STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY(Thousands of Dollars Except Per Share Data)CumulativeUnearnedOtherPreferred ESOP Common Other Retained Treasury ComprehensiveStock Compensation Stock Capital Earnings Stock Loss TotalBalance at January 1, 1999 . . . . . . $ 205,701 $ 143,686 $ 1,797,945 $(386,465) $ (44,927) $1,715,940Comprehensive income:Net income . . . . . . . . . . . . . . . 303,860 303,860Other comprehensive loss . . . . . (100,697) (100,697)Comprehensive income . . . . . 203,163Treasury stock purchased . . . . . . . . (145,806) (145,806)Stock issued (tendered)for exercise of options . . . . . . . . 463 8,597 (252) 8,808Stock tendered in connectionwith restricted stock grants . . . . (1,368) (1,368)Restricted stock grants(net activity) . . . . . . . . . . . . . . . 145 (69) 76Stock acquired for trust . . . . . . . . . (1,327) (1,327)Cash dividends — $.48 per share . . (80,954) (80,954)Balance at December 31, 1999 . . . . 206,309 150,887 2,020,851 (533,891) (145,624) 1,698,532Comprehensive income:Net income . . . . . . . . . . . . . . . 16,026 16,026Other comprehensive loss . . . . . (17,985) (17,985)Comprehensive loss . . . . . . . . (1,959)Treasury stock purchased . . . . . . . . (146,857) (146,857)Stock issued (tendered)for exercise of options . . . . . . . . 534 8,121 (365) 8,290Restricted stock grants(net activity) . . . . . . . . . . . . . . . 5 3,176 3,181Stock acquired for trust . . . . . . . . . (1,199) (1,199)Treasury stock transferred to trust . (2,335) 2,335Cash dividends — $.54 per share . . (88,124) (88,124)Balance at December 31, 2000 . . . . 206,848 158,650 1,948,753 (678,778) (163,609) 1,471,864Comprehensive income:Net income . . . . . . . . . . . . . . . 263,158 263,158Other comprehensive loss . . . . . (40,944) (40,944)Comprehensive income . . . . . 222,214Treasury stock purchased . . . . . . . . (157,088) (157,088)Issuance of preferred stockto pre-fund ESOP . . . . . . . . . . . $ 250,000 $(250,000)Income tax effect of ESOP . . . . . . . 22,902 22,902Redemption of preferred stock . . . . (81,695) 81,695Stock issued (tendered)for exercise of options . . . . . . . . 1,031 19,947 (532) 20,446Stock tendered in connectionwith restricted stock grants . . . . (886) (886)Restricted stock grants(net activity) . . . . . . . . . . . . . . . 152 979 1,131Stock acquired for trust . . . . . . . . . (1,835) (1,835)Cash dividends — $.58 per share . . (90,984) (90,984)Balance at December 31, <strong>2001</strong> . . . . $ 168,305 $(168,305) $ 208,031 $ 200,643 $ 2,120,927 $(837,284) $ (204,553) $1,487,764See notes to consolidated financial statements.32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Thousands of Dollars Unless Otherwise Indicated)Note 1 – Significant AccountingPoliciesConsolidation. The consolidated financial statementsinclude all controlled subsidiaries. Inter-company accountsand transactions have been eliminated.Use of estimates. The preparation of consolidated financialstatements in conformity with accounting principlesgenerally accepted in the United States requires managementto make estimates and assumptions that affect theamounts reported in the consolidated financial statementsand accompanying notes. Actual results could differ fromthose estimates.Nature of operations. The Company is engaged in themanufacture, distribution and sale of coatings and relatedproducts to professional, industrial, commercial and retailcustomers primarily in North and South America.<strong>Report</strong>able segments. See Note 16.Cash flows. The Company considers all highly liquidinvestments with a maturity of three months or less whenpurchased to be cash equivalents.Fair value of financial instruments. The following methodsand assumptions were used by the Company in estimatingits fair value disclosures for financial instruments:Cash and cash equivalents: The carrying amountsreported in the consolidated balance sheets for cash andcash equivalents approximate fair value.Short-term investments: The carrying amounts reportedin the consolidated balance sheets for marketable debtand equity securities are based on quoted market pricesand approximate fair value.Investments in securities: The Company maintains certainlong-term investments, classified as available forsale securities, in a fund to provide for payment of healthcare benefits of certain qualified employees. The estimatedfair values of these securities, included in Otherassets, of $10,182, $15,913, and $21,093 at December31, <strong>2001</strong>, 2000, and 1999, respectively, are based onquoted market prices.Long-term debt (including current portion): The fair valuesof the Company’s publicly traded debentures, shownbelow, are based on quoted market prices. The fair valuesof the Company’s non-traded debt, also shown below,are estimated using discounted cash flow analyses, basedon the Company’s current incremental borrowing ratesfor similar types of borrowing arrangements. See Note 7for the fair value of interest rate swap contracts.December 31,<strong>2001</strong> 2000 1999Carrying Fair Carrying Fair Carrying FairAmount Value Amount Value Amount ValuePubliclytradeddebt ........ $603,762 $598,529 $613,709 $592,113 $726,017 $698,031Non-tradeddebt ........ 13,184 12,571 19,886 17,752 15,889 14,792Derivative instruments: The Company adoptedStatement of Financial Accounting Standards (SFAS)No. 133, “Accounting for Derivative Instruments andHedging Activities,” as amended, effective January1, <strong>2001</strong> with no impact on the Company’s results ofoperations, liquidity or financial condition. SFAS No.133 requires all derivative instruments to be recordedas either assets or liabilities at fair value. Gains orlosses resulting from changes in the values of thosederivative instruments may be recognized immediatelyor deferred depending on the use of thederivative or whether it’s designated as a hedge. TheCompany utilizes derivative instruments as part ofits overall financial risk management policy. TheCompany does not use derivative instruments forspeculative or trading purposes. The Companyentered into interest rate swap contracts during <strong>2001</strong>primarily to hedge against interest rate risks. See Note7. The Company also entered into option and forwardcurrency exchange contracts in <strong>2001</strong> primarilyto hedge against foreign currency risk exposure. SeeNote 4.Non-traded investments: It was not practicable toestimate the fair value of the Company’s investmentin certain non-traded investments because of the lackof quoted market prices and the inability to estimatefair values without incurring excessive costs. The carryingamounts, included in Other assets, of $13,771,$25,143, and $15,860 at December 31, <strong>2001</strong>, 2000,and 1999, respectively, represent the Company’s bestestimate of current economic values of these investments.Investment in life insurance. The Company invests inbroad-based corporate owned life insurance. The cash surrendervalues of the policies, net of policy loans, areincluded in Other assets. The net expense associated withsuch investment is included in Other expense - net. Suchexpense was immaterial to Income before income taxes.Impairment of long-lived assets. The Company evaluatesthe recoverability of long-lived assets and the related estimatedremaining lives at each balance sheet date. TheCompany records an impairment or change in useful lifewhenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable or the usefullife has changed in accordance with SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets andfor Long-Lived Assets to be Disposed of.” See Note 2. SeeImpact of recently issued accounting standards below forinformation on SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets.”Goodwill. Goodwill represents the cost in excess of fairvalue of net assets acquired in business combinations accountedfor by the purchase method and is amortized on a33