2001 Annual Report - Investor Relations - Sherwin Williams

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Thousands of Dollars Unless Otherwise Indicated)values are included in either Other current assets or Otheraccruals on the balance sheet and were immaterial atDecember 31, 2001. There were no foreign currency optionand forward contracts outstanding at December 31, 2000and 1999.Note 5 – Disposition and Terminationof OperationsThe Company is continually re-evaluating its operatingfacilities against its long-term strategic goals. Upon commitmentto a formal shutdown plan of an operating facility,provisions are made for all estimated qualified exit costs inaccordance with Emerging Issues Task Force No. 94-3,“Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity” and otherrelated accounting guidance. Qualified exit costs includeprimarily post-closure rent expenses, incremental post-closurecosts and costs of employee terminations. Adjustmentsmay be made to prior provisions for qualified exit costs ifinformation becomes available upon which more accurateamounts can be reasonably estimated. Concurrently, property,plant and equipment is tested for impairment inaccordance with SFAS No. 121 and, if impairment exists,carrying value is reduced to estimated net fair value. Adjustmentsmay be made for subsequent revisions in estimatednet fair value, not to exceed original asset carrying valuebefore impairment.During the fourth quarter of 2001, formal plans wereapproved to close two manufacturing facilities in the PaintStores and Consumer Segments. During 2000, two researchcenters in the Automotive Finishes Segment and a distributioncenter in the Consumer Segment were closed. In1999, two manufacturing facilities and a leased warehousewere closed in the Consumer Segment. Qualified exit costswere accrued and asset impairment charges recorded for allof these facilities. The following table summarizes dispositionand termination of operations activities.2001 2000 1999Qualified exit costs:Beginning accruals - January 1............ $ 17,903 $ 20,772 $ 29,970Provisions in Cost of goods sold ........ 4,400 1,055 3,810Adjustments to prior provisions inOther expense-net .......................... 902 2,249 2,521Actual expenditures charged to accrual (3,326) (6,173) (15,529)Ending accruals - December 31 .......... $ 19,879 $ 17,903 $ 20,772Impairment charges-net on assetsheld for disposal included inOther expense-net ............................ $ 6,402 $ 4,719 $ 1,309Impact on net income relating tothe disposition and terminationof operations:Decrease in net income .................. $ 7,608 $ 5,215 $ 4,966Decrease in net income per share .... $ 0.05 $ 0.03 $ 0.03Approximately 28 percent of the ending accrual for qualifiedexit costs at December 31, 2001 related to facilitiesshutdown in 2001 and 2000. The majority of expendituresrelated to these facilities are expected to be completed bythe end of 2003. The remaining portion of the ending accrualprimarily represents ongoing contractual expenses andpost-closure demolition expenses related to certain ownedfacilities that have been closed and are involved in ongoingenvironmental-related activities. The Company cannot reasonablyestimate when such matters will be concluded.Note 6 – Pension and Other BenefitsThe Company provides certain health care benefits foractive employees. The plans are contributory and containcost-sharing features such as deductibles and coinsurance.There were 16,512, 16,811, and 16,081 active employeesentitled to receive benefits under these plans as of December31, 2001, 2000, and 1999, respectively. The cost ofthese benefits for active employees is recognized as claimsare incurred and amounted to $68,158, $58,782, and$52,640 for 2001, 2000, and 1999, respectively. The Companyhas a fund, to which it no longer intends to contribute,that provides for payment of health care benefits of certainqualified employees. Distributions from the fund were$8,113, $7,410, and $6,421 in 2001, 2000, and 1999,respectively.The Company provides pension benefits to substantiallyall employees through noncontributory defined benefitor defined contribution plans. The Company’s annual contributionfor its defined contribution pension plans, whichwas based on 5 percent of compensation for coveredemployees, was $35,991, $33,043, and $31,512 in 2001,2000, and 1999, respectively. Beginning January 1, 2002,the annual contribution increased to 6 percent of compensationfor covered employees (see Note 10 for informationrelated to a reduction in other annual contributions). Assetsin employee accounts of the defined contribution pensionplan are invested in various mutual funds as directed by theparticipants. These mutual funds do not own a significantnumber of shares of the Company’s common stock.Employees of the Company who were hired prior toJanuary 1, 1993 and who are not members of a collectivebargaining unit, and certain groups of employees addedthrough acquisitions, are eligible for certain health careand life insurance benefits upon retirement from activeservice, subject to the terms, conditions and limitations ofthe applicable plans. There were 4,837, 4,855, and 4,831retired employees entitled to receive benefits as ofDecember 31, 2001, 2000, and 1999, respectively. Theplans are unfunded.36