2001 Annual Report - Investor Relations - Sherwin Williams

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Thousands of Dollars Unless Otherwise Indicated)Note 15 – Net Income per Share2001 2000 1999BasicAverage shares outstanding .... 155,557,085 161,911,789 167,924,660Net income.............................. $ 263,158 $ 16,026 $ 303,860Net income per share .............. $ 1.69 $ .10 $ 1.81DilutedAverage shares outstanding .... 155,557,085 161,911,789 167,924,660Non-vested restrictedstock grants ........................ 321,500 279,300 263,567Stock options -treasury stock method ........ 1,014,950 503,982 838,069Average sharesassuming dilution .............. 156,893,535 162,695,071 169,026,296Net income.............................. $ 263,158 $ 16,026 $ 303,860Net income per share .............. $ 1.68 $ .10 $ 1.80Note 16 – Reportable SegmentInformationThe Company reports its segment information in fivereportable segments—the Paint Stores, Consumer, AutomotiveFinishes, International Coatings (collectively, the“Operating Segments”) and Administrative Segments—inaccordance with SFAS No. 131, “Disclosures about Segmentsof an Enterprise and Related Information.” SFAS No.131 requires an enterprise to report segment informationin the same way that management internally organizes itsbusiness for assessing performance and making decisionsregarding allocation of resources. See page 2 and pages 8through 15 of this report for more information aboutreportable segments.The Company’s chief operating decision maker has beenidentified as the Chief Executive Officer because he has finalauthority over performance assessment and resource allocationdecisions. Because of the global, diverse operationsof the Company, the chief operating decision maker regularlyreceives discrete financial information about eachreportable segment as well as a significant amount of additionalfinancial information about certain aggregateddivisions, business units and subsidiaries of the Company.The chief operating decision maker uses all such financialinformation for performance assessment and resource allocationdecisions. Factors considered in determining the fivereportable segments of the Company include the nature ofthe business activities, existence of managers responsiblefor the operating and administrative activities and informationpresented to the Board of Directors. The chiefoperating decision maker evaluates the performance of theOperating Segments and allocates resources based on profitor loss and cash generated from operations before incometaxes, excluding corporate expenses and financing gainsand losses. The accounting policies of the reportable segmentsare the same as those described in Note 1.The Paint Stores Segment consists of 2,573 companyoperatedspecialty paint stores in the United States, Canada,Virgin Islands, Puerto Rico and Mexico. Each division andbusiness unit of the Segment is engaged in the related businessactivity of selling the Company’s own manufacturedcoatings and related products to end-use customers. During2001, this Segment opened or acquired 85 net newstores, remodeled 6 and relocated 38. The net new storesconsisted of 83 stores in the United States, 2 in Canada,and 1 in Puerto Rico along with 1 closing in Mexico. In2000, there were 92 net new stores opened or acquired (79in the United States). In 1999, there were 73 net new storesopened (66 in the United States). This Segment also manufacturesoriginal equipment manufacturer (OEM) productfinishes sold through certain shared or dedicated paint storesand by direct outside sales representatives. In addition tostores, operations in Mexico include a manufacturing facility,distribution activities and outside selling functions todealers and other distributors.The Paint Stores Segment is the exclusive North Americanmarketer and seller of Sherwin-Williams ® brandedarchitectural coatings, industrial and marine products,OEM product finishes and related items produced by itsMexican operations, its product finishes manufacturing andby the Consumer Segment. The loss of any single customerwould not have a material adverse effect on the business ofthis Segment. A map on page 18 of this report shows thenumber of paint stores and their geographical location.The Consumer Segment develops, manufactures and distributesa variety of paint, coatings and related products tothird party customers and the Paint Stores Segment.Approximately 44 percent of the total sales of the ConsumerSegment in 2001, including inter-segment transfers,represented products sold through the Paint Stores Segment.Sales and marketing of certain control-branded and privatelabeled products is performed by a direct sales staff. Theproducts distributed through third party customers areintended for resale to the ultimate end-user of the product.The Consumer Segment has sales to certain customers that,individually, may be a significant portion of the sales of theSegment. However, the loss of any single customer wouldnot have a material adverse effect on the overall profitabilityof the Segment. This Segment incurs most of the Company’scapital expenditures related to ongoing environmentalcompliance measures.The Automotive Finishes Segment develops, manufacturesand distributes a variety of motor vehicle finish,refinish and touch-up products primarily throughout Northand South America, the Caribbean Islands, and Italy. ThisSegment also licenses certain technology and trade namesworldwide. Sherwin-Williams ® branded automotive finishand refinish products are distributed throughout NorthAmerica solely through this Segment’s network of 124 company-operatedautomotive branches in the United States44