Document 7RvEqor9L9ajODzZ0154mL5YV

Who W* Arm Sberwin-WUtanscompteted IT6 years of doing business in 1964. Our com business is the manufacturing. selling and dstnbutxxi of coatings and related products. We also sell prescriptions, heafthand beauty aids, cosmetics and general merchandise through 423 Gray Drug and Drugfair stores in lOslates. We sell Sherwin-Wlliams labeled architectural coatings industrial finishes, and associated supplies through i .535 company-operated paint and wallcovering stores m 46 states We also manufacture and sell coatings such as Dutch Boy. MartinSenour, Kem-Tone. plus private label brands to independent dealers, mass merchandisers, and home improvement centers Wte produce coatings for original equipment manufacturers in a number of industries and special purpose coalings for the automotive aftermarket, industrial maintenance, and traffic paint markets. Highlights '"vuM-ds X debars, except per srare daia Years ended Decemoer 31 Net sales Income before income laxes Net income Per common share: Net income-fully diluted -primary Gash dividends Book value Average shares outstanding-fully diluted -primary Return on sales Return on common shareholders" equity Effective income tax rate Debt to capitalization limes interest earned Current ratio R&D expenditures Advertising expenditures Number of common shareholders of record Number of employees 1984 $2,075,194 116,106 65,006 1983 Si ,973,485 101,212 55.412 1982 $1,851,776 76,431 42,931 2.80 2.84 .76 17.94 23,295,807 22,924,824 3.1% 17.6% 44.0% 29.5% 8.0x 1.9 to 1 $11,077 68,949 9,777 19,437 2.25 2.32 .60 16.24 24,739,788 23,819,619 2.8% 16.6% 45.3% ....... 321% 6.8'x 2.0 to 1 $10,136 61,358 9,641 19,359 1.78 2.02 .50 15.19 24,527,846 20,903,326 2.3% 14.8% 43.8% ........ 36.0% ....... S.Ox 22 to 1 $9,135 51,764 8,590 21.101 0007--SWP--035430 1 0007-SWP-000116852 Overview of 1984 We improved our performance in 1984 despite operating problems m Grav Drug Fair ana the Consumer Dw sicn We are pleaseo with the Paint Stores Division's progress and the Automotive Aftermarket Division's performance Beth divisions improved sales and operating income through better marketing and operations, aided by a generally healthy economy. The Paint Stores Division added 118 stores in 1984 To ensure these new stores and others to follow are equipped with adequate numbers of trained mana gers and sales professionals, the division established detailed hands-on training programs Other division achievements included growth in both the wholesale and retail portions of their Business and the smooth transfer of the Chemical Coatings Division's smal and medium sized business machine d u s mess to the Paint Stores Division's sales force to ensure paint service at focal levels Gray Drug Fair's performance was disappointing. Operating income fell below last year's level as a result of their inability to maintain margins. As I said in last year's report, with their sales contributing as large a percentage of consolidated totals as they do-30 per- oqnt, in 1984-qperabng income must Be higher GrayDrug Fair's record to date In 1984, our earnings per com is not dissimilar to the Paint Stores Divi mon share increased to $2.84, sion's experience during the earlier pnmary, from $2,32 in 1983, and to stages of their turnaround. $2 80, fully diluted, compared to $2.25. In an effort to improve Gray's results, Net income increased 17 percent to we appointed Mr. Carl A. Bellini to the $65,006,000, compared to $55,412,000 position of president and general mana in the previous year. Net sales, at ger. He has demonstrated leadership in $2 08 billion, were up 5 percent com his previous position of group vice presi pared to 1983's $1.97 billion. (Consoli dent for Gray Drug Fair and the Paint dated sales comparisons, excluding the Stores Division, together with 28 years November 1983 divestiture of our Con of experience in retailing. Another key tainer Division, were up 10 percent) We appointment in the division was Mr, came closer to our goal of 20 percent James P. Mastrian's promotion to vice return on common shareholders' equity president of marketing. Mr. Mastrian had by earning 17.6 percent This compares been vice president and regional opera to 16.6 percent for 1983. tions director of Gray's Atlantic Region. 0007-SWP--035431 ----2 0007-SWP-000116853 The Coatings Segment, with the ex ception of the Automotive Aftermarket Division, also fell short of expectations. The Consumer Division's performance was negatively impacted by the new transfer value arrangement with the Paint Stores Division. External sales did not meet expectations, except for Dutch Boy which outperformed the industry in gallonage. The division has begun an assessment of brands and product lines to determine operating and marketing strategies. A decision has been made to phase out the Baltimore line of archi tectural paint in May of 1984, we promoted Mr. Rank E Butler to the position of Consumer Division president and general manager. Mr. Butler, who joined the company in 1957, had been the division's vice president of operations. Mr. Richard D. Hardy, who has been with SherwinWilliams for 20 years, became vice presi dent of marketing. Once again, the Automotive Aftermarket Division's operating profits were up compared to the previous year as the result of increased sales and cost effici encies. We acquired the U.S. operations of Dupli-Color, a manufacturer and distributor of automotive coatings to the do-it-yourself customer, The spirit and dedication of the Auto motive Aftermarket Division was illustrated in November when the division's Rich mond, Kentucky, plant presented a check to Len \Aferd, president and general manager. Mr. Ward accepted the check tor $21,282.71 on behalf of the division. The contribution was accum ulated from a fund created and shared by all employees when the plant exceeds productivity goals. Rather than keep the bonus, the plant employees contributed it as their "tangible appreciation for the opportunities given us. We want it added directly to the company profits." Chemical Coatings Division strength ened its marketing function with the appointment of Mr. Richard E Martin to vice president marketing. Me Martin brings to the division extensive experi ence in industrial marketing. Chemical Coatings made improvements in sales and profits in 1984. The strength in the economy was of significant help. However the restructuring of the marketing effort and introduction of new products helped external sales as well as sales through the Paint Stores Division. The International Group experienced a fall-off in sales, primarily in the Caribbean. Devaluations in the region affected the group's operating profits. The Chemicals Division increased operating income even though sales were down slightly. This was accomplished through the curtailing of nonprofitable operations and increased physical volume. Chemicals Division remains for sale as we believe it will fare better under the management of a chemical manufacturer, and. also, we wish to redeploy the assets to our core businesses. 1985 and beyond We believe the balance of the 1980's will be marked by economic uncertainty. Government budget deficits; high real interest rates; the strong dollar and its impact on the trade imbalance; and huge external debt tor underdeveloped countries have not been resolved. We have positioned ourselves at SherwinWilliams to grow in a more competitive, low-growth, low-inflation environment Our products and services are targeted at basic consumer needs of shelter, transportation and health. Ample opportunities for market share growth are available to our company Cost-cutting, strong operating controls, increased manufacturing efficiency, aggressive advertising, and a strong re lationship between quality of product and price will strengthen our effort to increase market penetration. Population changes bode well for both Gray Drug Fair and the Raint Stores Divi sion. By the year 2000,9.5 million more people will enter the 65-years-and-older age segment, which should benefit our prescription business. Gray Drug Fair will conlinue to focus on its turnaround, growing sales through competitive pro motion and improved merchandise mix. Anolher demographic change is that "baby boomers'' are now entering im portant consumer years. Ownership of property remains the cornerstone of free enterprise tor this group of consumers, lust as it was for their parents. We expect them to buy paint, wallcovering and associated products to refurbish and maintain their property. Our Raint Stores Division will expand aggressively with 150 new store openings per year for the next several years as the division pursues sales growth. Acquisitions will be working-capital intensive, and we must have existing management expertise and familiarity with the potential acquisition. In conclusion, we expect another year of strong competition and lookforward to opportunities in coatings, home decorat ing products, and retail drug stores. We will continue toemphasize product quality, customer service, and improved distri bution. We are confident that these efforts will result in continued profit improve ment for our shareholders. / John G. Breen, Chairman, ' President. Chief Executive Officer March 11.1985 ------------------------ -3 0007-SWP--035432 0007-SWP-000116854 Sherwin-Williams at a glance by segment Paint Storea Stores Division Drug Stores Gray Drug Fair Principal Products Major Markets Sberwin-WiHiams labeled architectural coatings and industrial finishes, wallcoverings, Itoorcovenngs, window treatments, pant sundries, spray equipment Professional users (including painters, contractors, industrial maintenance and commercial accounts), do-ityourselfers, small-to-medium-suted manufacturers of products requiring factory finish. Prescriptions, health and beauty aids, cosmetics, general merchandise. General public. Coating* Other Consumer Division Automotive Aftermarket Division Chemical Coatings Division International Group Sherwin-Williams Canada Sherw/n-Williams Memo` Sherwin-Williams Caribbean Sherwin-Williams Brazil' ('unconsolidated) Chemicals Division Architectural finishes (under the Sherwin-WMiams, Dutch Boy MartinSenour, Kem-Tone, and private brand labels), special purpose coatings, aerosol packaging, brushes, rollers, adhesives, labels, color cards. Automotive refinish products under Sherwin-Willams, Martin-Senoui Acme, Rogers,Adose (factory-packed colors for Japanese cars) and Dupff-Color labels. Sherwin-Wiliams labeled industrial finishes for original equipment manufacturers. Architectural coatings, industrial and automotto repaint finishes, paint sundries and a variety of home decorative items. Do-it-yourselfers, industrial and commercial maintenance accounts, painting contractors. Automotto body shops, lleets. body builders. Business machines, general products, brest products, transportation equipment, coil products, metal furniture, term and offroad equipment manufacturers/finishers. Independent paint dealers, painting contractors, automotive body shops, commercial and industrial maintenance accounts, original equipment manufacturers and do-it-youraetiers. Organic intermediates, saccharin, antioxidants and corrosion inhibitors. Plastics, rubber, food, pharmaceuti cals and agricultural chemicals. Gaharal bualnaaa development--There were no material changes in the business conducted by the company during the latest fiscal year: Raw materials and HmI supplies lor all seg ments are generally available in sufficient quan tities and from a variety of sources. Environmental affaire-The company believes it is in substantial compliance with federal, slate and local provisions regulating the discharge of mater ials into the environment There are no material captal expenditures anticipated for environmental control tacitiMs during the next year. Customers and backlog-The toss ol anysingle customei would not have a materially adverse effect on the business of the company or any seg ment Backlog ol orders is not significant in the business ol any segment ol the company Patent* ami Hcanaaa are not ol material im portance in Ihe business of the compary However, a substantial part ol the income of the International Group is derived from the license of technology trademarks and trade names to other foreign companies. Financial raauHa of these segments are in cluded on pages 8-9 of this report Humber of employe-- is included on page 1 of this report FaellNIaa are listed on page 31 of this reporLThe majority ol the plants are owned by the company. The company believes that the vanous production facilities ot the Coatings Segment are adequate to operate ata significantlyhighervolumethanm 198*. Hseearoh and development expenditures are described on page 20. Virtually all such activ ities were sponsored by the company rather than by customers. Legal--Tbs compary isone ofthe named defend ants m a civil suit hied in the Twelfth District Court by theSlats of RIw k ms Evolving a recycling operation. CrossBrothers, Psmbroke, Illinois. The state is seekvanous forms of relief under the IlSnoa Environ mental Protection ActThe suit is m the initial stages of discovery The company, being one of 153 defendants in a avil suit filed by the United States against Seymour. Recycling Corporation et at. Seymour. Indiana, settled a* claims made against the company in the amount of Si 84,000. 0007--SWP--035433 0007-SWP-000116855 Distribution Through 1,536 company-operated stores in 48 states. Competition Paint and wallpaper stores, mass marketers, home centers, independent hardware stores, hardware chains. Market is fragmented and highly price, quality and service competitive. SoMonaltty Seasonal with the major portion of sales occurring in the second and third quarters. 423 retail stores in Delaware, Florida. Indiana, Maryland, New 'fork, Ohio, Pennsylvania, Virginia, Wfest Virginia, and the District of Columbia. Drug chains, food stores and mass marketers. Customers respond to merchandising, pricing and service. The Stores Division, independent dealers, mass merchandisers, home centers. More than 1,000 coatings manufacturers at regional and national level Quality servioe and price are main competitive factors. Seasonal with approximately 29 percent of sales occurring in the fourth quarter. Seasonal with the major portion of sales occurring to toe second andtoird quarters. 70 Sherwin-VWIiams automotto branches, distributors and jobbers. Division ranks among tour m^or martaf leadere. Quality and service competitive. Moderately seasonal Sherwin-Wiiams stores and direct sates. Four mafor competitors with brood product ottering and several smaltcompanies with niche product! Product technology quality and service key compedtto factors. Direct series force, distributors and jobbers. Company-operated stores as foitowa: Mexico 75; Jamaica 12; Trinidad 5; Barbadoe 2; Puerto Rico 14. Mary compeUtore in each foreign market Shenvin-VMiams competitto position is stgniltoant only in Mexicoand theWbst Indies. Price, service and quality sensitive. No significant seasonality to significant seasonality Direct sales representattos, distributors ami, ..Majorchemica) companies. Technologyand warehouses, ' price compettto.' v x.'= --- v- ' . tea,-.*-- ' v '' '" to significant seasonality What your drugstore ought to be Far more than an advertising slogan, "What your drugstore ought to her is a simple way of telling customers that Gray Drug and Orugfair stores give Stem more ol what they come to a drugstore lor meet often More choice in the key categories of health and beauty aids with more kinds and sizes than our drugstore competition. More savings with lowregular prices, special sales,and a ftrifty private label product line ol ewer 400 items. And a phar macy dedicated to helpful service and programs that deliver the best in health care at a better cost Finally; "What your drugstore ought to be" represent a goal and a commitmenl every employee of Gray Drug Fair seeks to live up to every day TIm proofisIn th performance. The Proof is in the Performance" advertising pro gram tor Dutch Boy stresses product attributes such as extenor durability, interior washability ex cellent hiding characteristics, and, most ol al, con sistentqualityThe proofof Dutch Boy's performance les in the experience of professional painters.They participate in the advertising program by shanng with the consumer their success stones n using Dutch Boy Ask Sherwin-Willictms The "Ask Sheiwin-Williamsr advertising and pro motion program for our paint stores is targeted tor homeowners, do-it-yourselfers, and the pro fessional trade-including painting contractors, builders, plant owners, and architects. This com prehensive campaign emphasizes that SherwlnIMNiams stores offer a product selection and knowl edgeable service that both the professional and retail customer cannot find anywhere except Sherwm-WWams. ---------------------------------- 0007--SWP-035434 5 0007-SWP-000116856 1984 Operating Review by Segment Operating Highlight* for 1984 ___________ __ Paint Stolen Stores Division Increased sales 17 percent and operating pretits 94 percent Accomplished this through more efficient advertising, expansion of store network, better trained sales force, and from a reduction in intersegment transfer value between this division and Is largest internal supplier. Outpaced the industry in market share growth. - Chemical coatings and industrial maintenance portions of the business had significant sales growth Trained managers and sales representatives to prepare for rapid store network expansion. Remodeled 141 stores, opened 118. relocated 47, closed none. Drug Stores Gray Drug Fair Sales increased 8 percent but profits down due to inability to maintain margins. Expanded private label line. Began to expand merchandise assortment to emphasize higher-maigin merchandise. Continued remerchandising or subletting remaining space from Drugfair's termina tion of apparel business. - Remodeled 58 stores, opened 26. relocated 11. dosed 5. Coatings Consumer Division * Dutch Boy sales rose 13 percent Operating profits less than management's goal due to a reduction in intersegment transfer value between Consumer and Paint Stores Divisions, backlog of inventory and shortfall in external sales. * Dropped unprofitable Baltimore line; began consolidating and reviewing thoroughly all product lines for market relevance and for operating and manufacturing efficiencies. Automotive Aftermarket Division Expanded channels ol distribution for four product lines-Shsrwm-Williams, MartinSenour, Acme, and Rogers. * Successfully introduced improved passenger car refinish system and a new dear coat passenger car finish. Construction of resin manufacturing plant at Richmond, Kentucky site on schedule. * Acquired the ll.S. Dupli-Color operations. Chemical Coatings Division Increased profits 10 percent. Sales up 4 percent Restructured and strengthened marketing/sates functions and provided sales force with better training to become more marketing and service driven. PRODUCTS Laft, top to bottom Classic 99 latex matte 9at Interior provides a durable, high-biding and waahablaprotection. Cuftoman hsva moro chotos In ths key categoriaa of health and beauty aids with mora kinds and ataaa. ftecant natfonvrlda conaumarmarkatraaaarch conllmia that Dutch Boy baatha hlghaat total aamnsas and qualto paroaplion of al pahrt brinida MRabte to todspandant daatera. Urarfo raprosante our nawasl teehnetogy lor a premium polyurathans anamsf apacMeaRy brwvnl paaianpar car roflntehfng Parmacted anablaa Industrial (Matter* to comply with amiaaion standards and cut coate In tha procaaa. 0007--SWP-035435 6 Developments tor 1985 Paint Store** Stores Division Spend p"ue on advertising, emphasizing product duality and consistency, and promctiona1 events Focus on shortening lead time ter sa.es volume growth in new stores. Continue aggressive recruiting and 'raining programs to ensure a consistent source of qualified oerscnr-ei for aggressive store network expansion. Strengthen mduslral maintenance and chemical coatings programs by adding markets and stressing distribution and knowledgeable service Remodel HO stores, open 150, relocate '00, close none. Drug Store* Gray Drug Fair Grow sales through stronger, competitive promotion and improved merchandise mix: reduce SG&A costs as a percent of sales. Gain Durchasing and distribution efficiencies through more opportunistic buying and customized distribution system. Place in-store pharmacy mini-computer in 100 stores Bring into operation new 150,000 square-fbot warehouse in Flonda Remodel 37 stores, open 45. relocate 7. close 5 Coating* Consumer Division Increase sales and operating profits by consolidating lines and pledging resources to fewer, key product lines, with Dutch Boy receiving particular support. Reemphasize formulation and manufacturing quality control standards. Expand private label business. Effect additional cost efficiencies in manufacturing and distribution through product line and tecilily changes. Automotive Artermarket Division - Greater sales to result from expanded distribution. Add to manutacturmg/packaging capabilities. expand Dup'i-Color through new product introduction and aggressive distribution expansion Chemical Coatings Division Gam market share in industrial finishing market through market segmentation pro gram which focuses sales effort Keep strong emphasis on training - Remain responsive to Faint Stores Division's product quality and service needs. PRODUCTS Right top to bottom A-100 exterior flat latex house and trim offers a brighter whiteness and exesttent hiding qualities. Wb otter a wkte variety of drugstore products at low regular pries* and spatial sate*. Hsmay not look it butths Dutch Boy calibrated 75 years sthe symbol ofquality-in 1954. Our acrylic anotnol basocost/desrcot systsrn lapisssnts tbomost sdvsncod automotive rsfinfshlng technology in tbs industry Unicure often VOC compflanc* and cost-aflactlvanaaa. For metal costers who want a textumd finish. Untcun permits texturing without Brat baking tbs hatscoat 7 0007-SWP-035436 0007-SWP-000116858 Business Segments Thousands of dollars Years ended December 31. Net External Salee Paint Stores.... Drug Stores .... Coatings..................... Other ......................... Segment totals.. 1984 1983 1982 1981 1980 1979 1978 $ 850,051 623,317 513,134 88,692 $2,075,194 $ 724.374 577,926 484,503 186,682 $1,973,485 $ 621,032 540,648 490,894 199,202 $1,851,776 $ 615,434 137,860 554,378 229,135 $1,536,807 $ 582.292 465.740 215.689 $1,263,721 $ 585,312 414,300 196,731 $1.196343 $ 575,579 385,932 170,839 $1,132,350 Operating Income Paint Stores Drug Stores ................ Coatings......................... Other..................................... Segment totals. ................ Corporate expenses-net. Interest expense................ Income before income taxes $ 55,866 $ 28,767 $ 13,842 $ 82 5.853 13,864 76,571 89,067 77,728 10,964 10,479 11,354 143,463 (10.643) (16,534) 134.166 (15,569) (17,385) 116,788 (21,403) (15954) $ 116,106 $ 101,212 $ 76,431 $ 16,176 6,895 56597 7522 $ 87,490 (11,437) (18532) 57,721 $ 7,805 $ 45,059 23562 76,426 (9.523) (18,552) 48.351 $ 5,779 $ 39,066 16,247 61.092 (6290) (19,366) 33436 $ (14,076) 40,046 21,879 47,849 (16,942) (21,318) 9,589 Identifiable Assets Paint Stores .............. Drug Stores......................... Coatings.............................. Other..................................... Segment totals. .............. Corporate........................... Consolidated totals............ $ 226,186 208,354 304,986 43,041 784,567 219,829 $1,004,396 $ 177,905 203,347 299,715 53,426 734,393 205.450 $ 939,843 $ 143,665 175,859 278,564 138,001 732,089 156178 $ 888267 $ 166,711 172.734 304,534 144,942 F 159,342 306,480 142,465 788,921 75517 606287 160.305 $ '8^431* $ 768,592 $ 165,694 $ 179,390 289,137 135507 310,637 123286 590,338 121,396 613,313 40,486 J TiTTST $ 653,799 Capital Painl Stores....................... $ 16,401 $ 7,163 $ Expenditures Drugstores......................... 13,140 8,864 Coatings.............................. 14,828 11,742 Other ................................ 661 1,487 5,766 5366 8,947 6,413 $ 9,889 742 9549 19.781 $ 5,814 $ 6,194 10.107 1,388 $ 6267 5,959 2,671 9,304 3,764 Segment totals..................... Corporate......................... 45,030 2,348 29,256 2,652 26,492 4,153 40,361 2,711 22.115 1.589 10,614 1,253 16239 1,035 Consolidated totals .. $ 47,378 $ 31.906 $ 30,645 $ 43.072 $ 23,704 $ 11,867 $ 17,274 Depreciation Paint Stores......................... Drug Stores......................... Coatings.............................. Other..................................... $ 6,927 3,348 9,081 3,432 $ 5,716 1,625 8,204 6.699 $ 5518 888 8.093 6589 $ 5.853 96 8,331 6,099 $ 5,260 $ 6463 6483 5,226 $ 6171 5,230 4,775 8268 4,883 Segment totals..................... Corporate......................... 22,788 2,131 22,244 1,976 21,088 1,307 20,379 1289 19.206 773 18,627 831 17,926 512 Consolidated totals............ 24,919 $ 24,220 $ 22595 $ 21,668 $ 19.979 $ 19,458 $ 18.438 Operating Margin* Paint Stores......................... Drug Stores......................... Coatings............................ Other.................................. Segment totals..................... 6.616 -- 9.646 12.346 6.146 4.0% 1.0% 11.8% 4.9% 59% 25% 2.6% 10.7% 5.0% 5.5% 2.6% 5.0% 6.9% 3.0% 4.8% 1.3% 6.5% 9.4% 5.0% 1.0% 6-2% 7.1% 42% (2.4%) 6.6% 11.0% 65% *The operating margin tor each segment is based upon tolal external sales and intersegment transfers. Intersegment transfers are accounted for at values comparable to normal unaffiliated customer sales. 0007-SWP--035437 * 8 Notes to Segment Tables The International Segment has been reclassified to the Coatings Segment. Additionally, part of the Coatings Segment SherwinWilliams Container Corporation, which was disposed of during November 1983 and the Chemicals Segment have been com'o^ed and retitled to represent the Olher Segment designated in the segment table. These changes were made to facilitate a mere accurate companson of operations in the Paint Stores, Drug Stores and Coatings Segment which the company considers to be its three core businesses. The Drug Stores Segment consists of the assets and operations of Gray Drug Stores, Inc. which was acquired dunng 1981. as well as additional drug stores purchased since that date. In addition to capital expenditures, property, plant and equipment acquired by the Paint Stores, Drug Stores and Coatings Segments through acquisitions in 1984 totaled S9.605.000. Acquisitions for the Paint Stores and Drug Stores Segments dunng 1983 and 1982 totaled $1,733,000 and $2,960,000, respectively- operating income is total revenue, including realized profit on intersegment transfers, less operating costs and expenses. Dunng 1984, a change in intersegment transfer values resulted in increased operating income for the Paint Stores Segment while the Coatings Segment operating income declined due to the effects of the reduced transfer values. Corporate expenses include significant provisions tor disposition and termination of operations. Identifiable assets by segment include both assets directly identi fied with those operations and an allocable share of jointly used assets. Corporate assets consist primarily of cash, investments, headquarters properly, plant and equipment, and certain property under capital leases. Export sales, sales of foreign subsidiaries and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all years presented. Ttmiuaft at dollan Piml Slant Drug Slam Cutingi Other Segment tout* Year ol Adoption HMD 1981 1990 1979 Effect of UFO Oman Unetinl in 0panting lacoan <914 1993 1912 1991 1980 H1.441V t 42.. 11.707 4.54? 9.163 4.149 4.247 (4921 1.526 1*911 12.4691 13.4931 I 9.096 3.620 12.026 1.002 S 0.720 _ 12.110 5.373 * 9.992 S7.255 13.978 (23.525 126,203 1979 _ - SB 221 16.22) TIq u u Ms o< toilers Coatings Alt other ugewm SagitM totals Intersegment Transfers Tu b ended Oecnhv 31. 1M 1983 1962 1981 I860 1979 1976 S2S6.950 S271.180 1232.450 1200.005 (228.580 <274.029 <218:107 301 25.520 29.112 35 925 35.093 31.909 27 071 S287.291 S296.700 (201.502 0200.310 S284.4S2 (2(6.435 (245.976 PaintStores IH Drugstores n Coatings 0m Corporal* 9 Our business segments otter customers quality prod ucts such as those bearing the registered trademarks Dutch Boy'. Martm-Senour* Kem-Tone1, Acme*, Rogers* Glas-Clad", Perma-Clad* and others. Other quality paint products are offered under the trademark SuperPaint3 0007-SWP-03 54 3 8 -- Management's Discussion and Analysis of Financial Condition and Results of Operations Capitalization Oculars 'n Millions Working Capital aa a % of Salas Percent 47 1 43 5 43 0 36 0 32 I D Short-Term Debt S Long-Term Debt S Shareholders Equity 295 Percent DebMoCaptabzation Our Financial Objectives Far Tha Future Maintain a strong balance shoot for financial flexibility with a debt to total capitalization ratio (including capital leases) of 30 percent Utilize internally generated funds as our primary source of liquidity Achieve a return on common shareholders' equity of 20 percent Strive for a dividend payout ratio of 30 percent of trailing annual earnings. 1984* Cash Row Our cash position has improved every year since 1979 wiih the exception oft 981 --the year we acquired Gray Drug Fair. Cash increased by $5.8 million compared to 1983 even after we provided for a 48 percent increase in capital expenditures and the repurchase ol 859234 shares of common stock. Nel cash flow provided by operations has enabled the company to fund its capital needs without external financing. However, in 1984 we did obtain $6.5 million of industrial revenue bond financing for the renovation of an existing facility into a research and development center The company also uses external financing in SherwinWilliams DevelopmentCorporation ("SWDC"), an unconsoli dated real estate subsidiary, to purchase and develop properties to be leased to the Paint Stores Segment and others. Working Capital No Domestic Short-Term Borrowings Since 1979. The current ratio was 1.9 at the end of 1984; lower than 1983 primarily because of an increase in accounts payable. This ratio has been relatively stable since 1979. The current ratio on a FIFO basis would have been 2.1 in 1984, and 22 and 2.4 in 1983 and 1982, respectively The company had no short-term borrowings during 1984 except for local currency borrowings of a foreign subsidiary for managing currency devaluation. The company's current cash position and anticipated future cash flow from operations should be sufficient to finance working capital needs. Capital ExpendRures/Acquisttions Capital expenditures were $47.4 million in 1984 compared to $31.9 million in 1983, excluding fixed assets acquired through acquisitions of $9.6 million in 1984 and $1.7 million in 1983. This increase continues to be primarily attributable to the remodeling or adding to the number of paint and drug stores. Reported capital expenditures do not include SWDC ex penditures, which were $11.8 million. SWDC has financed its real estate activities with revolving credit borrowings that are not guaranteed by the parent company. External financing is not anticipated for 1985 except for SWDC's real estate activities. 0007--SWP--035439 10 0007-SWP-000116861  Sales Assets Shareholders Equity Lines of Credit We have an unused line of credit with a group of eleven banks totaling $150 million. This credit agreement was entered into as of August 31,1983, and expires August 31.1988. No borrowings were outstanding under the credit agreement during the year. SWDC has a line of credit from a group of four banks for $50 million. The agreement was entered into as of December 22.1983, and expires December 22.1989. Borrowings under this agreement were $35 million at December31,1984, and $28 million at December 31,1983. Capital Structure The Ratio Of Debt (Including Capital Leases) To Total Capitalization Was 29.5% At The End Of 1984 Compared To 32.1 % At The End Of 1983. The Ratio Has Improved From 48.6% At December 31,1978. Total debt (including capital leases) was $169.0 million at December 31,1984, and $175.3 million at December 31, 1983. At December 31,1978, total debt amounted to $253.1 million. The improvement in this ratio since 1978 resulted from improved profitability, debt repurchases, conversions of 6.25 percent debentures into common stock, and other reductions in long-term debt, offset to some extent by repurchases of our common stock. D Acquisition* Sale* Divestitures Sales Internal Sales We repurchased 859,234 shares of common stock during 1984. Depending on our cash position and market condi tions, we may repurchase additional shares of common stock in 1985 ter general corporate purposes. In 1983, 1,123,074 shares were repurchased. Interest/Rxed Charge Coverage We have improved our interest coverage to 8.0 times in 1984, from 6.8 times in 1983, and 5.0 times in 1982. Rxed charge coverage (coverage of rent expense and interest) has improved to 2.4 times, from 2.3 times in 1983, and 2.1 times in 1982 as a result ol improved profitability and reduced interest costs. Dividends This Is The Sixth IHHHH Consecutive Year We Have Increased The Dividend As A Result Of The Company's Improved Performance. The Divi dend Has Increased At A Com pounded Rate Of 35.3% Since 1979. The company's improved financial condition since 1978 allowed for the reinstatement of the dividend in 1979 at a quarterly rate of $.0375 per share and subsequent increases to a quarterly rate of $.19 per share during 1984. The board of directors, at a meeting held February 12, 1985, declared a dividend of $.23 per share, an increase of 21.1 percent from the 1984 level. 0007--SWP-035440 0007-SWP-000116862 Pra*Tax Incom*/ Aft*r-Tax Incoma Dc'rs r V lo's Earning* par Common Share Solars iR/yDued' P'e^ar I Afa-Ta* Results of Op*rollons 1984 vs. 1983 Net Salts Net Sales Increased 5.2% In 1984. Excluding The Divested Container Corporation's 1983 Sales, The Increase Was 10.3%. Our sales increase represents volume gains while prices remained relatively stable. The increase resulted primarily from the Paint Stores Segment's sales increase of 17.3 per cent compared to 1983. Increased promotional activities and additional store outlets created higher sales volume. The Drug Stores and Coatings Segments sales increased 7.9 percent and 5 9 percent, respectively Sales gains were partially offset by a decline of 52.5 percent in sales of the Other Segment This decline is principally due to the disposition of Sherwin-Williams Container Corporation in November 1983. Gross Profit Gross profit margins increased to 34.8 percent in 1984 from 33.8 percent in 1983. Consolidated gross profit was S722.4 million in 1984 compared to $666.8 million in 1983, an increase of 8.3 percent. The improved gross profit is largely attnbutable to the Paint Stores Segment whose gross profit gains resulted from higher sales volume and related purchasing and distribution cost efficiencies. In addition, their gross profit was enhanced by a reduction in the transfer value on products supplied by Ihe Coatings Segment. 0 79 ao 81 B2 83 W C3 Ov-dencs Reranec Eam-ngs Gross profit gains recorded by the Paint Stores Segment were partially offset by declines in gross margin levels in the Drug Stores and Coatings Segments. The Drug Stores Seg ment gross margins have weakened because of the price effect of heavy promotions used to generate higher sales volume, distribution inefficiencies and increased inventory shrinkage. The Coatings Segment gross margin decline has resulted from costs associated with reducing inventories and the effect of reduced transfer values on products supplied to the Paint Stores Segment. Selling, General and Administrative Expenses SG&A expenses increased $41.5 million compared to 19B3 and increased as a percentage of sales to 2a9 percent from 28.3 percent in 1983. Increased SG&A expenditures were incurred by the Paint Stores Segment as a result of intensive promotional pro grams and the addition of new stores. The Drug Stores and Coatings Segments have also expenenced higher operating costs and heavy advertising and promotion expenditures to support their sales gains. The increase in SG&A expense as a percentage of sales, compared to 1983, reflects the effects of the disposition of Sherwin-Williams Container Corporation whose selling, general and administrative expenses were a significantly lower percentage of sales. Investment Income/Interest Expense Investment income increased from $10.4 million m 1983 to $12.4 million in 1984. Average investment levels were not significantly different from the prior year, but the average yield was higher. Interest expense declined $851 thousand to $16.5 million in 1984, reflecting the conversions of 6.25 percent deben tures into common stock and other reductions in long term debt. 0007-SWP-035441 0007-SWP-000116863 Quarterly Common Stock Pricoa and Dividends 2? a*s " . 1~C 3'C Sherwin-Williams Stock Perlormanees V*. SAP 500 3e'ceni 1979 *980 190' *992 '9S3 '99a 2tv*cencs S4 53 $483 8483 S 83 `5 '5 '9 *5 i9 15 19 15 Net Income ^HNet Income Increased HH17.3% From 1983, And Fully Diluted Earnings Per Share Increased 24.4%. Net income for 1984 and 1983 includes provisions established for the disposition and termination of certain operations. The Paint Stores Segment was the main contributor to the profit increase, partially offset by reductions in the Coatings Segment's results due to the change in transfer value. The effective tax rate decreased to 44.0 percentfrom 45.3 per cent in 1983, primarily as a result of increased investment tax credits and a reduction in state income taxes. Effects of Inflation Supplementary information regarding the impact of inflation upon the company is presented on pages 26 and 27 of this report Results of Operations 1983 vs. 1982* Net Sales Consolidated net sales increased 6.6 percent during 1983 due primarily to improvements in the Paint Stores and Drug Stores Segments. Additional paint stores and drug stores resulting from new store openings and acquisitions contributed to the sales increases. Coatings Segment's lower sales reflect the deconsolidation of the company's Mexican subsidiary on January 1,1983. The Other Segment's sales decKnes are primarily attributable to the disposition of a wholly-owned subsidiary during 1983. Gross Profit Gross profit margins increased to 33.8 percent in 1983 from 31.9 percent in 1982. The Paint Stores Segment accounted for 54.1 percent of the increase in gross profit. The Drug Stores Segment's margins were lower than in 1982 due to distribution inefficiencies. The Coatings Segment improved its gross margins because of operating efficiencies and a more favorable product mix. Sailing, General and Administrative Expanses SG&A expenses increased as a percentage of sales to 28.3 percent from 27.4 percent in 1982. Higher advertising and promotional expenses in the feint Stores Segment and higher operating costs in the Drug Stores Segment were the main contributors to the increase. Coatings Segment's expenses and other administrative costs increased only modestly because of continued emphasis on cost containment Investment Income/Interest Expanse Although pre-tax interest and net investment income de creased modestly from $10.7 million in 1982 to $10.4 mil lion in 1983. after-tax proceeds increased. Interest expense declined from $19.0 million in 1982 to $17.4 million in 1983 because of the 1982 exchange of debentures and continued conversions of 6.25 percent debentures for common stock. Net Income Net income increased to $55.4 million, an increase of 29.1 percentfrom 1982. The Paint Stores and Coatings Segments made the major contributions to the profit increase due primarily to operating efficiencies resulting from higher sales volume. Net income for 1983 and 1982 includes provisions for dis position and termination of operations which, for 1982, were partially offset by the gain on exchange of debentures for common stock. 0007-SWP-035442 0007-SWP-000116864 Financial Summary Millions of dollars, except per share dale '(fears ended December 31, OperaVcM Net sales.................................................................. Cost of goods sold................................................... Selling, general and administrative expenses......... Interest expense....................................................... Income before income taxes.................................. Income taxes....................................................... .. Net income............................................................. Net cash flow provided by operations..................... Financial PoeHion Inventories................................................................ Accounts receivable-net........................................ Working capital....................................................... Propertyt plant and equipment-net........................ Total assets............................................................. Long-term debt....................................................... Common shareholder^ equity................................ Total shareholders? equity........................................ Per Common Share Data Average number of shares outstanding (thousands) Book value per common share--fully diluted......... --primary............... Net income per common share--fully diluted........... --primary............... Cash dividends declared per common share......... Financial Pataca Return on sales................................................ Asset turnover.................................................. Return on assets.............................................. Return on common shareholders? equity--fully diluted (A)................. -primary (A)....................... Dividend payout ratio............................................... Debt to capitalization.............................................. Current ratio.......................................................... Times interest earned (B)................................... Working capital as a percentage of sales............... Effective income tax rate......................................... 19*4 1983 1962 1981 1980 1979 1978 $ 2,075 1,353 599 17 116 51 65 7* $ 1,973 1,307 558 17 101 46 55 56 $ 1.852 1,261 507 19 76 33 43 84 $ 1,537 1,070 402 18 57 26 31 7 $ 1264 868 344 19 48 23 25 79 $ 1,196 629 323 19 33 16 17 1<W $ 1,132 795 312 21 10 5 5 (9) $ 338 $ 332 $ 299 $ 335 $ 237 $ 242 $ 244 157 141 133 132 131 126 135 344 340 331 297 312 324 317 221 199 228 240 211 204 210 1,004 940 883 864 769 712 654 169 175 196 230 213 234 242 404 370 334 284 263 243 243 404 371 349 305 287 268 268 22,925 $ 17.77 17.94 ZOO ZB4 .76 23.820 $ 15.92 16L24 225 232 .60 20,903 $ 14.66 15.19 1.78 202 .60 19,817 $ 13.80 14.34 1.36 1.53 .40 19.535 $ 1291 13.38 1.06 122 .30 21,164 21,594 $ 1241 $ 1145 12.50 1125 .72 .18 .78 .18 .0375 -- 3.1* Zlx 6.5* 17.3* 17.8* 264* 294* 1.9 tol B.0x 164* 444* 28% 22x 5.9% 15.4% 16.6% 25.1% 321% 20 tol &8x 17.2% 45.3% 23% 2 lx 4.8% 13.4% 14.6% 25.0% 36.0% 22 to 1 5.0x 17,9% 434% 20% 1.9x 34% 102% 11.6% 26.1% 43.0% 2.0 tol 42X 194% 45.6% 20% 1.7x 3.2% 8.5% 9.8% 24.6% 43.5% 24 fo 1 36x 24.7% 48.6% 15% l.flx 25% 6.1% 6.8% 44% 47.1% 2.9(0 1 27x 27.0% 47.7% .4% 1.8x .8% 1.8% 14% -- 48.6% 3.8 to 1 1.5x 28.0% 47.8% Capital expenditures............................................... Research and development expenditures............... Advertising expenditures........................................ Provision for depreciation and amortization............. Number of shareholders: Preferred............................................................. Common............................................................. Number ot employees............................................ Sales per employee................................................. Sales per dollar of assets........................................ $ 47 11 66 25 _ 9,777 19437 6106,766 247 5 32 10 61 24 40 9,641 19,359 $101,941 210 $ 31 9 52 22 557 8(590 21,101 $87,758 208 $ 43 10 43 22 750 8,858 23,507 $65477 1.78 (A) Based on common shareholder* equity at bogtroimg ol year (B) Ratio of pre-tax income before interest expense to interest expense. Tills summaiy should be read in conjunction with the financial statements and notes on pages 16-29 of this report $ 24 9 29 20 855 8.688 16,806 $75,186 1.64 $ 12 7 21 19 951 9,796 16,872 $70,907 1.68 $ 17 7 26 18 991 10,611 18,015 $62,856 1.73 0007--SWP-035443 14 0007-SWP-000116865 Report of Management Shareholders The Sherwin-Williams Company We have prepared the accompanying consolidated financial statements and related information included herein for the years ended December 31,1984,1983 and 1982. The opinion of Ernst & Whinney the company's independent auditors, on those financial statements is included. The primary responsibility for the integrity of the financial information included in this annual report rests with management. This information is prepared in accordance with generally accepted accounting principles, based upon our best estimates and judgments and giving due consideration to materiality The company maintains accounting and control systems which are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and which produce records adequate for preparation of financial information. There are limits inherent in all systems of internal control based on the recognition that the cost of such systems should not exceed the benefits to be derived. We believe our system provides this appropriate balance. The board of directors pursues its responsibility for these financial statements through the Audit Committee, composed exclusively of outside directors. The committee meets periodically with management, internal auditors and our independent auditors to discuss the adequacy of financial controls, the quality of Financial reporting and the nature, extent and results of the audit effort Both the internal auditors and independent auditors have private and confidential access to the Audit Committee at all times. J G. Breen, Chairman, President. Chief Executive Officer T. A. Commes. Senior Vice President Finance Chief Financial Officer J. E Wallace. Vice PresKfent, Corporate Controller Chief Accounting Officer Report of Ernst A WhlniwM Independent Auditors Shareholders and Board of Directors The Sherwin-Williams Company Cleveland, Ohio We have examined the consolidated financial statements of The Sherwin-Williams Company and subsidiaries listed in item 14(a) of the Index on page 33. Our exami nations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the consolidated financial statements listed in Item 14(a) of the Index present fairly the consolidated financial position of The Sherwin-Williams Company and subsidiaries at December 31,1984,1983 and 1982, and the consolidated results of their operations and changes in financial position for each of the three years in the period ended December 31,1984, in conformity with generally accepted accounting principles applied on a consistent basis. Cleveland. Oho February 11.1985 0007--SWP-035444 15 0007-SWP-000116866 Statements of Cohsolidated Income Thousands of dollars, except per share data The Sharwin.Wllllams Company and Subsidiaries Years ended December 31, 1984 Net sales.................................................................................................. ......................... $2,075,194 Costs and expenses: Cost of goods sold................................................................................... ......................... Selling, general and administrative expenses.......................... ........................ Interest expense........................................................................................ ......................... Interest and net investment income............................................. ........................ Gain on exchange/purchase of debentures............................. Other................................................................................................ Income before income taxes........................................................................ Inrnmp taviac . . ........................................................... .. .......................... ........................ Net income..................... .......................... ......-------- ........... 1,352,800 599,115 18,534 (12,419) 1,959,088 118,106 51,100 1983 $1,973,485 1,306,712 557,643 17,385 (10,361) 894 1,872,273 101,212 45.800 $ 55,412 1982 $1,851,776 1,260,732 507,188 18,954 (10,664) (5,091) 4,226 1,775,345 76,431 33,500 $ 42,931 Net Income per common share: Fully diluted..................................................................................... ........................ $ Primary.............................................................................................. ........................ $ See notes to consolidated linancial statements. 2.80 2.84 $ 2.25 $ 2.32 $ 1.78 $ 2.02 0007--SWP-035445 16 0007-SWP-000116867 Consolidated Balance Sheets Tncusar.ds oI dollars Th Sh*rwln -Williams Company and Subsidiaries December 31. Assets Current assets Cash and short-term investments........................................................ .............. Accounts receivable, less allowance................................................ .............. Inventories- Finished goods.................................................................................. .............. Work in process and raw materials................................................. .............. Other current assets............................................................................. .............. Total current assets.................................................................................................... Other assets................................................................................................ .............. Property, plant and equipment Land.......................................................................................................................... Buildings................................................................................................... .............. Machinery and equipment.................................................................... ................ Construction in progress...................................................................... ................ Less allowances tor depreciation and amortization.......................................... Total assets.................................................................. ....................... .............. Liabilittos and Sharaholdar*' Equity Current liabilities Accounts payable.................................................................................. ................ Compensation and taxes withheld...................................................... .............. Current portion ot long-term debt........................................................ .............. Other accruals......................................................................................... .............. Accrued taxes......................................................................... .............. Total current liabilities.............................................................................................. Long-term debt.......................................................................................................... Deferred income taxes.............................................................................................. Other long-term liabilities......................................................................................... Shareholders' equity Capital stock: Serial preferred.................................................................................. Common.............................................................................................. ................ Other capital............................................................................................................ Retained earnings.................................................................................. ................ Cumulative foreign currency translation adjustment....................... ................ Treasury stock, at cost........................................................................... Total shareholder^ equity......................................................................... Total liabilities and shareholders^ equity................................................. See notes to consolidated financial statements. 1984 $ 166,233 157,466 301,795 35,978 337,773 48,020 709,512 73,739 9,558 108,313 309,065 11,702 438,638 217,493 221,145 $1,004,396 $ 183,938 48,726 11,780 97,098 23,737 365,259 168,878 29,489 38,630 25,852 145,402 305,175 (12,530) 463,899 1983 1982 $160,407 141,356 294,305 37,600 331,905 42,866 676.534 64,426 $139,464 133,260 250,803 48,505 299,308 45,596 617,628 42,235 9,247 112,579 279,243 7.362 9.676 126,183 307,809 5,058 408,431 209,548 448,726 220,322 198,883 228,404 $939,843 $888,267 *** * ''** *" '* ' ^ $161,953 50,913 13,089 90,486 20,418 336,859 175,307 26,069 30,638 $138,443 46,346 10,017 73,455 18,156 286,417 196,220 29,824 26,974 386 158,364 6,220 257,527 (11,741) 410,756 (39,786) 370,970 $939,843 5,521 73,552 12,728 279,103 (9,987) 360,917 (12,085) 348,832 $888,267 0007-SWP-035446 0007-SWP-000116868 Statements of Changes in Consolidated Financial Position Thousands of dollars The SharwIn-WUHaira Company Years ended December 31, Cash provided by (used tor) operations: Net income............................................. .............. ...................................... Non-cash charges (credits) to net income: Depreciation and amortization............................................................... .......... Equity in losses ol affiliates.................................................................... .......... Noncurrent deferred income taxes...................................................... .......... Gam from exchange of common stock for debentures..................... Disposition of noncurrent assets........................................................... ............ Amortization of intangible assets.......................................................... ............ Decrease in current items........................................................................... ............ Capital expenditures................................................................................... ............ Obligations under capital leases................................................................ ............ Other............................................................................................................... Net cash tow provided by operations......................................................................... Cash invested, distributed and other: Increase in current items from business acquisitions........................................... Noncurrent assets from business acquisitions...................................................... Cash dividends.................................................................... ................................ Sales (repurchases) of treasury stock............................................... .................... investment in Canadian joint venture............................................. .......... Net book value of noncurrent assets associated with disposal of subsidiary.. Sales of property to unconsolidated subsidiary.................................................... Common stock issued in exchange for debentures............................................. Debentures acquired from exchange of common stock, net of gain................. Other............................................................. ............................................................... Cash invested, distributed and other........................................................................... Net increase in cash and short-term investments.................................................... Cash and short-term investments: Beginning of the year................................................................................................. End of the year............................................................................................................ 1984 24.919 5,020 3.420 4,125 2,633 7,814 (47,378) (2,248) 74428 (6,588) (16,372) (17411) (20,669) (14,137) -- 1,045 -- -- 5,408 (68,502) 5,828 160,407 $166433 1983 $ 55,412 24.220 - (3,755) -- 5,044 2425 17.038 (31,908) (4.158) (8,528) 55,688 (4,557) (6.190) (14.077) (29,013) -- 17,336 -- -- -- 1,756 (34,745) 20,943 139,464 $160,407 1982 $ 42,931 22,395 -- 34 (5,091) 9,157 1,860 36,512 (30,645) (4,320) 11,029 83,862 (8,646) (6,911) (11,313) 2462 -- -- 10,070 8,622 (8443) (7,769) (21,928) 61,934 ` 77,530 $139,464 Decrease (increase) in current items: Accounts receivable................................................................................................... Inventories.................................................................................................................... Other current assets................................................................................................... Accounts payable..................................................................................... .................. Compensation and taxes withheld......................................................................... Current portion of long-term debt........................................................................... Other accruals............................................................................................................ Accrued taxes............................................................................................................ Decrease in current items............................................................................................. See notes to consolidated financial statements. $(16,130) (5468) (5,154) 21,965 (2,187) (1429) 6,612 3419 $ 1448 $ (8,096) (32,597) 2,730 23,510 4,567 3,072 17,031 2,262 $ 12,479 $ (1,086) 35,582 (8,570) (15,539) 3,616 4,428 (2,835) 12470 $ 27,866 0007--SWP-035447 18 0007-SWP-000116869 Statements of Consolidated Shareholders' Equity Thousands ol dollars Hm Shemvln-Wlllam* Company and SubakUariaa ' Ssnal Preferred Stock Common Slock Other Capital detained Earnings Cumulative' Translation Adjustment Treasury Stock Balance at January 1,1982.................................... ...$ 7,545 Treasury stock sold.................................................. .......... -- Common stock issued............................................. .......... (2,024) Net income................................................................ Cash dividends declared: Senes A preferred stock-$4.00 per share ... Series B preferred stock-$4.40 per share ... Common stock--$.50 per share........................ Exchange of stock for debentures........................ Current year translation adjustment..................... .......... - Balance at December 31,1982........................... ......... Two-for-one stock split............................................. .......... Treasury stock acquired/retired............................ .......... Common stock issued............................................. ..... Net Income................................................................ Cash dividends declared: Senes A preferred stock-$4.00 per share ... .......... Series B preferred stock--$1.10 per share ... Common stock-$.60 per share........................ Current year translation adjustment........................ .... 5,521 (78) (5,057) -- $ 69,8(36 -- 3,746 -- -- -- - 73,552 74,782 -- 10,030 -- -- -- -- -- "$ 2,393 582 6,932 " $247,485 -- -- 42,931 -- -- -- 2,821 - 12,728 (12,824) -- 6,316 -- (249) (552) (10,512) -- - 279,103 (61,958) (30) (923) 55,412 -- (102) -- (107) -- (13,868) ---- $ (2,922) -- -- -- -- -- -- -- (7,065) (9.987) -- -- -- -- -- -- -- (1,754) $(19,207) 1,401 '-- -- -- -- -- 5,801 -- (12,085) _' (28,905) 1,204 -- -- _ -- Balance at December 31,1983............................ .......... Treasury stock acquired/retired............................ .......... Common stock issued............................................... .......... Net income................................................................ Cash dividends declared: Series A preferred stock-$1.00 per share ... Common stock-$.76 per share........................ ....... Reduction in par value of common stock............ Current year translation adjustment........................ .......... 386 (13) (373) 158.364 -- 2,310 6,220 -- 4,360 ---- -- ---- (134,822) 134,822 - ---- 257527 (18) (129) 65,006 (ID (17,200) -- -- (11,741) -- -- -- (39,786) (20,638) 665 -- -- -- -- (789) -- -- -- -- Balance at December 31,1984............................... .......... $- $25,852 $145,402 $305,175 $(12,530) $(59,759) See notes lo consolidated financial statements. 0007-SWP-035448 _ 19 0007-SWP-000116870 Notes to Consolidated Financial Statements Th Sherwfn-IMfllama Company and Subsidiaries Years ended December 31.1984,1983 and 1962 Nets 1--Significant Accounting Policies Consolidation. The consolidated financial statements include all significant subsidiaries. Inter-company accounts and transactions have been eliminated. Short-term investments Short-term investments are stated at the lower of aggregate cost or market value. Property plant & equipment Property plant and equipment is stated on the basis of cost Depreciation is provided principally by the straight-line method. The major classes of assets and ranges of depreciation rates are as follows: Buildings.. ..................................................... 246 - 6%% Machinery and Equipment......................................................... 4% - 20% Furniture and Fixtures. .............................................................. 5% - 20% Automobiles and Trucks........................................................ 10%-33V% Intangibles. Intangible assets purchased in business acqui sitions are amortized over the expected period of benefiL Research and development costs. All research and develop ment costs are charged to operations, and were $11,077,000, $10,136,000. and $9,135,000. for 1984,1983 and 1982, respectively Net income per common sham. Fully diluted net income per common share was computed based on the average number of shares outstanding assuming the conversion of the preferred stock and 625% Convertible Subordinated Debentures (after adding to net income interest on the debentures net of income taxes) and the exercise of dilutive stock options. Primary net income per common share was computed based on the average number of common shares and common share equiv alents outstanding during the year after adjusting net income for dividend requirements of the preferred stock. foreign Currency Translation. The financial statements of foreign entities have been translated to ULS. dollars in ac cordance with Financial Accounting Standards Board (FASB) Statement No. 52, "Foreign Currency Translation* Under that statement, all balance sheet accounts are translated at the current exchange rate and income statement Hems are trans lated at the average exchange rate for the year. Resulting translation adjustments are made directly to a separate com ponent of shareholders' equity. Note 2--Acquisitions The company has purchased the assets of various retail drug and paint stores consisting primarily of inventory and other assets, Additionally during 1984. the company purchased, through a wholly-owned subsidiary, substantially all the assets of a paint manufacturer. Total cost of these acquisitions was approximately $22,938,000, $10,747,000. and $15,807,000 in 1984,1983, and 1982, respectively The results of operations of these businesses since the dales of acquisHlon were not material to consolidated results. Note 3--Inventories Inventories are stated at the lower of cost or market. Cost is determined principally on the last-m, lirst-out (LIFO) method which provides a better matching of current costs and revenues. The following presents the effect on inventories, net income and net income per common share had the company used the FIFO and average cost methods of inventory valuation adjusted for income taxes at the statutory rate and assuming no other adjustments. This information is presented to enable the reader to make comparisons with companies using the FIFO method of inventory valuation. Thousands of dollars. except per share data Percentage of total irtventoneson LIFO . Excess of FIFO and average exist over UFO........................................... Reduction of net income due to UFO.,... Reduction of net income per common share due to UFO............................... Years ended December 31, 1M4 1933 1982 99% 99% 95% $62,287 $55,425 $56253 3,705 1218 2,148 16 .05 .10 During each year certain inventories were reduced. These reductions resulted in liquidations of UFO inventones earned at the lower costs of prior years, as compared with current year costs. The effect of these liquidations increased net income by approximately $838,000 ($.04 per common share). $2,208,000 ($.10 per common share). $3,144,000 ($.15 per common share) in 1984,1983 and 1982, respectively The disposal of a wholly-owned subsidiary reduced the excess of FFO and average cost over LIFO in 1983. Mote 4--Disposition ofWhollpOwiMd Subsidiary During November 1983 the company received for its whollyowned subsidiary, Sherwin-Williams Container Corporation, cash and other securities approximating net book value. This subsidiary whose operations have been included in the com pany's Other Segment was engaged in the manufacture of round paint cans, as well as oblong and aerosol cans. A summary of the assets and liabilities transferred is as fellows: Thousands of dollars Current assets..................................... Property plant and equipment-net... Current tabatfes................................. Other assets and liabditiee-net........... $26,356 35,885 (14148) 148) $52,045 The following data reflects the operating results of this subsidiary which have been included in the company's con solidated statements of income for 1983 and 1982: Thousands of doSans Net sales............................................. Operating income............................... Net Income......................................... Bisveri mohlha..........Ifcar ended ended November 30. December 31, 1983 1982 1,000 $103211 3,086 1,734 0007-SWP-035449 20 0007-SWP-000116871 Note S--Incomo Ihxos Thousands of dollars "he componens ot income before income taxes consist of the following Domestic Foreign Total income belcre .ncome taxes Years ended December 31, 1M4 1963 1982 $113,067 3.039 $116106 S 96.798 4,414 5101.212 $67,978 8453 $76,431 "he components ol income tax expense are as follows Current Federal Slate and Local Foreign DeferredFederal Foreign . . Total income lax expense S 39,<39 6.-00 1219 46,758 5 41.024 7200 1,573 49,797 $27,597 4.600 6014 32211 4249 (7) 4.342 $ 61,100 13273) (24) (3,997) S 45,800 (4.471) (240) (4.711) $33,500 The company has recognized the deterred income tax liabili ties and benefits resulting from timing differences between financial and tax accounting, relating primarily to depreciation and other valuation allowances. It is the company's intention to reinvest undistributed earnings of foreign subsidiaries; accordingly, no deferred income taxes have been provided thereon. At December 31,1984, such undistributed earnings amounted to approximately $1,500,000. Investment tax credits (accounted for by Ihe flow-through method) aggregated $2,655,000, $1,641,000, and $3,102,000, tor 1984,1983 and 1982, respectively. The source and deferred tax effect of timing differences is as follows: Thousands of dollars Depreciation . .. Provision lor disposition and termination of operations Revenue recognized on installment safe basis Other items (each less than 5% of the computed "expected" tax amount) ..., "tears ended December 31. IBM 1983 19Bit $ 5.047 $4,640 $3,921 1612) (2,609) (7,090) 790 (4.063) (72) (883) (1.965) (1.470) $ 4,342 $(3,997) $(4,711) A reconciliation of the statutory federal income tax rate and the effective tax rate follows; "tears ended Oecember31, IBM (983 1982 Statutory tax rale . Effect of: Stale and local taxes. ................ . Investment tax credit .............. Foreign lax credit ......................... Foreign operations sublet to varying income tax rales .... Ftermanent differences where Ihe tax bases of certain assets and tabiMies differ from then bases tor financial reporting purposes ........................ Gain from the exchange of common stock foi debentures.......................... , . Other--net........................................... 46.0% 460% 46.0% 2.8 28 23 (2.3) (1.6) (4.1) (1) (22) (.3) (4) 5.5 (24) (23) (2.5) -- -- (21) .2 (1) 1.9 Effective tax rate ......................................... 44.0% 45.3% 43.8% Note 6-R*tirmnt Benefits Substantially all employees of the company who meet certain requirements as to age and service participate in noncontributory pension plans. The company generally funds pension costs accrued. Effective January 1,1984, the company established a defined contribution pension plan for designated salaried employees hired on or after that date. Additionally, the company's salaned employees' retirement plan (a defined benefit pension plan) was amended to enable participating employees to make an irrevocable election to transfer into a defined contribution pension plan on July 1,1984, and receive full credit for their respective accrued benefits in this defined benefit plan. Pension expense for all company-sponsored plans, which for certain defined benefit pension plans includes normal cost, interest on unfunded prior service costs and amortization of unfunded prior service costs over a period of 10 to 30 years, was $2,615,000, $13,248,000, and $15,713,000 for 1984, 1983 and 1982, respectively. Pension expense declined by $14,133,000 dunng 1984 primarily as a result of amortizing, over a period of 10 years, the effects of the modification to the salaned employees' retirement plan, along with changes in that plan's actuarial assumptions relating to the actuarial method and rate of return on investments. This decline was partially offset by $3,500,000 of expense related to the newly established defined contribution pension plans. The reduction in pension expense dunng 1983 resulted primarily from favorable fund management expenence and a reduction in the number of employees. In addition, the company contributed approximately $912,000, $1,166,000, and $1,095,000 to various multiemployer union retirement plans in 1984,1983 and 1982, respectively. The company is presently unable to determine its respective share of either the accumulated plan benefits or net assets available for benefits under the union plans. Actuarial information for the company's defined benefit pen sion plans as of the latest valuation date is presented below: Thousands of (Mars Actuarial present value of accumulated plan benefts: (tested....................................... Non-Vesled............................... Net assets available tor oenefits........ Weighted average assumed rate of return on accumulated plan benefits......................................... January 1, IBM 1983 1982 $210,676 $214,912 $201,290 9570 12169 11565 $220,246 $228,081 $212255 $339,151 $302070 $247576 8.5% 8.0% 20% In addition to providing pension benefits, the company pro vides certain health care and life insurance benefits under company-sponsored plans for retired employees. Substantially all of the company's employees who are not members of a collective bargaining unit are eligible for these benefits upon retirement The cost of these benefits for both active and retired employees is recognized as claims are incurred and amounted to $24,583,000 for the year ended December 31, 19B4. As of December 31.1984, there were 14,093 active employees and 3,915 retired employees entitled to receive benefits under these plana 0007-SWP-035450 0007-SWP-000116872 Nate 7--Long-Term Dabt Thousands ofdollars 545% Debentures 625% Convertible Subordinated Debentures (Convertible into common stock at $1150 a share). 945% Debentures ........................ Date 1992 1995 1999 9 375% Promissory Notes___ 1996 10% Promissory Notes. 1998 5 25% to 11 875% Industrial Through Revenue Sands ............................ 2009 925% Promissory Notes, $6,500 principal amount less unamortaed dscounl on imputed intend rale of 16.5%........ 1986 E90% Promissory Notes, $12,000 principal amount less unamortized discount based on imputed interest rate o( 165%....................................... 1992 a125% Mortgage Note, $6225 principal amount less unamortized dsoount based on imputed interest rale of 16%, monthly payments of $53.................... 2002 Obligations under capital leases--less current portion of $2,462 m 1964, $3,726 m 1983 and $3,651 in 1982.............. Sinking Fund/ Prepayments Amount Commence $2,000 ftyable currently 2000 2,000 3.325 2.997 Varies Payable currently Payable currently Payable currently Payable currently Payable currently ftyable 1.300 currently Payable 1200 currently " ........... Amount in Treasury December 31. 1U4 1963 1982 $ 9696 $11,896 $13,896 11,521 6.665 -- -- 13621 6.665 -- 15621 10.665 " -- " -- $28,062 $34,082 $40,062 ................ ' ' ............. ' Amount Outstanding Net o( Treasury December 31. 1M4 " 1983 1982 $ 16.104 $ 16,104 $ 16,104 3,334 33,335 36.700 39.006 5265 33635 40.025 42,003 13,325 33,335 43.350 45.000 15,109 8.629 8,989 1,197 2664 3.427 6,732 7697 8,478 4.143 4281 4,350 13216 $168676 15.704 $175607 19,862 $196220 Certain covenants under the note agreements require the company to maintain specified levels of working capital, limit the incurrence of debt, lease obligations and investments and restrict the payment of dividends and other distributions on the company's stock. The company mays at any time, issue stock dividends or pay dividends on any outstanding shares of preferred stock under the terms of the note agreements. At December 31,1984. approximately $107,681.000 was available for cash dividends on common stock. During 1982 the company exchanged 766,450 common shares held in treasury for $13,334,000 principal amount of 5.45% and 9.45% debentures, resulting in a gain of approxi mately $5,091,000 ($.25 per common share). The compary has sufficient debentures in treasury to satisfy most sinking fund requirements on public debenture issues through 1986. Maturities of long-term debt exclusive of capital lease obligations and after the above-mentioned reduction tor sinking fund requirements to be satisfied from debentures on deposit with the trustee, are as follows tor the next five years: 1985-$ 9,278,000 1986-$ 9,409,000 1987-$ 8,116,000 1988-$ 9,631.000 1989-$10,415,000 Interest expense on long-term debt amounted to $15,784,000, $16,812,000, and $18^174,000 for 1984,1983 and 1982, respectively There were no interest charges capitalized during the periods presented. Under a credit agreement with a group of eleven banks, the company may borrow up to $150,000,000 until August 31, 1988. Amounts outstanding under the agreement may be converted into five-year term loans at any time. The credit agreement includes certain restrictive covenants regarding working capital levels and the working capital ratio. There are no compensating balance requirements. At December 31, 1984, there were no borrowings outstanding under this credit agreement 0007--SWP-035451 22 0007-SWP-000116873 Not* 8-Umi The company leases stores, warehouses, office space and equipment Renewal options are available on the majority of leases and, under certain conditions, options exist to purchase properties. In some instances, store leases require the payment of contingent rentals based on sales in excess of specified mimmums. Certain properties are subleased with various expiration dates. Property, plant, and equipment includes the following amounts for capital leases, which are amortized by the straightline method over the lease term: Thousands of dollars Buildings .. Machinery and Equipment. .. 1984 $ 9,745 11,241 20,986 December 31. 1963 *11,790 12,371 24,161 1962 $15,703 12,662 28,365 Less allowance lor amortization 15,521 $ 5,465 16.174 * 7,987 16.556 $11,809 Rental expense for all operating leases was $72,813,000, $61,425,000. and $52,244,000 for 1984,1983 and 1982, respectively Contingent rentals included in rent expense were $11,899,000 in 1984, $10,975,000 in 1983, and $8,745,000 in 1982. Sublease rental income for all years presented was not significant. Following is a schedule, by year and in the aggregate, of future minimum lease payments under capital leases and noncancelable operating leases having initial or remaining terms in excess of one year at December 31,1984: Thousands of dollars 1965 ................................. ................. 1986 ................................................... 1987 ..................................................... 1968..................................................... . . 1989..................................................... Later years............................................. Total minimum lease payments........ Capital Leases $ 5,588 3.635 2,600 2,379 2,186 11,649 25037 Operating Leases $ 42317 37,394 30.608 25.106 19.022 60.445 $235092 Amount representing interest................ Executory costs.................................... Present value of net minimum lease payments.............. (15792) (1.545) $15700 Note 0-CapKal Stock Shares in Treasury Cumulative Convertible Preferred Slock $4.00 Senes A $4.40 SenesB Balance at January 1,1982 .................. .... ... Slock issued upon: Exercise ol slock options................................................. Conversion oi preferred stock............................................. Conversion of 5259b Convertible Subordinated Debentures Treasury stock sold.. ... ................................... ...... 281..... -- -- -- - `.. 2200 -- -- - Balance at December 31,1982....................... ............... Stock issued upon: Exerase of slock options................................................... Redemption of preferred stock............................................. Conversion of preferred stack............................................... Conversion of6291b Convertible Subordinated Debentures . Treasury stock acquxed/rebred............................................... 281 -- -- -- -- 90 2200 -- -- -- (2200) Balance at Oecember 31,1983 ......... ....... ... f. Slock issued upon- Exerase ol slock options ................................................. Redemption of preferred stock............................................. Conversion of preferred stock............................................... Conversion of 6.259b Convertible Subordinated Debentures . Contnbutxjn to fWSOP....................................................... Treasury stock acquredtaekred................................................. 371 -- -- -- -- -- (371) -- -- -- -- -- - Balance at December 31.1984................ ............. -- $1.00 Common Stock 2338292 Shares Outstanding Net of Treasury Cumulative Convertible PreterredSlock $4.00 Senes A $4.40 SenesB $1.00 Common Stock 67.194 142,713 19,799,888 -- -- -- (959,724) 1375368 -- (9,444) -- - -- (47.532) -- - 218.160 369,346 611,118 969,724 57.750..... ..... 95181..... ...21355238"'"' (143,000) --' -- -- -- --' (47.157) 1.123,074 (90) 2.555442 ....10303 -- (5155) (95026) 342,262 -- 901,659 700,763 (1.125074) 22.779,846 (37200) -- -- --' (49276) 858234 3330.700 -- (345) (9.658) -- -- - - -- 315389 ---- -- 66329 -- 167339 -- 49,976 -- (359234) - 22.521,445 The company called for redemption all outstanding shares of Senes A preferred stock effective April 23,1984; and Series 8 preferred stock effective April 15^1983. The redemption prices were $100 per share plus accrued dividends Substantially all outstanding shares were converted into common stock by the redemption dates Shares of the Series A and Series B pre ferred stock were convertible at base conversion prices of $14.4827 and $15,625 per share of common stock, respec tively, based on a value of $100 per share of preferred stock tor this purpose. An aggregate of 2,168,363,2,125,157, and 4,103,678 shares of common stock at December 31,1984,1983 and 1982, respectively were reserved tor conversion of preferred stock and convertible subordinated debentures, and exercise and future grants of stock options. During April 1984 the shareholders approved an amendment to the Amended Articles of Incorporation reducing the par value of the common stock from $6.25 per share to $1.00 per share. Addi tionally, the authorized number of shares of common stockwas increased from 50,000,000 shares to 100,000,000 shares, and the authorized number of shares of preferred stock was increased from 1,500,000 shares to 30,000,000 shares. 0007-SWP-035452 23 0007-SWP-000116874 Note 10-Stalt Purchase and Stock Option Plana Currently 6,621 employees participate through regular payroll deductions in the company's Employee Stock Purchase and Savings Plain. The company's contribution charged to opera tions amounted to approximately $7,236,000, $5,921,000 and $4,720,000 for 1984,1983 and 1982, respectively Additionally, the company made contributions on behalf of participating employees, which represent salary reductions for income tax purposes, amounting to $3,898,000 in 1984, $2,990,000 in 1983 and $958,000 in 1982. During 1983 the company established The SherwinWilliams Company Payroll Based Stock Ownership Ran ("PAYSOP"). Under this PAYSOR substantially all company employees not covered by a collective bargaining agreement are eligible to participate equally in the Ran. The company's contribution to the RAYSOP of approximately $1,310,000 for 1984 and $1,204,000 for 1983 resulted in corresponding reductions of applicable income tax liabilities. At December 31,1984, there were 3,892,597 shares of the company's common stock being held by these employee plans, representing approximately 17% of the total number of common shares outstanding. Shares of company stock credited to each member's account under these plans are voted by the trustee under confidential instructions from each individual plan member. Non-qualified and incentive stock options have been granted to certain officers and key employees under the company's stock option plans, at prices not less than fair market value of the shares at date of grant The options generally become exercisable to the extent of one-third of the optioned shares for each full year of employment following the date of grant and expire ten years after date of grant Options granted to certain officers in 1979 under related employment contracts carry substantially the same terms as options granted under the stock option plans, A stock appreciation rights plan and a plan providing for purchases of restricted stock by eligible employees were approved by the shareholders in 1984; however, no rights have been granted under these plans. Slock Option Plans: Options outstanding beginning of year . ., .... Granted. ........ .. . Exercised ... Canceled .... . .. Options outstanding end of year.................... Exercisable ............ Reserved tor future grants .......... Employee contracts. Options outstanding beginning of year............ Exercised ... ................. .......... Options outstanding end of year......................... 1M4 ' ' ' Shares Aggregate Price 916,452 176,500 (280.9091 (81,206) 730,757 244,747 1.110,564 $10331,000 4,678,000 (2.425.000) (1334.000) $11350,000 72,500 (35,400) 37,100 $ 380.000 (185.000) $ 195,000 ' 1983"'......... .... Shares Aggregate Price 1982 Shares Aggregate Pnoe 1,076,240 217,850 (220.762) (156,878) 916,452 223,198 605.858 $ 9,031,000 4,631,000 (1.645.000) (1.686.000) $10331,000 1,103300 348,000 (211160 (156,800) 1,076,240 154,640 666,832 $8,141,000 3518,000 (1.484.000) (1.144.000) $9,031,000 194,000 (121500) 72500 $ 1.012,000 (632,000) $ 380,000 194,000 $1,012,000 194,000 $1.012500 Note 11--Unconsolidated (teal Sotelo Subsidiary Sherwin-Williams Development Corporation ("SWDC") is a wholly-owned unconsolidated subsidiary earned on the equity basis This subsidiary owns, develops and leases reart estate tor the company and others. The majority of the square footage owned by SWDC is leased to unrelated parties Under a revolving credit agreement, the subsidiary may borrow up to $50,000,000 until December 22,1989. Borrowings under this agreement may be converted to a six-year term loan at any time on or before December 22.1989. The Sherwin-Williams Company has not guaranteed this debt; however, the company and SWDC have a maintenance agreement that requires the company to make payments to SWDC in amounts sufficient to maintain SWDC's fixed charge coverage at specified minimum levels. Summarized financial data tor SWDC is as follows: Thousands of dollars Property: plant and equipment-net.. Other assets..................................... long-term debt................................. Other lebMes................................... Equity............... .............................. December 31, 1M4 1983 1982 $46376 $36,458 $17,247 904 131 70 $47,880 $36589 $17317 $36355 9,534 1391 $29302 4317 1.740 $13,020 2553 1,744 $47,880 $36,589 $17317 O007-SWP-035453 24 0007-SWP-000116875 Note 12-Quarterly Data (Unaudited) Quarterly Common Stock Prices and Dividends 10B4 Quarter 1st 2nd 3rd 4th High $20% 29 32 32* Low $22* 23% 24 25* Dividend 1963 " $.19...................... " 19 19 .19 Quarter 1st 2nd 3rd 4th High $31% 31% 27% 29% Low $18* 24K 21% 23 Dividend $.15 15 15 .15 Summary of Quarterly Results of Operations Thousands of dollars, except per share data Hear Quarter Net Sales 19*4 1st 2nd 3rd 4th $4633117 557,285 552.472 501320 1983 let 2nd 3rd 4th 438,656 535,264 530,172 469393 Gross Profit $151,072 197,611 194254 179,457 129,743 179,957 183521 173552 .......... Net Income ' $"'4345'"' 25.567 25.343 9.101 2219 22,769 23.114 7210 Per Common Share Fully Diluted Primary ..... $ 21 ' ' 129 1.10 .40 .....$ 22 ' 1.11 1.11 .40 .09 .09 .91 .93 .93 .95 31 31 1984 The actuanal valuations determining pension plan costs for the 1984 plan year were received during Ihe third quarter of 1984. Thesevaluations resulted in a reduction oftheestimatedpension expense used by the company in the first two quarters. The effect of this adjustment increased third quarter net income by $3,180,000 ($.14 per common share). This adjustment was substantially offeet by provisions for the restructuring of certain operations in order to better establish sates and distribution efficiencies which resulted in a reduction in third quarter net income of $2,800,000 ($.12 per common share). Fourth quarter adjustments increased net income by $6,482,000 ($.29 per common share). This increase was due primarily to year-end inventory adjustments of $7,290,000 {$.32 per common share) which were partially offeet by net adjustments to other reserves and allowances. 1983 The actuarial valuations determining pension plan costs for the 1983 plan year were received during the third quarter of1963.Thesevaluationsresulted inareduction oftheestimated pension expense used by the company in the first two quarters. The effect of this adjustment increased third quarter net income by $1,275,000 ($.05 per common share). Fourth quarter adjustments increased net income by approximately $2,916,000 ($.12 per common share). The adjustments included a provision of $4,178,000 ($.18 per common share) for the disposition and termination of certain operations offset primarily by inventory adjustments and other adjustments related to higher-than-estimaled gross margins. Note 13-Stock SplH During February 1983 the company's board of directors authorized a two-for-one split ofthe common stock outstanding effected in the term of a 10096 stock dividend payable during March 1983. The par value of the additional shares of common stock issued in connection with this stock split was credited to common stock and a like amount charged to other capital and retained earnings. Note 14--BuatnoM Sogmonte Business segment information appears on pages 4,5,8 and 9 of this report 0007-SWP-035454 25 0007-SWP-000116876 Note 15--Disposition and Termination of Oporatlons The company is continually reevaluating its operating facilities with regard to the long-term strategic goals established by management and the board of directors. Operations which are not expected lo contribute to the company's future plans are discontinued. Summarized below is the financial data related to the decision to close or sell certain plants and operating units. Inventory, property, plant and equipment and other assets have been reduced to their net realizable values, while the related costs for severance pay, shutdown expenses and esti mated future operating losses to disposal date are included in current liabilities The company expects to complete the closing and sale of the facilities at various dates through 1986. Thousands ot dollars Beginning accrual--January 1................ Proviaon included m cost of goods sold. Provision included in costs and expenses-other ............................. Total provision......................................... Actual costs incurred and adiuslmenls to prior accruals................................. Ending accrual--December 31............... Net aftertax provision............................. Net after-tax provision per common share 1BS4 $31,539 3,350 1.987 5,337 (6.172) $30,704 $ 2,832 $ .13 1983 $33,738 4,520 3.951 8,471 (10.67Q) $31639 $ 4674 $ .19 1982 $19,773 16671 7,892 24,263 (10290) $33,736 $13,102 $ .63 Not* 18--Inflation Accounting (Unaudited) In accordance with generally accepted accounting principles, financial statements have traditionally reported amounts reflecting historical costs which, especiafly during periods of high inflation, represent dollars of varying purchasing power and may not adequately reflect the effect of inflation on a business. Consistent with the requirements of FASB Statement No. 33. as amended, a supplemental statement of consoli dated income based on current cost data is presented herein to reflect the effect of changing prices on our primary financial statements. Adiustments have been made to estimate the effect of changing prices of inventory property plant and equipment, and the related expenses of cost of goods sold, and depreciation expense. The major impact of inflation on inventory is currently recognized in the primary financial statements through the use of the UFO method of inventory valuation. Accordingly only minor adjustments are required in the supplemental statements. However, historical depreciation expense based on the historical cost of assets understates the cost of replacing capital equipment at current prices. This higher cost Is not presently reflected in the primary financial statements, and accounts tor the majority of toe supplemental statement adjustment. Because these additional costs are not currently deductible for income lax purposes, no adjustment of income tax expense has been made which results in a higher effective tax rate on a current cost basis. The supplemental statement also does not reflect the operating efficiencies expected to be generated from new assets which would at least partially offset the increased depreciation expense, in addition, the company would not necessarily replace the productive capacity which currently exists. These calculations involve a substantial number of manage ment judgments and estimating techniques which have been employed to maintain a reasonable cost of accumulating toe data. We believe the results may be a reasonable approxi mation insofar as they express overall trends in costs and reduced purchasing power; however, the data is experimental and imprecise and is not indicative of the present or future economic condition of toe company tn addition, because of varying assumptions and estimates used by each company we believe comparisons with other companies and industries should be used with caution. This data is not currently used tor internal management evaluations and decisions. Current Cost Data The current cost data represents the current cost of the assets of the company reflecting specific price changes of toe assets. The current cost of the majority of the company's plant and equipment was determined based upon externally generated indices; inetoding toe Consumer Price Index for all Urban Consumers (CPI-U), of the major classes of assets. Depred ation expense is based on toe current cost of plant and equip ment during toe year, and assumes the same depreciation methods as those employed in the primary financial state ments. Purchasing Power Gain The purchasing power gain on net monetary liabilities reflects the theoretical repayment of monetary liabilities in excess of monetary assets with dollars having a lesser value than at the beginning of the yeac This amount represents an unrealized gam which benefitstoe company in terms of purchasing power by maintaining toe net monetary liabilities position. _____________________________ 0007-SWP-035455 26 0007-SWP-000116877 Supplemental Statement of Consolidated Income ______________________________________ Fbr the year ended December 31,1984, in average 1964 dollars Thousands at dollars, except pershare data_______ CostOala - Conventional Historical iae Current Cost 1884 Net sales .. Cost and expenses Cosl ot goods sold .... Selling, general and administrative expenses Interest expense Interest and net investment income . Other .............. ............................. ........................... .... ............................. ........................................................... .. $2,075,194 $2,075,194 1,352,800 1,363,733 599,115 605,907 16,534 16,534 (1Z419) (12,419) .......... 3,0563,058 Income before income taxes .. Income taxes ......................................... ........................................... ..................................... 116,106 98,381 51,10051,100 Net income . . ... ................................. ......................................................... 6 65,006 $ 47,281 Net income per common share . . . . . ............................................................... $ 2.84______ $ 206 Gam from decline m purchasing power of net amounts owed ................................. $ 6132 Increase in specific pnces of inventories and property, plant and equipment held during the year............................... Effect of increase in general price level............ ..................................................... .......................... Increase in specific pnces over increase in the general price level............................................................................. $ 27.993 (14,B66) $ 13,127 Depreciation and amortization expense of $41,092.000 on a current cost basis has been allocated between cost of goods sold and selling, general and administrative expenses, con sistent with the presentation in the primary financial statements. Cqst of goods sold has been adjusted for changes in inventory costs in addition to depreciation and amortization expense. Selling, general and administrative expenses have been adjusted only for depreciation expense. The current cost of net inventory and net property, plant and equipment at December 31,1984, was approximately $405,719,000 and $331 56,000, respectively The current cost of inventory exceeded the LIFO cost of inventory at December 31,1984, by $67,946,000. Five-Year Comparison of Selected Financial Data Adjusted for the Effects of Changing Pnces Average 1984 dollars, except historical data Thousands ot dollars, except pershare data Net sales: Historical cost Constant dollar ............................................................... Dividends declared per common share: Historical cost........................................................................... Constant dollar......................................................................... Market price per common share at year-end' Historical cost........................................................................... Constant dollar......................................................................... Average consumer price index......................................................... Net income: Historical cost ................................................................... Current cost. ........................................................................... Net income per common share: Historical cost........................................................................... Current cost........................................................................... .. Total net assets: Historical cost........................................................................... Current cost............................................................. .............. Increase in the general price level over (under) increase si specAc pnces............................................................. Gain from decline in purchasing power of net amounts owad.......... - 1984 $2,075,194 2,075,194 .76 .78 28.00 27.61 311.1 $65,006 47281 2.84 2.06 404,140 574.036 (13,127) 6,132 Years ended December 31. 1983 1962 1981 $1,973/485 2.057555 $1,851,776 1,992829 $1,536307 1.755250 1980 "S' f *K V $1263,721 1.593.063 .60 50 .40 .30 .63 54 .46 38 2625 2691 298.4 22.00 23.41 269.1 1190 1216 2724 aea 10.70 2463 $55,412 38253 $42,931 19.404 $31385 9379 $24,864 6.728 2.32 252 1.53 132 1.60 90 .44 38 370,970 561,696 346332 599.975 305,020 586374 286376 579205 11.639 6,641 4350 10,166 8,079 17,811 (3228) 24,711 Constant dollar data reflects historical costs adjusted lor the effect of general inflation baaed on toe CPMJL 0007-SWP-035456 27 0007-SWP-000116878 Net* 17-Hnanciai Schedule* Marketable Secuittles (10-K, Schedule I) The marketable securities at December 31,1984 consist of: Thousands of dollars Repurchase agreements Municipal secunties Mutual funds. Other securities Total.............. $ 80,940 33.190 19.680 32,423 SI66.233 Amounts Receivable From Related Parties (10-K, Schedule II) Included in other assets were the following notes receivable from certain officers of the company: Thousands of dollars Debtor Beginning Balance 1SS4 J. G. Breen T A Comma* C.ABeftm S 560 160 160 $ B80 1983 J.G. Breen T. A Commas C. A Bedim S- -- - $- Addsorw S- -- $- S 560 160 160 $ 880 Ending Deductions Balance $ -- - $- $ 560 160 160 $880 S-- $-- $- s- S 560 160 160 S 880 Each of these outstanding amounts represent 5.0% Promissory Notes, due July 28,1988, with interest payable annually There were no amounts reportable under this Rule far 1982. Property Plant and Equipment (10-K, Schedule V andVI) Properly plant and equipment classifications are disclosed in the balance sheet Additions arid retirements of property, plant and equipment were as follows: Thousands ol dollars Balance--beginning ol year... . Total addteons a! cost.............. Assets acquired through acquisitions...................... Total retirements at coat.......... Sales to unconsolidated subsidiary............................ Disposal of wholly-owned subsidiary............................ Other changes......................... Balance--end of year.............. . 'tears endedDecember 31, IBM 1963 1982 $4081431 $448,726 $436,929.... 47.378 31,908 30,645 9,605 (14276) 1,733 (9326) 2,960 (5.873) (1.689) (10311) $438338 " (59309) (4701) $40*431 (10.439) -- (5.496) $446,726 The above changes in property plant and equipment, except for total additions and the disposal of a wholly-owned subsidiary, each constitute less than 10 percent of the ending balance of the period. Other changes for all years presented consist primarily of capitalized leases, the translation of foreign assets to ULS. dollars, and the sale of property to various Canadian companies. Total accumulated depreciation and amortization of property plant and equipment were as follows: Thousands of dollars Balance-beginning of year... . Total charged to expense........ Sates to unconsolidated subsrfary........ Retirements............................. Disposal of wholly-owned subsidiary........... ............. Other changes......................... Balance-end ol year............... . tears ended December 31, 19*4 1963 1982 $209,548 $220322 $196,681 24919 24220 22,395 (407) (9300) -- (6.590) (369) (4442) -- (6.667) $217,493 (24024) (4380) $209348 -- 6,077 $220,322 Other changes for all years presented consist primarily of capitalized leases, reserves for the disposition and termination of operations and the sale of property to various Canadian companies. Valuation and Qualifying Accounts and Reserve* (10-K, Schedule VIII) Changes in the allowance for doubtful accounts are as follows: Thousands ofdenars Beginning balance....... Bad debt expense................ Net uncdedibte accounts written oil............. Ending balance.................... tears ended December 31. 19*4 1983 1982 $'3350"*' $ 2,556 4,900 $ 2,422 3,658 (9312) $ 3,759 (4,106) $ 3350 (3,624) $ 2356 Activity related to other long-term liabilities: Thousands of dollars Beginning balance..................... Charged to expense.................. Reserve additions (deductions).. Ending balance......................... 'tears ended December 31. 19*4 1963 1962 $30336 (901) 6,893 $26374 7306 (3,844) $15350 12,155 (231) $36,630 $30,638 $26374 Charges to other long-term liabilities consist primarily ol adjustments to the estimated year-end liability for pensions, deferred compensation, and other items. Reserve additions and deductions consist primarily of balance sheet reclassi fications. Shoft-lbrm Borrowings (10-K, Schedule IX) Thousands ol dollars Notes payable to banks at December 31. Weighted average interest rate at December 31..................................... Maximum amount outstanding at any month-end......................................... Average amount outstanding during theperiod........................................... Weighted average interest rate dump the period........................................... tearsended December 31, 1994 1963 1962 $ 149 -- $ 168 2259* |M" 51.09* $ 753 $ 1.996 $ 422 $ 248 2209* 20.09* Short-term borrowings are included in accounts payable on the balance sheet and pertain solely to foreign subsidiaries. The average amount outstanding is the total of month-end outstanding balances divided by twelve months. The weighted average interest rate is the actual interest on short-term debt divided by average short-term debt outstanding. 0007-SWP-035457 0007-SWP-000116879 Supplvmsntary Income Statement Information (10-K, Schedule X) Thousands of dollars1904 'Shears ended December 31, 1983 1962 Maintenance and repairs Advertising costs. $24,103 $29,593 $28,000 68,949 61,358 51,764 Amounts for depreciation and amortization of intangible assets, preoperating costs and similar deferrals, taxes other than payroll and income taxes, and royalties are not presented because such amounts are each less than 1% oftotal net sales. Exhibit Indox Number 3. Articles of Incorporation, as amended, filed herewith and regulations filed as Exhibit 4 (b) to Form S-3 dated May 17,1982, and incorporated herein by reference. 4. Not Applicable. 9. Not Applicable. 10. Material Contracts-lncorporated by reference to pages 11-12 from the definitive Proxy Statement dated March 11,1985. 11. Computation of Net Income Per Common Share. 29 12. Not Applicable. 13. Not Applicable. 18. Not Applicable. 19. Not Applicable. 22. Subsidiaries of the registrant 31 23. Not Applicable. 24. Consent of Independent Auditors. 32 25. Rower of Attorney on file with the Securities and Exchange Commission. 28. Not Applicable. Computation of Not Incomo Por Common Share (Exhibit 11, Form 10-K) Thousands of dollars, except per share data Fully Diluted Average shares outstanding ......................................................... Options-treasury stock method ..................... ........ ... .. Assumed conversion of: Senes A preferred slock........................................................... Senes B preferred stock............................................... 6 25% Convertible Subordinated Debentures ..... ........ .... Average fuHy diluted shares.................................................. Net income .. ................................................................... less preferred dividend requirements............................................. Add 625% Convertible Subordinated Debentures interest net of tax Net income applicable to lolly diluted shares.................................. Net income per common share..................................................... Primacy Average shares outstanding.................... Options-treasury stock method............ Average shares and equivalents.............. Net income............................................. Lass preferred dividend requirements-- Net income applicable to common shares Net income per common share............... IBM 22,631,666 298,730 18,018 --' 347,173 232*8307 $88,006 <*) 168 $8,171 8230 December 31, 1983 1982 23.121 $02 710X100 153.493 127,622 627,471 24,739.788 $55,412 W 292 $55,704 $225 23903326 792,628 425,598 780390 1,625,904 ''...24.527346 ' $42331 (A) 619 $43350 $1.78 22,831$88 292338 22,924$24 S85H06 ... ii $84398 $234 23,121202 698,417 23,819,619 $55,412 209 .......... $55203...... $232 20,903326 (B> 20303.326 $42,931 aoi $42,130 $232 (A) Assumed conversion of preferred into common shares. (B) Inclusion would not cause significant dilution. 0007-SWP-035458 ' 29 Board of Directors Executive Officora Division Managers James A. Attwood, 57 Chairman and Chiel Executive Officer Mutual Life Insurance Company Keith S. Bonaon, 66 Retired, formerly Executive Vice President, Finance and Administration Ogelbay Norton Company John G. Breen, 50 Chairman, Piesdenl and Chief Executive Officer The Sherwm-Wlliams Company D. Vfoyne Calloway 49 President and Chief Operating Officer PepsiCo. Incorporated Thomas A. Commas, 42 Senior Vice President finance The Sherwin-Williams Company William J. De Lance* 68 Retired, formerly Chairman and Chief Executive Officer Repubhc Steel Corporation (LTV Steel Company) Robert C. Doban, 60 Senior Vice President Science and Technology Owens-Corning fibeiglas Corporation Allan C. Holme*, 64 National Managing Partner Jones. Day Beavis 4 Pogue, attorneys J. Robert KHIpack, 62 Presidenl National City Corporation William G. Mitchell, 54 President Centel Corporation Ralph E. Sche* 60 Chairman and Chief Executive Officer, The Scott 4 Felzer Company John G. Breen, 50 Chairman, President and Chief Executive Officer Thomas A. Commas, 42 Senior Vice Prescient finance F. Thomas Krotlne, 43 Senior Vice President. Corporate Research and Development William B. Eldradge, 56 Group Vice President Alan D. Childs, 54 Vce President and General Counsel and Corporate Secretary Conway G. hr* 43 Vce President Corporate Planning and Development Arthur D. Maine, 45 ' Thomas Mlktich, 37 Vice President treasurer Human Resources ftancis C. Pfccirfllo, 35 Robert A. Tschannen, 62 Assistant Secrstaiy and Vice President Fatalities Corporate Director oi Taxes and Administrative Services JameeE.VfoRace.51 Vice President Corporate Controller Cart A. Bellini, 51 President & General Manager; Gray Drug Pair Frank E. Butler, 48 President & General Manager, Consumer Division Joseph ML DeVfHorfo, 50 President & General Manage*; Chemical Coatings Division MaximiHano Duarte, 51 Wee President International Group .David L Fluent* 39 '^ '" President 4 General Manager, Stores Division Aahok K. Nanda, 42 President 4 General Manager, Chemicals Division LaomudA.Whrd.58 President 4 General Manager, Automotive Aftermarket Division Shareholder Information Annual Mooting The annual meeting of shareholders will be held at 10:00 am., Apnl 24,1985. at Bond Court Hotel, Cleveland, Ohio. Headquarters The Sherwin-Williams Company 101 Prospect Are.. N.W Cleveland, Ohio 44115 (216)566-2000 Stock Trading Sherwin-Wlliams Common StockSymbol, SHW-is traded on the New Ybrk Stock Exchange. 5.45% Debentures 9.45% Debentures AmeriTrust Company N.A. Cleveland, Ohio 625% Convertible Subordinated Debentures Central National Bank of Cleveland Cleveland, Ohio TVanatar Agent A Iteqletiar AmeriTrust Company N.A. Cleveland, Ohio Independent Auditor* Ernst & Whinney Cleveland, Ohio Inweeter Halatfana Dianne McCormick The Sherwin-WSSams Company 101 Prospect Are, N.W Cleveland, Ohio 44115 DMdond Reinvestment Program A dividend reinvestment program is available to shareholders of common slock. For information, contact Investor Relations office as described above. The Sherwm-Wlttiams Compary seeks and employe the best quaifled people availsbie-vnthout regard to the race. religioa cokx creed, sex. natrons! origin, handicap, or age of ary person. COMMON STOCK TRADING STATISTICS ` High................................................................... Shares traded................................................... % of average outstanding shares...................... Number of common shareholders of record___ ........... ........... ........... ........... 1*44 . .... 22% 1140*400 02% 8,777 1983 liiiii 1982 ...... $24% 9% 22 1201*400 57% 8,590 1881 $11% 8% 11 7,042400 38% 9.858 1980 $10% 5% 8% 10,728000 55% 8488 30 0007-SWP- 035459 0007-SWP-000116881 Directory of Operations Subsidiaries Brazil--Sherwin-Williams do Brasil tndustria e Cotnercio Lida, Sao Ffculo* Canada-Sherwm-Williams Canada Inc, Montreal Rubbersel Company Canada (1980) Inc., Toronto Mexico-Compahia Sherwin-Williams, SA de C.V., Mexico City* Canbbean-Sherwin-Williams Cayman Islands Ltd., Grand Cayman* --The Sherwin-Williams Co. Resources Limited, Kingston, Jamaica -Sherwin-Williams (Caribbean) NV, Curacao -Sherwin-Williams (West Indies) Ud, Kingston, Jamaica -Sherwin-Williams (Barbados) Ltd.. Bridgetown, Barbados USA--Sherwin-Williams Development Corporation' -Contract Transportation Systems Co. --Gray Drug Fair, Inc. --The Marshall Drug Company -Gray Drug Stores, Inc -GOF Inc --Drug Way Stores, Inc. --Drug Fair, Inc --Drug Fair of F&, Inc -CTS Brokerage, Inc. -Calumet Raint Company Uneoneolidaled Joint Ventures Canada--BAPCO, Toronto Ecuador--Sherwin-Williams del Ecuador Fabrica National de Pinturas, SA, Guayaquil lreland-FS.W Coatings Limited, Dublin F.S.W Paints Ud, Dublin Japan--Nippon Sherwin-Williams Chemicals Co, Ltd, Osaka Panama--Sherwin-Williams de Panama SA. Panama City Saudi Arabia--Sherwin-Wiliams Saudi Arabia Lid, Jeddah UconsoM Argentina--Sherwin-Williams Argentina Industrial y Commercial, SA -National Lead, SA Bofivia-Fabnca Nacional de Pinturas "Espmtbol." SA Chile--Pinturas Andina, SA Colombia--Fabrica Naaonal de Pinturas. SA Costa Rica-Sherwin-Williams de Costa Rica SA Dominican Republic-Acabados Automotnces, SA El Salvador-Sherwin-Williams de Centro Amenca SA de C.V. France--Astral, SA -Corsain, SA Haiti--P9intures Ideates. SA Honduras--Sherwin-Williams de Honduras, SA de C.V. India--Garware Faints. Ud. Italy--Msrcolac, Sj>A Japan-Atom Chemical PamL Ltd. -Nippon Paint Company; Ltd. -Dai Nippon Toryo Co, Ltd. Lebanon--Amer Paints Trading Establishments -Universal Paint and Chemical Industries SAR.L "CHEMIFAINT" Nethertands-Sikkens Groep, N.Y Peru-Sherwin-Wiliiams Psruana, SA Philippines--Sherwin-Williams, Philippines, Inc. Puerto Rico-Enco Manufacturing Corporation South Africa-Advanced Coatings PTY, Ltd. Spain--Industnas Quimicas Procolor, SA --Coatings Canbbean, SA --Barmces Valentine, SA Switzerland-Kurt Vbgelsang, AG. Taiwan (R.O.C.)--Eastern Raint Co, Ud. Thailand--Bangkok China Paint Mfg. Co. Ud. United kingdom--Macpherson Industrial Coatings, Ud. \fenezuela-CA Quimtoa Integrada -CA Vfenezolana de Pigmentos --CA tfenezolara de Pinturas West Germany-Deutsche Akzo Coatings GmbH Plants COATINGS Anaheim. CA Baltimore, MD Bedford Heights, OH Chicago; IL Crisfield, MO Deshler, OH Ek Grove, IL Garland. TX GravenhursL Canada Greensboro, NC Morrow GA Newark, NJ North Olmsted, OH Oakland, CA Richmond, KY Mat Mona Eastern 331 Mid-Central 405 Soulheastem 380 South Central 278 Western 143 1.535 flnrfimiMr Atlantic 189 Northern 168 Southern 66 423 31 CHEMICALS Chicago, IL Cincinnati, OH CofleyvMe, KS Fords, NJ '" INTERNATIONAL `GuthjuC i&uad6r Jeddah, Saudi Arabia Kingston, Jamaica Mexico City, Mexico Montreal, Canada Panama City Panama Sto Paulo, Brazil Toronto, Canada Virginia Ireland '' 0007-SWP--035460 S* 0007-SWP-000116882 Consult ol Independent AudMefS Shareholders and Board of Directors The Shenvin-Wlliarhs Compare Cleveland. Ohio Wfe consent to fie incorporation by reference in Rja-Ehective Amendment Number 1 dated Way 8.1984.10 Registration StairsmenINo. 2-80510 and Registration Statement Number 2-91401 on Form S-8 dated May 25,1984 of our report on the consolidated financial statements included m the annuel reporton Form lO-KofTheSherwin-WNharns Company tor the year ended December 31,1984. Cleveland, Ohio March 11.1985 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on Hs behalf by the undersigned, ihereunto duly authorized, in the City of Cleveland, and State of Ohio, on the 11th day of March, 1985. THE SHERWIN-WILLIAMS COMPANY A. D. CHILDS by A. 0. Childs, Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on March 11.1985. Officers and Directors of The Sherwln-Wlllarns Company: J.G. BREEN J.G. Breen TA.COMMES T. A. Commes J.E. WALLACE J.E Wallace Chairman of the Board President and Chief Executive Officer: Director Senior Vfce President, Finance Chief financial Officer, Director Vice President, Corporate Controller Chief Accounting Officer KS. BENSON KS. Benson D. W CALLOWAY O.W Caloway WJ.DELANCEY W J. De Lancey R.C.DOBAN R. C. Doban A. C. HOLMES A. C. Holmes J, R KUJACK J. R. Nllpack WG. MITCHELL WG. Mitchell Director Director Director Director Director Director Director The undeisigne<L bysigning his name hereto; doessign Ibis reporton behalfofIhedesignated Officers and Directors ofThe Sherwin-Williams Company pursuant to Ftowers of Attorney executed on behaH erf each such Officer and Director. A. Dl CHILDS A. Dl Childs, Attorney-in-fact March 11,1965 i ! i i 0007--SWP--035461 32 0007-SWP-000116883 Form 10-K Annual Report Pursuant to Section 13 or t5<d) of the Securities Exchange Act ol 1934 For the Year Ended December 31,1984 Commission File Number 1-4851 Securities and Exchange Commission Washington, D.C. 20549 THE SHERWIN-WILLIAMS COMPANY AN OHIO CORPORATION IRS EMPLOYER IDENTIFICATION NO. 34-0526890 101 Prospect Avenue, N.W Cleveland, Ohio 44115 Telephone (216) 566-2000 Farm 10-K Fbrtions of this report are not required by the Form 10-K and are not "filed" as part of the company's 10-K. Only the sections refer enced in the index below are incorporated in the 10-K. The Secunties and Exchange Commission has not approved or disapproved this report or passed upon its accuracy or adequacy. Securities Registered Pursuant to Section 12(b) of the Act: Title of --ch cl--________________ Nome of exchange an wtileh repletered 945% Debentures Due 1999 New York Stodc ExcfKngSTM'~* 625% Convertible Subordinated Debentures Due 1995 New ifork Stock Exchange 5.45% Debentures Due 1992 New York Stock Exchange Common Slock, Par Value $1.00 New York Stock Exchange Secunties Registered Pursuant to Section 12(g) of the Act: None The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subiect to such tiling requirements for the past 90 days. The Registrant had 22,595,734 shares of common stock, par value $1.00, outstanding at January 31,1985. These shares were held by 9,816 holders of record on this date. The aggregate market value of the common stock at January 31,1985, is $755,966,824, excluding the voting stock held by certain executive officers. Index-Form 1Q-K Itepsrt tem No. Itege 1. Business a General Development of Business............................ 4 b. Financial Information About Business Segments.. 8-9 c. Narrative Description of Business Segments......... 4-5 d. Foreign and Domestic Operations and Export Sales. 9 2. Properties......................................... 31 3. Legal Proceedings ....................... 4 5. Market for the Registrant's Common Equity and Ffelated Stockholder Matters....................................25&30 6. Selected Financial Data................ 14 7 Management's Discussion and Analysis of Financial Condition and Ftesults of Operations... 10-13 B. Financial Statements and Supplementary Data The response to this item is submitted m Item 14 of this report Item He. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K a. Statements of Consolidated Income for the Years Ended December 31.1984,1903 and 1982 .................................. 16 Consolidated Balance Sheets at December 31, 1984,1983 and 1982,.............. 17 Statements of Changes in Consolidated Rnancial Ftosition for the Years Ended December 31, 1984,1983 and 1982................ 18 Statements of Consolidated Shareholders! Equity for the Ybars Ended December 31.1984, 1983 and 1982............. 19 Notes to Consolidated Rnancial Statements for the Years Ended December 31,1984, 1983 and 1982..................... 20-29 Rnancial Schedules Nos. I, II, VVt, VIM, IX and X for the Ybars Ended December 31,1984, 1983 and 1982 ..................... 28-29 b. Reports on Form 8-K None filed during fourth quarter of 19B4. c. Exhibits Exhibit Index....................... .. 29 Items Number 10.11,12 and 13 are incorporated by reference from the definitive Proxy Statement dated March 11,1985, filed with the Securities and Exchange Commission pursuant to Regulation 14A. Items Number 4 and 9 and all other schedules (Nos. Ill, IV VII. XIXL XII, XIV) for which provision is made in the appli cable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 0007-SWP-035462 33 0007-SWP-000116884