2001 Annual Report - Investor Relations - Sherwin Williams

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Thousands of Dollars Unless Otherwise Indicated)At December 31, 2001, defined benefit pension planassets included 2,025,200 shares of the Company's commonstock with a market value of $55,693, which was 10.4percent of total plan assets. Dividends received during theyear from Company stock was $1,246.The assumed health care cost trend rate is 8.9 percent for2002 decreasing gradually to 5.5 percent for 2010 andthereafter. Assumed health care cost trend rates have a significanteffect on the amounts reported for the health careplans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects as ofDecember 31, 2001:One-Percentage-PointIncrease (Decrease)Effect on total of service and interestcost components ...................................... $ 611 $ (592)Effect on the postretirement benefitobligation ................................................ $ 8,889 $ (8,576)Note 7 – Long-Term DebtDue Date 2001 2000 19996.85% Notes .................. 2007 $ 199,839 $ 199,807 $ 199,7757.375% Debentures ........ 2027 149,914 149,910 149,9077.45% Debentures .......... 2097 149,414 149,408 149,4026.5% Notes .................... 2002 99,989 99,9789.875% Debentures ........ 2016 1,500 11,500 15,9005% to 8.5% ThroughPromissory Notes........ 2005 3,319 8,882 5,75210.25% Promissory Notepartially secured by Throughland and building........ 2003 1,108 1,179 1,243Long-term debt beforeSFAS No. 133adjustments ................ 505,094 620,675 621,957Fair value adjustmentsto 6.85% Notes inaccordance withSFAS No.133 .............. (1,577)$ 503,517 $ 620,675 $ 621,957Maturities of long-term debt are as follows for the nextfive years: $111,852 in 2002; $4,087 in 2003; $125 in2004; $215 in 2005, and zero in 2006.Interest expense on long-term debt was $44,582,$46,569, and $55,415 for 2001, 2000, and 1999, respectively.During 2001, the Company entered into four separateinterest rate swap contracts with a bank to hedge againstchanges in the fair value of a portion of the Company’s6.85% Notes. Each interest rate swap contract had a notionalamount of $25,000. The Company has agreed to receiveinterest at a fixed rate of 6.85% and pay interest at six-monthLondon Interbank Offered Rates plus points that vary bycontract. These contracts have been designated as perfectfair value hedges of the 6.85% Notes. Accordingly, changesin the fair value of these contracts are recorded as assets orliabilities and offset changes in the carrying value of the6.85% Notes. The fair value of the interest rate swap contractsrepresents unrealized losses of $1,577 at December31, 2001 and is included in Other long-term liabilities onthe balance sheet. The weighted average interest rate on thesecontracts was 3.98% at December 31, 2001. Managementbelieves the risk of incurring losses related to credit risk ofthese contracts is remote. There were no interest rate swapagreements outstanding at December 31, 2000 and 1999.The Company has 364-day and multi-year amendedrevolving credit agreements. The current agreements witheffective dates of December 28, 2001 and January 3, 2001reflect the following: 1) a 364-day agreement aggregating$112,200 expiring on December 27, 2002; and 2) a multiyearagreement aggregating $638,400, with $30,400,$190,400, and $417,600 expiring on January 3, 2003,2005, and 2006, respectively. There were no borrowingsoutstanding under any revolving credit agreement duringall years presented.At December 31, 2000, borrowings outstanding underthe commercial paper program totaled $106,854 and areincluded in Short-term borrowings on the balance sheet.The weighted-average interest rate related to these borrowingswas 6.6% at December 31, 2000. There were noborrowings outstanding under this program at December31, 2001 and 1999, respectively. The Company uses therevolving credit agreements to satisfy its commercial paperprogram’s dollar for dollar liquidity requirement. The aggregatemaximum borrowing capacity under the currentrevolving credit agreements as of December 28, 2001 limitsthe commercial paper program to a maximum borrowingcapability of $750,600.On October 6, 1997, the Company issued $50,000 ofdebt securities consisting of 5.5% notes, due October 15,2027, with provisions that the holders, individually or inthe aggregate, may exercise a put option on October 15,1999 and annually thereafter that would require the Companyto repay the securities. On October 15, 2000 and1999, individual debt security holders exercised put optionsrequiring the Company to repay $7,960 and $38,945 ofthese debt securities. The remaining balance of $3,095 atDecember 31, 2001 and 2000 and $11,055 at December31, 1999 of these debt securities are included in Currentportion of long-term debt on the balance sheets.On December 24, 1997, the Company filed a shelf registrationwith the Securities and Exchange Commissioncovering $150,000 of unsecured debt securities with maturitiesgreater than nine months from the date of issue. TheCompany may issue these securities from time to time inone or more series and will offer the securities on termsdetermined at the time of sale. There were no borrowingsoutstanding under this registration at December 31, 2001,2000, and 1999.38