113,539 101,665
- ------------------------------------------------------------------------------------------------------
751,665 642,687 583,272
Other current assets 240,320 319,199 258,355
- ------------------------------------------------------------------------------------------------------
Total current assets 1,688,123 1,416,187 1,456,493
Deferred pension assets 264,269 254,376 241,424
Goodwill 1,223,596 546,461 533,738
Other assets 386,376 228,175 178,986
Property, plant and equipment 1,285,114 1,133,932 1,112,658
Less allowances for depreciation and
amortization 628,130 584,541 573,465
- ------------------------------------------------------------------------------------------------------
656,984 549,391 539,193
- ------------------------------------------------------------------------------------------------------
Total assets $ 4,219,348 $ 2,994,590 $ 2,949,834
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 386,107 $ 168,001 $ 323,335
Accounts payable 462,760 385,928 390,847
Compensation and taxes withheld 89,783 103,353 81,519
Current portion of long-term debt 52,330 2,169 3,740
Other accruals 409,114 325,599 321,494
Accrued taxes 126,049 65,957 88,790
- ------------------------------------------------------------------------------------------------------
Total current liabilities 1,526,143 1,051,007 1,209,725
Long-term debt 796,233 142,679 134,638
Postretirement benefits other than pensions 197,775 184,551 182,080
Other long-term liabilities 216,115 215,121 129,630
Shareholders' equity
Common stock - $1.00 par value:
172,424,246, 171,831,178 and 171,547,674
shares outstanding at June 30, 1997,
December 31, 1996 and June 30, 1996,
respectively 204,019 101,650 101,432
Other capital 109,577 203,223 190,640
Retained earnings 1,492,344 1,411,295 1,313,691
Cumulative foreign currency translation
adjustment (22,506) (18,982) (19,139)
Treasury stock, at cost (300,352) (295,954) (292,863)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,483,082 1,401,232 1,293,761
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,219,348 $ 2,994,590 $ 2,949,834
======================================================================================================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of dollars
Six months ended June 30,
-------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------
OPERATIONS
Net income $ 116,337 $ 101,495
Non-cash adjustments:
Depreciation 41,831 36,761
Amortization of goodwill and intangible assets 24,535 13,163
Increase in deferred pension assets (9,778) (7,850)
Net increase in postretirement liability 2,798 2,377
Other 2,940 2,528
Change in current assets and liabilities-net (121,843) (89,357)
Proceeds of insurance settlement 53,883
Costs incurred for disposition of operations (5,651) (2,685)
Other (13,224) (8,243)
- --------------------------------------------------------------------------------------------------------------
Net operating cash 91,828 48,189
INVESTING
Capital expenditures (72,298) (69,281)
Decrease in short-term investments 0 20,000
Acquisitions of assets (867,876) (586,613)
(Increase) decrease in other investments (15,022) 28,797
Other (6,559) 12,453
- --------------------------------------------------------------------------------------------------------------
Net investing cash (961,755) (594,644)
FINANCING
Net increase in short-term borrowings 217,502 293,960
Increase in long-term debt 705,767 113,071
Payments of long-term debt (2,052) (74,385)
Payments of cash dividends (35,288) (29,971)
Proceeds from stock options exercised 2,825 7,177
Costs related to issuance of debt (14,253)
Other 952 (215)
- --------------------------------------------------------------------------------------------------------------
Net financing cash 875,453 309,637
- --------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 5,526 (236,818)
Cash and cash equivalents at beginning of year 1,880 249,484
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,406 $ 12,666
==============================================================================================================
Taxes paid on income $ 30,509 $ 12,267
Interest paid on debt 22,897 11,248
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended June 30, 1997 and 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the fiscal year ended December
31, 1996. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The consolidated results for the three months and six months ended
June 30, 1997 are not necessarily indicative of the results to be expected for
the fiscal year ending December 31, 1997.
NOTE B--DIVIDENDS
Dividends paid on common stock during each of the first two quarters of 1997 and
1996 were $.10 per share and $.0875 per share, respectively, on a post-split
basis (see Note F).
NOTE C--INVESTMENT IN LIFE INSURANCE
The Company invests in broad-based corporate owned life insurance. The cash
surrender values of the policies, net of policy loans, are included in Other
Assets. The net expense associated with such investment is included in Other
Costs and Expenses.
NOTE D--OTHER COSTS AND EXPENSES
Significant items included in other costs and expenses are as follows:
Three months ended Six months ended
(Thousands of dollars) June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Dividend and royalty income $ 954 $ 1,617 $ 1,868 $ 2,778
Net expense of financing and
investing activities (1,937) (3,953) (4,291) (7,613)
Foreign exchange gain(loss) (5,890) (461) (7,469) (749)
The net expense of financing and investing activities represents the realized
gains or losses associated with disposing of fixed assets, the net gain or loss
associated with the investment of certain long-term asset funds and the net
pre-tax expense associated with the Company's investment in broad-based
corporate owned life insurance.
6
NOTE E--ACQUISITION AND MERGER
Effective January 7, 1997, the Company, through a wholly-owned subsidiary,
acquired all outstanding shares of Thompson Minwax Holding Corp. (Thompson
Minwax). The total amount of funds required to acquire the shares and pay off
certain indebtedness of Thompson Minwax was approximately $830 million. The
excess purchase price over the fair value of the net assets acquired is being
amortized over 40 years using the straight-line method.
For financial statement purposes, the acquisition is being accounted for under
the purchase method of accounting. Accordingly, the results of operations of
Thompson Minwax since the date of acquisition are included in the Company's
statements of consolidated income. The following unaudited pro forma combined
condensed statements of consolidated income for the three months and six months
ended June 30, 1996 were prepared in accordance with Accounting Principles Board
Opinion No. 16 and assume the merger had occurred on January 1, 1996. The
following pro forma data reflects adjustments for interest expense, net
investment income and amortization of goodwill and intangible assets. In
management's opinion, the pro forma financial information is not necessarily
indicative of the results of operations which would have occurred had the
acquisition of Thompson Minwax taken place on January 1, 1996 or of future
results of operations of the combined companies under the ownership and
operation of the Company.
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
-------------------------------------------
(Thousands of dollars, Three months ended Six months ended
except per share data) June 30, 1996 June 30, 1996
------------------ ----------------
Net sales $1,253,487 $2,200,842
========== ==========
Net income 87,797 102,374
========== ==========
Net income per share 0.51 0.59
========== ==========
NOTE F--STOCK SPLIT
The par value of additional shares of common stock issued in connection with a
two-for-one stock split distributed during March 1997 was credited to common
stock and a like amount charged to other capital.
NOTE G--CAPITAL STOCK
On April 23, 1997, the Company adopted a new shareholder rights plan to replace
the original shareholder rights plan in effect since January 25, 1989. Under the
new rights plan, shareholders of record on May 6, 1997 received a dividend of
one right for each share of Sherwin-Williams common stock held. Each right
entitles the holder, upon the occurrence of certain events, to purchase one
one-hundredth (1/100th) of a share of Cumulative Redeemable Serial Preferred
Stock, without par value, or in certain circumstances Sherwin-Williams common
stock, for one hundred ten dollars ($110.00), subject to adjustment. The Bank of
New York became rights agent under the new rights plan on May 27, 1997. In
connection with the adoption of the new rights plan, the Company redeemed the
rights outstanding under the original rights plan.
NOTE H--RECLASSIFICATION
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
7
NOTE I--COMPUTATION OF NET INCOME PER SHARE
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Fully Diluted
Average shares outstanding 172,382,852 171,441,037 172,315,699 171,287,083
Options - treasury stock method 1,759,633 1,463,899 1,759,633 1,438,062
------------ ------------ ------------ ------------
Average fully diluted shares 174,142,485 172,904,936 174,075,332 172,725,145
============ ============ ============ ============
Net income $ 93,202 $ 81,901 $ 116,337 $ 101,495
============ ============ ============ ============
Net income per share $ 0.54 $ 0.47 $ 0.67 $ 0.59
============ ============ ============ ============
Primary
Average shares outstanding 172,382,852 171,441,037 172,315,699 171,287,083
Options - treasury stock method 1,684,803 1,370,412 1,681,239 1,316,243
------------ ------------ ------------ ------------
Average shares and equivalents 174,067,655 172,811,449 173,996,938 172,603,326
============ ============ ============ ============
Net income $ 93,202 $ 81,901 $ 116,337 $ 101,495
============ ============ ============ ============
Net income per share $ 0.54 $ 0.47 $ 0.67 $ 0.59
============ ============ ============ ============
8
NOTE J--BUSINESS SEGMENTS
Net External Sales/Operating Profit
- -----------------------------------
Three months ended June 30, Six months ended June 30,
----------------------------------------------- -------------------------------------------------
1997 1996 1997 1996
----------------------- ----------------------- ----------------------- ------------------------
NET Net NET Net
EXTERNAL OPERATING External Operating EXTERNAL OPERATING External Operating
SALES PROFIT Sales Profit SALES PROFIT Sales Profit
----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
Paint Stores $ 716,767 $ 64,453 $ 659,318 $ 58,684 $ 1,248,940 $ 71,580 $ 1,134,015 $ 64,192
Coatings 653,893 121,483 482,667 92,664 1,188,673 186,744 862,446 136,040
Other 2,691 2,977 3,269 3,276 5,525 5,925 6,564 6,615
----------- ---------- ----------- --------- ------------ ---------- ------------ ----------
Segment totals $1,373,351 188,913 $1,145,254 154,624 $ 2,443,138 264,249 $ 2,003,025 206,847
=========== =========== ============ ============
Corporate expenses-net (36,122) (22,525) (73,533) (43,146)
--------- -------- --------- ---------
Income before income taxes $ 152,791 $132,099 $ 190,716 $ 163,701
========== ========= ========== ==========
==============================================================================================================================
Intersegment Transfers
- ----------------------
Three months ended June 30, Six months ended June 30,
---------------------------------- -----------------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
Coatings $ 296,492 $ 261,762 $ 502,596 $ 440,415
Other 5,329 5,280 10,595 10,452
---------- ---------- ---------- ----------
Segment totals $ 301,821 $ 267,042 $ 513,191 $ 450,867
========== ========== ========== ==========
==============================================================================================================================
Operating profit is total revenue, including realized profit on intersegment
transfers, less operating costs and expenses.
Export sales, sales of foreign subsidiaries, and sales to any individual
customer were each less than 10% of consolidated sales to unaffiliated customers
during all periods presented.
Intersegment transfers are accounted for at values comparable to normal
unaffiliated customer sales.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Consolidated net sales increased 19.9 percent in the second quarter and 22.0
percent in the first six months over the comparable 1996 periods. Excluding the
results of operations of Thompson Minwax Holding Corp. (Thompson Minwax),
acquired during January 1997, and other smaller acquisitions which occurred at
various times since the second quarter of 1996, comparable sales increased 4.6
percent in the quarter and 5.6 percent in the first half of the year. Net sales
in the Paint Stores Segment increased 8.7 percent in the second quarter and 10.1
percent in the first six months primarily due to increased paint gallons sold to
both retail and wholesale customers, combined with sales gains in each of its
remaining product lines (wallcovering, floorcovering, spray equipment and
associated products). Wholesale customers include professional painters,
contractors, and industrial and commercial maintenance accounts.
Comparable-store sales were up 6.9 percent in the quarter and 7.9 percent in the
first six months. Excluding the effects of all acquisitions, comparable sales in
the Paint Stores Segment increased 7.2 and 7.4 percent for the quarter and
year-to-date, respectively. The Coatings Segment's incremental sales from
acquisitions led to a 35.5 percent sales increase in the second quarter and a
37.8 percent year-to-date sales increase. Excluding these acquisitions, the
Segment's sales increased 1.1 percent and 3.3 percent for the respective periods
due to increased sales of new products, offset partially by the soft retail
environment of the second quarter due to poor weather, a soft automotive
refinish collision repair market due to the mild first quarter winter and the
partial phase-out of sales to a large customer. Revenue generated by real estate
operations in the Other Segment declined 17.7 percent in the quarter and 15.8
percent in the first six months due to the loss of a large tenant in one of its
office buildings as of December 31, 1996.
Consolidated gross profit as a percent of sales increased to 43.5 percent for
the second quarter from 41.0 percent last year and to 42.6 percent for the first
six months from 40.3 percent last year. Excluding the effects of all
acquisitions, consolidated second quarter and year-to-date margins were higher
than last year. The Paint Stores Segment's gross margins were slightly lower
than last year for the quarter and year-to-date due primarily to an unfavorable
product mix. Excluding acquisitions, the Segment's margins were lower than last
year for the quarter but above last year for the first six months. Margins in
the Coatings Segment were higher than last year for the second quarter and first
six months on both an as-reported basis and excluding the effects of
acquisitions due primarily to increased volume and higher-than-average margins
realized on its acquired businesses.
Consolidated selling, general and administrative expenses as a percent of sales
were unfavorable to last year for the second quarter and first six months on
both an as-reported basis and excluding the acquisitions. The Paint Stores
Segment's second quarter and year-to-date SG&A ratio was favorable to last year
due primarily to lower-than-average incremental expenses related to the
acquisitions. Excluding the acquisitions, the Segment's SG&A percentage was
favorable to last year for the quarter and essentially even with last year for
the first six months. SG&A expenses
10
as a percent of sales for the second quarter and first six months were
unfavorable to last year in the Coatings Segment on both an as-reported basis
and excluding the acquisitions due primarily to increased merchandising costs
related to new products and new customers.
Interest expense in the second quarter and first six months was higher than the
comparable periods of last year due to additional debt incurred since the end of
June 1996 to finance acquisitions. Average short-term borrowing rates were
slightly higher than last year.
Other costs and expenses were higher than last year for the quarter and first
six months due primarily to increased foreign currency exchange losses offset
partially by decreased expenses of financing and investing activities.
Net income for the second quarter of 1997 increased 13.8 percent over last year
to $93,203,000, or $.54 per share, from $81,902,000, or $.47 per share, in 1996.
Year-to-date net income through June 30, 1997 increased 14.6 percent to
$116,337,000, or $.67 per share, from $101,495,000, or $.59 per share, in 1996.
Excluding the results of operations of all acquisitions and the related
financing costs, net income increased 12.2 percent for the quarter and 13.9
percent for the first six months.
FINANCIAL CONDITION
- -------------------
During the first six months of 1997, cash and cash equivalents increased $5.5
million, net long-term debt increased $703.7 million and short-term borrowings
increased $218.1 million. Short-term borrowings incurred during the year relate
to the Company's commercial paper program, which had unused borrowing
availability of $613.9 million at June 30, 1997. The aggregate principal amount
of unsecured short-term notes which can be issued under this program was
increased to $1,450.0 million in January 1997 and subsequently decreased to
$1,000.0 million in May 1997. Outstanding borrowings under this program are
backed by the Company's revolving credit agreements, whose maximum borrowing
amount was increased to $1,450.0 million in January 1997 and subsequently
reduced to $1,080.0 million in March 1997. The increase in long-term debt since
December 31, 1996 relates to the Company's issuance of $400.0 million of debt
securities issued under the Company's shelf registration statement and $300.0
million of debentures which were originally issued in a private offering not
registered under the Securities Act of 1933, as amended. On July 2, 1997, the
Company completed offers to exchange all of its outstanding $300.0 million of
debentures for an equal principal amount of newly-issued debentures containing
identical terms except that the newly-issued debentures were registered under
the Securities Act of 1933, as amended. The proceeds from the issuance of these
borrowings were used for the Thompson Minwax acquisition and other smaller
acquisitions totaling $867.9 million, capital expenditures of $72.3 million,
cash dividends of $35.3 million, costs related to the issuance of debt of $14.3
million and normal operating needs for seasonally higher accounts receivable and
inventories. Net cash received from operations of $91.8 million during the first
six months of 1997 includes the receipt of approximately $53.9 million related
to a settlement with certain insurance carriers pertaining to
environmental-related matters, which settlement was recorded in income during
1996. The decrease in the Company's current ratio from 1.35 at December 31, 1996
to 1.11 at June 30, 1997 occurred primarily due to the increase
11
in short-term borrowings and the reclassification of certain long-term debt to
current liabilities. The increase in goodwill occurred due to the recording of
the Thompson Minwax acquisition and other smaller acquisitions in accordance
with Accounting Principles Board Opinion No. 16. Other assets increased $158.2
million since December 31, 1996 due primarily to the addition of intangible
assets from acquisitions. The increase in common stock and related decrease in
other capital since December 31, 1996 occurred due to the par value of $101.9
million which was credited to common stock and a like amount charged to other
capital for additional common shares issued in the form of a two-for-one stock
split in March 1997.
Since June 30, 1996, cash and cash equivalents decreased $5.3 million,
short-term borrowings increased $62.8 million and net long-term debt increased
$710.2 million. The proceeds of these borrowings combined with cash generated by
operations during this period of $376.2 million were used for acquisitions of
$952.0 million, capital expenditures of $125.7 million, payments of cash
dividends of $65.3 million, debt issue costs of $14.3 million and normal working
capital needs. The Company expects to remain in a borrowing position throughout
1997.
Capital expenditures during the first six months of 1997 represented primarily
the costs of upgrading or installing point-of-sale terminals at the paint
stores, and costs for construction, capacity expansion or upgrade of
distribution centers and manufacturing and research facilities. We do not
anticipate the need for any specific external financing to support our capital
programs.
During the first six months of 1997, approximately 72,000 shares of our own
stock were received in exchange from the exercise of stock options. We did not
acquire any of our own shares through open market purchases during this time
period. We acquire our own stock for general corporate purposes and, depending
upon our cash position and market conditions, we may acquire additional shares
of our own stock in the future. At the April 23, 1997 board meeting, the Board
of Directors authorized the Company to purchase, in the aggregate, 10,000,000
shares of common stock.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods presented in comparative statements. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded from the calculation. The adoption of SFAS No.
128 will result in immaterial changes to the primary earnings per share amounts
reported. The impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for these periods is also expected to be immaterial.
The Company and certain other companies are defendants in a number of lawsuits
arising from the manufacture and sale of lead pigments and lead paints. It is
possible that additional lawsuits may be filed against the Company in the future
with similar allegations. The various existing lawsuits seek damages for
personal injuries and property damage, along with costs involving the abatement
of lead related paint from buildings and medical monitoring costs. The Company
believes that such lawsuits are without merit and is vigorously defending them.
The Company does not believe that
12
any potential liability which may ultimately be determined to be attributable to
the Company arising out of such lawsuits will have a material adverse effect on
the Company's business or financial condition.
The operations of the Company, like those of other companies in our industry,
are subject to various federal, state and local environmental laws and
regulations. These laws and regulations not only govern our current operations
and products, but also impose potential liability on the Company for past
operations which were conducted utilizing practices and procedures that were
considered acceptable under the laws and regulations existing at that time. The
Company expects the environmental laws and regulations to impose increasingly
stringent requirements upon the Company and our industry in the future. The
Company believes it conducts its operations in compliance with applicable
environmental laws and regulations and has implemented various programs designed
to protect the environment and ensure continued compliance.
The Company is involved with environmental compliance and remediation activities
at some of its current and former sites. The Company, together with other
parties, has also been designated a potentially responsible party under federal
and state environmental protection laws for the remediation of hazardous waste
at a number of third-party sites, primarily Superfund sites. In general, these
laws provide that potentially responsible parties may be held jointly and
severally liable for investigation and remediation costs regardless of fault.
The Company may be similarly designated with respect to additional third-party
sites in the future.
Although the Company continuously assesses its potential liability for
remediation activities with respect to its past operations and third-party
sites, any potential liability ultimately determined to be attributable to the
Company is subject to a number of uncertainties including, among others, the
number and financial condition of parties involved with respect to any given
site, the volumetric contribution which may be attributed to the Company
relative to that attributable to other parties, the nature and magnitude of the
wastes involved, the various technologies that can be used for remediation and
the determination of acceptable remediation with respect to a particular site.
The Company has accrued for certain environmental remediation activities
relating to its past operations and third-party sites, including Superfund
sites, for which commitments or clean-up plans have been developed or for which
costs or minimum costs can be reasonably estimated. These environmental-related
accruals are adjusted as information becomes available upon which more accurate
costs can be reasonably estimated. In the opinion of the Company's management,
any potential liability ultimately attributed to the Company for its
environmental-related matters will not have a material adverse effect on the
Company's financial condition, liquidity or cash flow.
13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
A. The Annual Meeting of Shareholders of The Sherwin-Williams Company
was held on April 23, 1997. Holders of Common Stock of record at the close of
business on March 3, 1997 were the only shareholders entitled to vote at the
Annual Meeting of Shareholders. The additional shares of Common Stock which
were issued in March 1997 pursuant to the two-for-one stock split were not
entitled to be voted at the Annual Meeting of Shareholders.
B. The following persons were nominated to serve, and were elected, as
directors of the Company to serve until the next annual meeting and until their
successors are elected: J. M. Biggar, J. G. Breen, D. E. Collins, T. A. Commes,
D. E. Evans, R. W. Mahoney, W. G. Mitchell, A. M. Mixon, III, C. E. Moll, H. O.
Petrauskas and R. K. Smucker. The voting results of the Annual Meeting of
Shareholders for each such nominee are as follows:
Name For Withheld
---- --- --------
J. M. Biggar 78,916,417 473,452
J. G. Breen 78,898,973 490,895
D. E. Collins 78,928,617 461,251
T. A. Commes 78,916,952 472,916
D. E. Evans 78,786,950 602,918
R. W. Mahoney 78,936,903 452,965
W. G. Mitchell 78,937,592 452,276
A. M. Mixon, III 78,944,111 445,757
C. E. Moll 78,909,612 480,256
H. O. Petrauskas 78,914,183 475,685
R. K. Smucker 78,908,559 481,309
C. A resolution to amend The Sherwin-Williams Company 1994 Stock Plan
was adopted with 56,676,387 shares voting for, 17,827,158 shares voting against,
1,272,833 shares abstaining and 3,613,490 broker non-votes.
D. A resolution to approve The Sherwin-Williams Company 1997 Stock Plan
for Nonemployee Directors was adopted with 67,751,075 shares voting for,
6,860,949 shares voting against, 1,503,293 shares abstaining and 3,274,551
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
(10)(a) The Sherwin-Williams Company Director Deferred Fee
Plan (1997 Amendment and Restatement) (filed
herewith).
(10)(b) Forms of Severance Pay Agreements (filed herewith).
14
(10)(c) Schedule of Certain Executive Officers who are Parties
to the Severance Pay Agreements in the Forms Attached
as Exhibit 10(b) (filed herewith).
(11) Computation of Net Income Per Share - See Note I to
Condensed Consolidated Financial Statements
(Unaudited).
(27) Financial Data Schedule for the period ended June 30,
1997 (filed herewith).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 23,
1997 reporting in Item 5 that the Company (a) approved and
ordered the redemption of outstanding stock purchase rights
issued pursuant to the Rights Agreement, dated January 25,
1989, between the Company and Ameritrust Company National
Association (now known as KeyBank National Association), as
Rights Agent and (b) authorized and declared a dividend
distribution, payable on May 6, 1997, of stock purchase rights
issued pursuant to the terms of a Rights Agreement, dated as
of April 23, 1997, between the Company and KeyBank National
Association, as Rights Agent.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SHERWIN-WILLIAMS COMPANY
August 13, 1997 By: /s/ J.L. Ault
-----------------------------------
J.L. Ault
Vice President-Corporate Controller
August 13, 1997 By: /s/ L.E. Stellato
-----------------------------------
L.E. Stellato
Vice President, General Counsel and Secretary
15
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. EXHIBIT
- ----------- -------
(10)(a) The Sherwin-Williams Company Director Deferred Fee Plan (1997
Amendment and Restatement) (filed herewith).
(10)(b) Forms of Severance Pay Agreements (filed herewith).
(10)(c) Schedule of Certain Executive Officers who are Parties to the
Severance Pay Agreements in the Forms Attached as Exhibit 10(b)
(filed herewith).
(11) Computation of Net Income Per Share - See Note I to Condensed
Consolidated Financial Statements (Unaudited).
(27) Financial Data Schedule for the period ended June 30, 1997 (filed
herewith).