2001 Annual Report - Investor Relations - Sherwin Williams

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Thousands of Dollars Unless Otherwise Indicated)A summary of the Company’s stock option activity and related information for the years ended December 31, 2001,2000 and 1999 is shown in the following table:2001 2000 1999Weighted- Weighted- Weighted-Average Average AverageOptioned Exercise Optioned Exercise Optioned ExerciseShares Price Shares Price Shares PriceOutstanding beginning of year .............................................. 12,588,310 $ 22.47 10,724,653 $ 22.78 6,259,702 $ 22.89Granted .................................................................................. 3,070,700 24.29 2,820,900 19.75 5,292,350 22.33Exercised ................................................................................ (1,031,486) 17.26 (533,991) 12.02 (462,598) 15.36Canceled ................................................................................ (498,348) 24.10 (423,252) 24.62 (364,801) 27.69Outstanding end of year ........................................................ 14,129,176 $ 23.19 12,588,310 $ 22.47 10,724,653 $ 22.78Exercisable at end of year ...................................................... 7,681,476 $ 23.75 5,923,537 $ 23.31 3,971,139 $ 21.09Weighted-average fair value of options granted during year .. $ 5.36 $ 4.72 $ 4.67Reserved for future grants ...................................................... 3,834,876 6,595,728 8,997,876Exercise prices for optioned shares outstanding as of December 31, 2001 ranged from $13.63 to $35.34. A summaryof these options by range of exercise prices is as follows:OutstandingExercisableWeighted-Weighted- Average Weighted-Average Remaining AverageRange of Optioned Exercise Contractual Optioned ExerciseExercise Prices Shares Price Life (years) Shares Price< $19.00 529,065 $ 16.56 3.62 469,055 $ 16.38$19.00 - $22.99 6,097,641 20.15 7.60 3,286,201 20.27$23.00 - $28.99 5,919,720 25.24 8.12 2,367,491 26.31> $28.99 1,582,750 29.43 6.18 1,558,729 29.4314,129,176 $23.19 7.46 7,681,476 $23.75Note 13 – Income TaxesDeferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assetsand liabilities for financial reporting purposes and theamounts used for income tax purposes using the enactedtax rates and laws that are currently in effect. Significantcomponents of the Company’s deferred tax assets and liabilitiesas of December 31, 2001, 2000 and 1999 are asfollows:2001 2000 1999Deferred tax assets:Dispositions, environmental andother similar items .................. $ 54,856 $ 55,220 $ 56,123Other items (each less than 5%of total assets).......................... 107,726 98,107 94,196Total deferred tax assets...... $162,582 $153,327 $150,319Deferred tax liabilities:Depreciation and amortization .... $ 49,164 $ 35,691 $ 66,374Deferred employee benefit items .. 58,535 50,333 42,785Total deferred tax liabilities .... $107,699 $ 86,024 $109,159Significant components of the provisions for incometaxes are as follows:2001 2000 1999Current:Federal.......................................... $118,882 $125,393 $128,185Foreign ........................................ 9,893 6,211 11,787State and local .............................. 16,839 22,662 25,116Total current............................ 145,614 154,266 165,088Deferred:Federal.......................................... 15,374 (27,386) 14,388Foreign ........................................ (2,458) 6,213 3,851State and local .............................. 2,761 (5,713) 2,931Total deferred .......................... 15,677 (26,886) 21,170Total income tax expense.................. $161,291 $127,380 $186,258Significant components of income before income taxesas used for income tax purposes, are as follows:2001 2000 1999Domestic .......................................... $393,200 $ 90,412 $411,626Foreign ............................................ 31,249 52,994 78,492$424,449 $143,406 $490,11842
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Thousands of Dollars Unless Otherwise Indicated)A reconciliation of the statutory federal income tax rateand the effective tax rate follows:2001 2000 1999Statutory tax rate .................................. 35.0% 35.0% 35.0%Effect of:State and local taxes .................... 3.0 7.7 3.7Investment vehicles ...................... 1.3 (7.3) (1.5)Impairment of long-lived assets .... 51.0Other - net .................................. (1.3) 2.5 0.8Effective tax rate.................................... 38.0% 88.9% 38.0%A portion of the impairment of long-lived assets chargein 2000 related to goodwill was not deductible for tax purposes.The effect on the statutory federal income tax rateis shown separately in the previous table. The state andlocal tax effect is not shown seperately. The remaining portionof the impairment charge created federal, state andlocal deferred tax benefits due to the significant temporarydifferences between the reduced financial carrying amountsand amounts used for tax purposes.The provisions for income taxes include estimated taxespayable on that portion of retained earnings of foreign subsidiariesexpected to be received by the Company. Aprovision was not made with respect to $11,473 of retainedearnings at December 31, 2001 that have been invested byforeign subsidiaries. It is not practicable to estimate theamount of unrecognized deferred tax liability for undistributedforeign earnings.Netted against the Company’s other deferred tax assetsare valuation reserves of $10,200, $9,082 and $16,211 atDecember 31, 2001, 2000, and 1999, respectively, resultingfrom the uncertainty as to the realization of the taxbenefits from certain foreign net operating losses and certainother foreign assets.Note 14 – Summary of QuarterlyResults of Operations (Unaudited)2001Net Income Net Incomeper Share per ShareQuarter Net Sales Gross Profit Net Income – Basic – Diluted1st $ 1,158,370 $ 489,023 $ 36,924 $ .23 $ .232nd 1,407,514 608,537 90,480 .58 .583rd 1,366,768 601,039 90,321 .58 .584th 1,133,353 521,029 45,433 .29 .30Net income in the fourth quarter was decreased by$2,092 ($.01 per share) due to certain year-end adjustments.Gross profit increased by $18 ($12 after-tax, no per shareimpact) as a result of physical inventory adjustments of$4,418 ($2,872 after-tax, $.02 per share) offset by fourthquarter provisions for qualified exit costs associated withcertain facility closings of $4,400 ($2,860 after-tax, $.02per share). Selling and Administrative expenses decreased$11,735 ($7,628 after-tax, $.05 per share) due to the reductionof $10,368 ($6,739 after-tax, $.04 per share) in certainannual selling expenses related to lower sales, and certainother adjustments of $1,367 ($889 after-tax, $.01 pershare). Other expense–net increased $14,972 ($9,732 aftertax,$.06 per share) due primarily to the provisions for theestimated costs of environmental-related matters at current,former and third party sites of $5,609 ($3,645 after-tax,$.02 per share), impairment charges and adjustments toprior provisions related to facility closings of $7,304($4,748 after-tax, $.03 per share), and other year-endadjustments of $2,059 ($1,339 after-tax, $.01 per share).2000Net Income Net Income(Loss) per (Loss) perNet Income Share – Share -Quarter Net Sales Gross Profit (Loss) Basic Diluted1st $ 1,221,916 $ 516,244 $ 40,923 $ .25 $ .252nd 1,429,267 641,474 115,843 .71 .713rd 1,411,903 626,095 106,719 .66 .664th 1,148,538 523,798 (247,459) (1.55) (1.55)The fourth quarter net loss resulted from an after-taxcharge for the impairment of long-lived assets of $293,628or $1.84 per share ($1.80 per share for the year due to theeffect of dilution and higher average shares outstanding).Net income in the fourth quarter of $46,169, excluding theimpairment charge, was decreased by $484, no per shareimpact, due to certain year-end adjustments. Gross profitincreased by $8,666 ($5,633 after-tax, $.04 per share) primarilyas a result of physical inventory adjustments of$9,889 ($6,428 after-tax, $.04 per share) partially offset byfourth quarter provisions for qualified exit costs associatedwith certain facility closings of $1,055 ($686 after-tax,no per share impact). Administrative expenses increased$1,288 ($838 after-tax, $.01 per share) due to other yearendadjustments. Other expense-net increased $8,122($5,279 after-tax, $.03 per share) due primarily to fourthquarter impairment charges and adjustments to prior provisionsrelated to facility closings of $6,968 ($4,529after-tax, $.03 per share).43
Page 1: The Sherwin-Williams Company2001 AN
Page 4 and 5: SUMMARY OF Operating SegmentsPaint
Page 6 and 7: Christopher M. ConnorChairman and C
Page 8 and 9: letter to shareholdersnegative year
Page 10 and 11: Alfred LewisCity Manager, Paint Sto
Page 12 and 13: Fred KoneckiCase PackerChicago, Ill
Page 15 and 16: Automotive finishes segmentThe Sher
Page 17 and 18: International Coatings segmentShare
Page 19 and 20: TITUSVILLE,FLA. -➛A shortage of A
Page 21 and 22: SUBSIDIARIESForeignCoatings S.r.L.C
Page 23 and 24: Management’s Discussion and Analy
Page 25 and 26: MANAGEMENT’S DISCUSSION AND ANALY
Page 31 and 32: STATEMENTS OF CONSOLIDATED INCOME(T
Page 33 and 34: STATEMENTS OF CONSOLIDATED CASH FLO
Page 35 and 36: NOTES TO CONSOLIDATED FINANCIAL STA
Page 43: NOTES TO CONSOLIDATED FINANCIAL STA
Page 49 and 50: Directors, Officers, Operating Pres

2001 Annual Report - Investor Relations - Sherwin Williams

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