Document bOynx3N0ybZDgd0dLnpgEkqpO

The Sbcnrin-Williams Company 101 Prospect Avenue, N. W., Cleveland, Ohio 44115 0007-SMP-035091 0007-SWP-000116512 % t* * . j-S" m 0007-SWP-035092 0007-SWP-000116513 Tiblo of Contents Financial Hilhliflita................................................ 1 Letter loShaisholdan............................................... 2 Financial Review...................................................... 4 Financial Sunmnu............................................... 6 la The Market Place......................... 14 Tha Yew in Review..................................................2) Coatings Croup....................................................22 Auaitteriff Croup.................................................21 Chemicals Group..................................................21 Sbarwia-Williame Canada..................... 24 Spnyoa Products..................................................21 1ncanutional Operatiom.........................................23 Products at Wmfc.................................................... 26 DiiectonaadOAesti............................................... 10 Subsidiaries, Liccnam and Plants.. Inside Bade Cover Annual Mooting The annual tnroiing ofMauattcldara will be bald at 10:00 A.M., December 10,1*73, at the SteaM*> I Cleveland Hotal, Public Sqiare,Clavaland, Ohio. OnThoCovor: A naradactioa of pats of emicratche aaad ia the aaeMa* arw dscasadat taai, Cairo Hanaaar Guide m, dwtribaf oo pa(a20. New York, Nw York Tba Clavshart Treat Company Clii'ilini.Otilo The Chase Manhattan Bank, N.A. New Yolk, Narw Yarit SM%D*mumDmim lbs Cleveland Treat Company Clewland, 0M MIX CunmUtk OdsnOand Muwartr 0ro 19M Canal Natinaai lank ofQwahad Clsteltad. Ohio 0007-SWP-03S093 0007-SWP-000116514 Financial Highlight* * Net nlei................................................................................................ Income before income taxes and extraordinary charge.................... Income taxes............................... ......................................................... Income before extraordinary charge...................................................... (Includes loss from diicontiaued seiments of chemical operations of $1,224 in 1972) Extraordinary charge--provision for Io m on disposition ofcertain chemical facilities resulting from discontinuance of operations, net of income tax of 32,240 in 1972 .............................................. Net income............................................................................................ Cash dividends declared: as--Q- J rNiBiKi ......................... Common............................................................................................ Per common share: Income before extraordinary charge....................... Extraordinary charge......................................................................... Net income................................................................................. .... . Dividends paid..................................................................................... Working capital........................... ......................................................... Ratio of currant assets to currant liabilities....................................... Capital expenditures............................................................................. Provision for depredation................................... ... .............................. Ttmtmdt wj DtlUn August 31 1973 * 1704,729 43,889 19,317 24,302 1972 3638,285 38,745 18,248 20,497 -024,302 1.102 10,736 4.36 -0- 4.36 2.00 216,849 3.94101 16,042 12,869 2,260 18,237 1,107 10,639 3.63 .42 3.21 2.00 203,256 4.05 to 1 17,3J4 12,519 0007--SWP--035094 t 0007-SWP-000116515 Latter To Sharahokters In the concluding paragraph ofour letter to tbc shareholders last yew, am commeated oa tha international and domestic political and economic uncertainties (bring in in fiscal 1973. Dcvaiopmcati during the yew certainly confirmed ow expectations. We started ibe year under Phase II, pasiad through Phan III, and an now enmeshed in Phaaa IV. By the end of the Ant six months raw material prices began to rise sharply and a few thortifse began to occur in the third and fourth quartan. Credit began to tighten and money rates rose sharply with die prime rata reaching 10% by year end. Added to all of thee* factors was one of the wettest springs in our history which does tend to depress outside paint sake. In spite of all these shifting external factors, The Shawm-Williams Company's efforts for the yew produced new record high in both sale* end profits. Our salts increased to $704,729,000, a 7.1 % ioctease over last year, which produced an after-tax profit of S24.S02.000. This represented a 34.4% ioctease over lest year's cat profit which wu depressed by u extraordinary aftertax charge of 32,260,000, resulting from dosing down some chemical operations. This year's profit also represents a 19.3% increase ever last year's 120,497,000 before extraordinary charges. After providing for preferred dividends, this results in 54.36 per common share; compand to $3.21 last year after extraordinary charges equivalent to $0.42 per share. Attesting to the strength of our new management organization structure and a much monger marketing thrust, our sales have increased in the past two years by 3113,760,000 or 19.3%. This has been accompanied by a net profit increase of 39,161,000 or 39.7%. A major portion of this annual taper! highlights our various marketing approaches and emptesizm our basic strategy of mobiliziag Sherwin-Williams skills and resources in satisfy customer needs. It is important to note in this context that our Coatings Group is rapidly changing ftom a maaulacturer that operates store* to a merchandiser that products many of its own products. This is complemented by our Auxiliatias Group, Chemicals Group, and Sprayoe. all of which have a substantial majority of their sales to outriida customers rather than primarily Co the Coatings operation. Our Coatings Group complstsd a record yaw with sales of 5511,041,000, a 6.3% increase over fast yew. This resulted in a pretax profit of $31,042,000, equal to a 7.3*; gain over last yew. Whilt all parts of the business contributed to this sales gain, wt are particularly gratified by the retail sales increase ia our branch stores of 10.3%. Our "More Than A Paint Store" theme is working, and sales of non-paint items of these stores rasebed $121,000,000 this past year, with wall covering and carpeting salts alone totalling almost 560,000.000. Over the last five years, sales of non-paint items in our branch stores have increased over $70,000,000. As featured later in this report, we have brought out our Color Harmony Guide 111, a product of advanced technology, to bring authoritative, reliable, intenor decorating assistance to tht average homeowner. This will be available in every branch store along with all of the produets necessary to do the complete decorating job. Increased sales of related items have not been at the expense of paint sales as evidenced by a new production record in ear plants snd a new sales record of paunt products. Our paint plants are operating at near capacity and two new high volume plants an now in the phoning stage. Our Chemicxli operations made a substantial tiirn-a-rouad during tha yew. Operations which were continued following the 1972 shutdown of certain facilities. reported a pie-tax profit of $1,493,000, as compared to a loss of $1,209,000 last yew, an improvement of $2,704,000. Four new operations started up during the current yew showed a loss of $2,661,000 of which fully abaorbad start-up costs amounted to S2434.000. In total, Chemicili operalioai show a pre-tax loss of $1,166,000, an improvement of $2,396,000 over last yew. Tha entire group operated at a profit in tha second half of ihc year and should ba solidly in the Maek for fiscal year 1974. 2 0007-SWP-035095 0007-SWP-000116516 I Frasidmt W. 0. Spencer Our Auxiliaries operations suffered from rapidly tiring costs that we wen not able to offset completely by increased productivity or tecover by price increases under the stabilization regulations. Therefute, in spite ofa sales increase of 17.7% to $70,693,000, the before-tax proflt amounted to 39,844,000 for a modest improvement of 3.1 %. A bright spot was the 33.7% increase in production at our Elgin Container plant. It is expected that all of these operations will continue their upward climb in profitability in the coming fiscal year. Although continuing a high tula of expenditure for expansion and staff development, our International Operations was able to increase pre-tax profits to 31,(50,000, us compared to 31,094,000 in 1972, an increase of 3536,000, or 50.8%. Our new pjarit in the West Indies will open about the middle of fiscal 1974 and ourjoint marketing venture ia Belgium is in being. We am continuing to open new branch stoics ia Holland and Belgium and adding to our chain of very successful stores in Mexico. Active discussions for new joint ventures are going on in several parts of the world u we continue to expand our international base. Our Sprayon subsidiary continued to move rapidly ahead with u new talcs record of 318/28,000. Again, new before-tax profit record of 32,037,000 wu set. We ate looking forward to another excellent year at Sprayon with thtir new high speed line at Bedford Haights, Ohio, and the expanded facilities at Anaheim, California. The Sherwin-Williams Company of Canada, Ud. showed a salat increase oT4.1 % to 342,647,000 and n modast increase ia local net profit. However, due to an advene change ia the currency exchange rate, the patent company's share of profit alter conversion was less than last year. We aw inaugurating a tong range planning process in Canada, combined with a more vigorous branch stow expansion program to bring about faster sales growth. Cepital expenditures during the year were 316,042,000, compared to last year's $17,354,000. During the coming year capital expenditures wiB iaersue by about 25% as wa aecelcntt our bnnch atom renovation, relocation, and axpaarion program, and as we progress on plans for new paint plant expansions. In July 1973, wa purchased Hadky Adhesives in St. Louis and it is now operated as a wholly-owned subsidiary. This is a small company with good technology and a new plant located in Fulton, Kentucky. Their technology and products IH well into our product line and marketing channels. As maaufoctating and fastening technologies change. a high rate of growth In idlicrivts ii projected over the next decade. The Hadley figures are reported as part of the Auxiliary Group totals. As a result ofone>time charges connected with the acquisition, a small loss was reported for the two-month period. Our employees number 21/46 compered to 21,908 lest yssr. We continue to work herd on our Affirmative Action Program to astute equal opportunities for all people. Again, we can point to a year of progress in this important area, but do naliaa that than it still -much to bo done. These 21,646 employees and our millions of customers are the real bean ofour business. We owe them all a debt of gratitude for a good year and look forward to serving them even better in the coming year. Chairman of th* Board Cleveland, Ohio October Ig, 1973 Prtsidtnt 0007-6WP-035096 3 0007-SWP-000116517 1 Financial fiaviaw The following table pretents seles end pre-tax income foe each of the operating groups for the focal yean 1973 and 1972. and the changes that occurred in 1973 at compared to 1972. The income figures have been computed after full absorption by each of the uniti of all direct and indirect costs and allocation to those units of all corporate costs including interest, pension and general administrative expenses. Since all costs have taeen fully reflected in the operations of each unit, the total of the income ftgurcs agrees with the income before income macs and eatmordinary charge reported in the Statements ofConsolidated Income. h: (I) NtwOpemiom.. Pbceethwed Opantiona., Total Chamkah........... Sprayoe. Total 19T3 flhoasmds ofDalian) tors Penem Indian Peneae wn-- rmsr Timm Total Tine Teal hhi Tocal Turn 151 IO 71454 *3ljD*l 70.6*5 10054 9066 7R754 547*015 22.454 toast wtx S2MT4 *154 1341 S704.72* .154 6454 6454 6.154 2.654 2.054 IOOOX -2061 10*5 -1,166 412 2J? 1050 S4J46* -6.054 3454 -1654 54 4054 3454 100454 56012 *,740 46.172 40.969 16,923 12-2X4 1411214 3.S54 1454 7454 1254 1654 1*54 Il 054 -1.20* .1235 5461 197 1.192 14*6 S3I.74J PlRIM of Total Td.4it 24.7*; -3.354 -6.1% -.2N 24% 44% 2* ; 100.0% Change Stfan 531.165 11X43* lnnm Tun S2J66 2*6 2.0*3 7,m -9.? 271 1.67* 1.505 1.729 546.444 -2.661 2,?W 2.J5J z.m -415 145 556 55.144 (I) Sewn! Cbeairsh Groag acttvKha wtra dacaatinuad lo llacal 1*72 aod four wax oewadamvantianadin l*73.ThaflKiaf thnadcmsM on epamtMig Mutt* it mdkawl by smina forth wperaMy take aad pro-taa Imo im as nlsta* ta New, Csmlnuad end DiwoMiniiaC Oearanom. Sales Consolidated net sales in fiscal 1973 mounted to 3704.729.000 computed to MS,Zt3jOQO in 1972. This is a record high and represents a 7.1 % increase over the prior year. Income ConsolkUtad net income totalled $24,502000 or $4J< per common share alter providing for preferred dividends. Them results compare to fiscal 1972 net income of 515.237.000 or $3.21 per common shate after an extraordinary charge of 42^ per share incurred in disposing of certain discontinued fhrilWe*. Net income before the extraordinary charge was $20,497,000 or $3.63 per common share. Income before extraordinary charge for fiscal 1972 included a lost from discontinued operations 4 in the Chemicals Croup of $ 1,224,000 or 23c per common share. Therefore, continued operations generated earnings of S3J6 per common share in 1972 before the extraordinary charge. Currency Conversion The changing value of various currencies vis-u-vis the dollar creates some adjustments to the Anal profits as a consequence of converting local currencies to dollar values. In total, the net effect on 1973 after-tax income was an addition of approximately 2c per common share compand to an addition of approximately Be per common sham in 1972. Tho adverse change in the currency conversion raw had a particularly dinonini effect m reporting the sales and income of The Sherwin-Williams Compeay of Canada, Limited. In 1972, the parent 0007--SWP-035097 0007-SWP-000116518 Financial Ravlaw company's share of the Canadian company'* pretax income of 3897,000 as reported in the labia, included approximately 3271,000 due to a favorable exchange rata. In Ateal 1973. there was an adverse change in the conversion rate which caused the parent company'* share of pre-tax income to be reduced by approximately SI73,000 to the figure of $482,000 shown in the table. Taxes The provision for U. S. and foreign income taxes for fiscal 1973 amounts to S19,317,000. Tax** other foam Federal continued to rise. In grand total, these amounted to SI9.034.000. up from St7.322.000 in 1972. Dividends Total dividends of SII,832,000 were declared in fiscal 1973. Dividends on common stock amounted to S10.736,000 and dividends on preferred stock amounted to St,102,000. Common stock cash dividends for fiscal 1973 were at the annual rate of S2.00 per share. The Company hu paid cash dividends in every year since 1883. Capital Expenditures Expenditures during fiscal 1973 for property, plant and equipment amounted to SI6.042.000, compered with S 17.334,000 in 1972. The budget for the 1974 fiscal year provides for an increase in expenditures to t level ofjust over S20.000.000. Depreciation in 1973 was 312,869,COO compared to SI2.3I9.000 in 1972. Chemicals -- New Operations The pre-tax loss shown in the table for new operation* includes a full absorption of start-up costa in the amount of S2,334,000. The largest of the four operation, a facility at Chicago manufacturing isopbthaJonitril*. went out of start-up on May 1, 1973 and is on target in terms of volume, quality and earnings contribution. General Financial Condition Working capital at August 31, 1973 amounted to S2I6.849.000. up from S206.236.000 in 1972;The ratio of current assets to current liabilities was 3.94 to I. Accounts receivable increased somewhat more than normal, partially due to heavy volume during the late weeks of the fiscal year. Credit losses continued to be well wilhia a annaal and acceptable range. Total invtotori** increased modestly. The pcrceatage of increase was very much less than the increase in sales and, therefor*, considered to be satisfactory. Despite the shortage of many baste taw materials, generally adequate inventory levels havt ben maintained. However, press of many raw malarial hems have increased rapidly and substantially. During the year, 34,463,000 principal amount of die Company's 3.43% Debentures.Du* 1992 were repurchased by tfoet Company, bringing total repurchases to 38.230,000 principal emouaL In April 1973,32,000,000 in principal amount of these bonds wen used to meet the first annual sinking fond paymnt At August 31, 1973, $6,230,000 of bonds were hdd.in the Treasury. It is the present intention of the Company to use such bonds lo meet future sinking fond requirements. Our projections indicate no need for additional financing during fiscal 1974 except for seasonal borrowings. Pension Plans Substantially all employees of the Company and its domestic subsidiaries participate in non<ontriburory pension pians. The Company's pension expense for fiscal 1973 was 36,937,000. compared to 36,620,000 in 1972. All such expense has been allocated to cost of tales and selling, general and administrative accounts to reflect mote properly true operating costs. Employees Stock Purchase and Savings Plan Slightly under 6,800 salaried employees currently are participating, through regular payroll deductions, in the Stock Purchase and Savings Plan which was started April 1, 1969. Under the Plan, the employees have the option ef dinning that their contributions be invested in amounts ranging from 30% in the Common Stock of the Company and 30% in Federal govcmmimt securities, up to 100% in the Company's Common Stock. The Company in turn, contributed to the fund am amount equal to 25% of the employees'contributions and all such contributions wen invested in the Company's Common Stock. At August 31, 1973, 341,000 than* of Common Stock, representing approximately 6.4% of the total number of shares outstanding, were held in this employee fund. 0007-SWP-03509B 5 0007-SWP-000116519 THC SHOWW-WIUJAM8 COMPANY AND SUBSIDIARIES Slatnmnnts of Contoildaftcl Ineomo Net sales.......................................................... Other income--net.......................................... Costs end expenses: Cost of products sold................................... Selling, general end administrative expenses Interest .......................................................... Incoms Before Income Taxes sod Extraordinary Charge locome taxes Payable currently Deferred . . . Income Before Extraordinary Charge (Includes toes from discontinued segments of chemical operations of $1,224 in 1972) Extraordinary charge--provision for losses on disposition ofcertain chemical facilities" resulting from discontinuance of operations, net of income tax of $2,240 In 1972.............................................................. Net Income Per Share of Common Stock Assuming no dilution: Income before extraordinary charge. Extraordinary charge....................... Net income...................................... Assuming full dilution: Income before extraordinary charge. Extraordinary charge....................... Net income...................................... TheereWr D*U*n Year Coded August 31 1973 $704,729 2,109 706.138 451,273 203^30 6,424 662,949 43,889 1972 $638,283 1,444 639,729 418,492 196,254 6,238 620,984 38.745 16,126 3,261 19,387 24,302 15,730 2.498 19,248 20,497 -0$ 24,302 2,260 S 18,237 S 4.36 -0- S 4.36 S 3.B7 -O- $ 3.87 5 3.63 .42 $ 3.21 S 3.26 .34 S 2.92 See notes to consolidated financial statements. 0007-SWP-035099 6 0007-SWP-000116520 THE SHtnWIN-WIUJAMS COMPANY AW SUBSIDIARIES Statmnt of Changos in Contolldafod Financial Position Umm / fW; From operations: Income before extraordinary charge............................ Add back charges to operatioM not requiring Kinds: Provision for depreciation.................................... Increase in noncurreat deferred income taxes. . . Funds Provided From Operations Exclusive of Extraordinary Charge....................................... Extraordinary charge................................................... Add back component! not requiring funds................ Funds Provided From Operations.................... Proceeds from sale of stock under stock option plan . AppKcstkm / Feed* Cash dividends.............................................. Additions to property, plant and equipment, net of normal retirements ....... Purchase of 5.45 debentures................... Increase in working capital....................... Other '-net ....................... Ckmtgts in fTarUng Capital--Imenmu (Owneeie) Cash and short-term investments.................................................. Trade accounts receivable ......................................................................... Inventories.................................. .................................. .......................... Short-term borrowings............................................................................. Trade accounts payable............................................................................ Compensation and amouats withheld. ............. Pension, interest and other accruals............................................... .. Income taxes.................................................................................. Other--net.................... .............................................................. Increase In Working Capital See notes to consolidated financial statements. 7 TIu mimmJs / DiUan Ytir Ended August i 1 t*J 19T2 S 24.303 1186* 2.135 39.704 0-0- 39.706 1.218 S 40,924 S 20.497 12,519 1.782 34.798 (2.240) 4.636 37.174 957 r 38.131 S It,838 15,669 4.465 8.593 359 S 40,934 S 11,766 16.178 1462 6.733 992 S 38.131 S (1342) 11,071 5,907 (3,162) (1059) (l,W) 5,027 (1710) (1.340) S 8,593 S 719 11,173 3.137 (497) (5.361) (1541) (1027) 3.312 (682) S 6.733 0007--SWP--035100 0007-SWP-000116521 THE SHBWIN-WIIUAMS COMPANY ANO SUEDIARIES Statements of Consolidated Sharaholdara' Equity Balance at September 1. 1971.............................................. Common node issued: 22.J88 shares upon exercise ofstock options and 2,164 share* upon conversion of 1,253 shares of Scries A preferred Hock. . ........................... Subsidiary's repurchase or its prefsrred sham................... Net income............................................................................. Cash dividettda declared: Series A preferred stock--$4.00 per share....................... Series B preferred stock--$4.40 per than....................... Common--S2.00 per sham................................................. Sefeeir <f Anpm il, 1972 Common stock issued: 28.276 shares upoa exeseise of stock options and 93 and 992 sham upon conversion of 34 and 620 shares of Scries A and Series B preferred stock, respectively....................................... Subsidiary's repurchase of its preferred shercs................... Net income............................................................................. Cash dividends declared: Scries A preferred stock--S4.00 per share....................... Series B preferred Mock--54.40 per share....................... Common--$2.00 per share.................................................. Blma at Amfmst SI, 1973 Serial Preferred Stock Tbtmmuh f DtUsn Common Stock Ocher Rcuined Capital EarnidKS Common Stock to Treasury S 9,198 I 33,387 $ 1,609 5198,176 S(690) (44) -- -- 133 -- -- -- -- -- 9,134 -- -- -- 33.540 848 1,049 -- -- (935) 18,237 -- -- -- 3,306 (293) (814) (10,639) 203,712 -- -- -- -- -- -- (690) (24) -- -- 184 -- -- 1,038 39 -- -- (34) 24.502 -- -- -- S 9,130 -- -- -- S 33,724 -- -- -- S 4,603 (291) (811) (10,736) $216,342 -- -- -- -- -- -- 5(690) See notes to consolidated financial statements. 0007-SWP-035101 S 0007-SWP-000116522 THC 1HEHWIM-WILLJAMS COMPANY AND SUBSIDIARIES Consolidated Balance Shoots Assets CumtU Auttt Cash........................................................................................................ Short-term investments ......................................................................... Trad* accounts receivable, lea allowances (51.637 in 1*73: 51,590 in 1972)......................................................... Inventories: Finished products................................................................................ Work is proees* aad nv materiel*.................................................. Prepaid expenses .................................................................................... Deferred income axei............................................................................. Tout Oman Assets Otlirdwe Recehrabks, advance* sod otter assets.................................................. Cost in excess of net assets of butfaeMa* acquired........................... PttfMj, PUat aad Efnfpaeewr Land........................................................................................................... BnfldiSfl r . . . r . t * . . i . i * i , * | Machinery aad equipment ..................................................................... Lass allowance* for depreciation ............................................................. liabilities aad Shareholders' Equity Carnal Liaiilitht Short-term borrowings............................................................................. Trade accounts payaok......................................................................... Compensation aad amounts withheld.................................................. Pension, interest and other accruals......................................................... Taxes, other than income taxa.............................................................. ... Income taxes......................................................................... ... Total Current Uabilttia Leaf-Term DaH 5.45 % Debentures (exclusive of56,230 ia treasury in 1973; 53,765 ia 1972)......................................................... 6.25% Convertible Subordinated Dibiatum.......................................... Dtftrrtd lanmt Texer............................... tmri'ii--/irprauamt mad atbar itrau. , . Miaarily laUrtd ia Sahidiariu................ SbaniaUart Eqaity Capital stock: Serial preferred without par value. Common--56.25 par value............... Other capital.......................................... Retained earnings............................... Less cost of common stock in treasury Sea notes to consolidated financial statements. Tbaaumdt t) Dailan August jt 1973 S 12,671 4.101 99,408 uun 53,011 164,122 6,695 ____ 809 `2901506 4.737 2.324 T06f 6.00* 80,631 173,313 259,947 115,900 144,047 5441,614 1972 t 13.875 5,239 88,337 113,768 47,147 160,915 6.468 1.753 4.473 2,324 6,797 5,981 78,908 162,425 247,314 106,067 T4lj47 5424.631 ! 6,604 25,779 18,985 10,811 5,359 6,119 73,657 41.770 40,000 81.770 11,103 6,376 5.599 9,130 33,714 4,603 216,342 263,799 690 263,109 5441.614 5 3,442 23,720 17.186 15,838 4.736 3,409 68,331 46,235 40,000 86,235 8.768 6,507 5,568 33.540 3.506 203,712 249,912 690 249,222 3424,631 0007--SWP-035102 9 0007-SWP-000116523 -1 f Notts to Consolidated Financial Stetamants THE SHEHWIM-WILUAU3 COMPANY ANO SUB3UXAAIES Years Ended August 31, 1973 and 1972 NOTE A-SUMMARV OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include all significant subsidiaries and intercompany transactions have been eliminated. Appropriate rates of exchange have been used to translate foreign currency amounts into United States dollars and the pins of SI25.000 in 1973 and S44I.000 in 1972 ara included in other income in die statements of consolidated income. Income Taxes The Company has recognized the deferred income tax liabilities and benefits resulting from timing differ ences between financial and tax accounting, relating principally to depreciation and reserves. It is the Company's intendon to reinvest undistributed earn ings of foreign subsidiaries; accordingly, no deferred income taxes have been provided thereon. At August 31, 1973, such undistributed earnings amounted to approximately 513,544,000. Investment tax credits (accounted for by the flow through method) aggregated 5859,000 in 1973 and 5598,000 in 1972. Property, Plant and Equipment Property, plant and equipment is stated on the basis of cost Provisions for depreciation are based on annual rates calculated to amortize the cost of depreciable assets over their estimated economic fives, computed principally by the straight-line method. Inventories Inventories are stated at lower of cost (average or first-in, first-out method) or market Short-Term Investments Short-term investments are stated at cost which approximates market Cost in Excess ofMet Assets of Businesses Acquired Cost in excess of net assets of businesses acquired is not being amortized because in the opinion of manage ment there has been no decrease in value. Research and Development Research and development corn ate charged to oper ations as incurred. NOTE B--LONG-TERM DEBT The 5.45% Debentures Due 1992 and the 5.25% Convertible Subordinated Debentures Due 1995 are redeemable in whole or in pan at the option of the Company at the rates of 103.50% and lOJ.Jrrt. spectively, and at declining rates to 100% in 1987 and 1990, respectively. The related indentures require annual sinking ftind payments of S2.000.000 for each of the issues. The 1973 requirement of52.000400 on the 5.4J Debentures was satisfied from debentures held in trtas* tuy. and the Company intends to make the 1974 pay. ment in thesame manner. Annual sinking (kind payments will commence in 1981 for the 6.2S % Debentures. These Debentures are convertible into Common Stock at $4S a share subject to adjustment in certain events. NOTE C--CAPITAL STOCK Authorized and issued shares of the various classes of stock at August 31,1973 and 1972: Authorizad Issued Shares Shares 1973 1972 Serial Preferred Stock: 1,500,000 S4.00 Cumulative Convertible Pre ferred Stock, Series A ..... 72,697 72.751 54.40 Cumulative Convertible Preferred Stock, Series B .... 184,293 184,913 Common Slock (including 22,500 shares held in treasury in 1973 and 1972) . . 15.000.000 5,395,780 5,366,419 The shares of Serias A and Serits B preferred stock are convertible at bate conversion prices of S57.93 and 552.50 per share of Common Stock, respectively, based on a value of 5100 per share of preferred stock for this purpose. The holders of the preferred stock are entitled to one vote for each share. The Company may redeem the Series A preferred stock until March 1974 at $103.50 per share and de clining annually to 5100 per share in 1980and thereafter, and tha Series B preferred stock at $106.00 until De cember 1973 and at declining amounts to 5100 in 1981 and thereafter. The aggregate preference of the Sena! Preferred Stock in involuntary liquidation for 1973 and 1972 is 525,699,000 and 525,755,400, respectively. 10 0007-SWP-035103 0007-SWP-000116524 ! At August 31. 1973 and 1972, an aggregate of 1.376,971 shares and 1,611,422 shares, respectively, were reserved for conversion of Serial Preferred Stock, Convertible Subordinated Debentures and exercise of stock options. NOTE D--NET INCOME PER COMMON SHARE Net income per common abate has been computed based on the average number of shares outstanding during the year after deducting from net income the dividend requirements of the Serial Preferred Stock. . Net income per common share assuming Aiil dilution also assumes the conversion of Series A and B preferred stock and the 6.23% Convertible Subordinated De bentures (after adding to net income interest on the debentures net of income taxes) and the exercise of stock options (with proceeds from options used to purchase Common Stock of the Company). NOTE E-RETIREMENT PLANS Substantially all employees of the Company and its domestic and Canadian subsidiaries who meet certain requirements as to age and length of service, participate in non-contributory pension plans. The Company's policy is to accrue pension ftmd contributions, rep resenting normal cost and amortization of unfunded prior service cost over 30 yean. Pension expense was 16,937,000 in 1973 and $6,620,000 in 1972. For three of the plans in 1973, the actuariaSy computed value of vested benefits at the moat recent actuarial determi nation date exceeded the assets of the pension fund and the related balance sheet accrual by approximately $2,900,000. For the other plans, vested benefits am fully funded. NOTEF-LEASES Branches, offices and certain warehouses and plants are leased for various periods. The rental expense of leased premises for the year ended August 31, 1973 wasapproaimately $19,300,000. Approximately 85% of these rentals relate to leases expiring in five yean or less. NOTE G-STOCK OPTIONS Under the Company's stock option plan for certain officers and key employees, options are granted at prices not less than fair market value of the shares at date of grant and become txereisaMe to the extent of one-half or one-fifth of the optioned shares for each full year of employment following the date of grant, expiring five or ten yuan after date of grant. No options were'granted in 1973 or in 1972. During 1973, options for 28,276 shares (22,38$ in 1972} were exercised at an aggregate price of $1,217,784 ($957,337 in 1972) and options for 12,180 shares (3,337 in 1972) wen canceled. At August 31, 1973, opiums for 183,176 shares (223,632 in 1972) were outstanding at an aggre gate price of $7,304,729 ($9,044,45$ in 1972), options for 83,426 shares (84*392 in 1972) were exercisable, and 96,628 shares (84*448 in 1972) were reserved for future grants. Board of Directors Ths Shtnrio-WMliias Compeay Cleveland. Ohio Accountants' Report Wo have tuminwl tbs comoHdettd flmneiai summon ofThe Sharwia-Wniiemt Company and wtaidiarim for tht years ondsd August 31,1973 and 1971. Oursxsmiastiomware mads in accordance with gmrelly accepted auditing itaaderdl and accordingly included such testa of the eccouatiog tocoed* end aucb othtr auditing pro cedures as we contidered necessery is the circumstances. In our opinion, the accompanying balance sheets sad uamntsts of income, shinhoMm' equity, and dumps in financial position piosant flirty the ccnsolidaiad Snaadal petition of The Shaawin-WiHium Company and subsidiaries at August 31.1973 and 1972, and tht censolldcHd rtaults ofthrir operation#, changsa in shareheiders' equity, and rhswgts In flaandal petition for the years tbaaondad, in conformity whhgwsgy accspwd accounting pcinriplm applied on a mnslnrsu basis. Cleveland, Ohio October 18,1973 0007--SWP--03S104 it 0007-SWP-000116525 THE SHENWIN-W1LUAMS COMPANY AND SUBSIDIARIES NttMw IN MILLIONS DiMrtbiMfM bE Tb9b Xbbbbbb YEAR ENDED AUGUST 31.1973 0007-SWP-03510S 0007-SWP-000116526 THE SHEflWIN-WILUAMS COMPANY AHO SUBSIDIARIES Flv*-Yr Comparison Tkmsndnf Dtllmrt Net sain................................................................. Income before income taxes and extraordinary items....................... Income taxes............................... ... ...................... Income before extraordinary items....................... Extraordinary (charge) credit............................... Net income................................... ... ...................... Earnings per share of Common Stock: Income before extraordinary Items................... Net income.......................................................... Earnings as percent of sales................................... Return on invested capital--Common Stock (A>. Cask dividends declared: Preferred .......................................... .................. Common............................................................. Cash dividends per share of Common Stock.................................................. Number of shareholders: Preferred....................................... ................ Common (9)............................... ... .................. Preferred and common shareholders* equity . . . Common shareholders' equity............................... Per sham.............................................................. Capital expenditures....................... ................ Provision for depreciation........................... ... . Working capital...................................................... Ratio of current assets to current llmbUitaas . . . Total assets.............................................................. Number of employees........................................... 1973 3704,729 Yetr Ended August 31 1972 9639395 1971 9390,969 1970 9339,024 1969 9534,068 43,999 19,387 24,302 dV 24*502 38,743 18349 20,497 am 18437 29,404 14,063 13341 -015341 29,341 14,689 14,852 1.745 16,597 30,835 11150 18,685 4V 18,685 4.36 436 3.49% 10.47% 3.63 3.21 ' 2-77% 7.94% 2.61 2.69 2.60% 6.72% 2.38 191 196% 7.46% 3.30 3.30 3.50% 8.84% S 1,102 10,736 9 1,107 10,639 9 1,110 10,631 $ 1,110 10,657 9 1.045 10.651 100 2.00 100 2.00 100 1,018 9352 9263,109 237,410 44.23 16,042 12469 216,949 3.94 to 1 $441414 21,646 1,030 9353 9249,222 223,436 41.94 17354 12,319 208,236 4.05 to 1 9424,631 21,909 1,027 9,903 9241,680 213.789 40.60 13379 12333 201,323 435to 1 9411,164 21,490 1,078 8,996 $237,721 211,828 39.75 15.900 11,061 197318 432to 1 9408,132 21017 1,075 8378 9233,432 207,548 38.98 31,106 9,690 180,581 4.41 to 1 9378321 21,935 (A) Based oa common shnreholdcrs' equity at beginning of year. (B) In addition to tlw registered shareholders, then m beneficial shareholders partkipeting in tin Company's Stock Purchase and Savings Plan for aalariad employees (6,793 in 1973; 6,732 in 1972, 6,902 in 1971,7,069 in 1976 and 7,220.in 1969). 0007--SWP--035106 13 0007-SWP-000116527 Sherwin-Williams Inthe Marketplace Getting the many and varied products of Sherwin-Williams into the hands ofthe people who use them is a critical part of your Company's business. It is the basic purpose of every other activity -- research end development, manufacturing, financial management, administration. Unless this final step is pcrfotmed efficiently and to the complete satisfaction of the buyer, what has gone before is waste motion. This marketing function is, ultimately, an interaction be tween people. And the lines ofcommunication between them must be aa direct, open and conducive to confidence as human ingenuity can make them. Advertising plays an important role by acquainting prospective buyers with what we can do Tor them. Efficient distribution is another essential ingredient. It is this that 0007-SWP-035107 0007-SWP-000116528 BUSINESS COATINGS The Sherwin-Williams Co. Allied Trade Salt* Dniaioa Maran-Senour DirUioo T1i Sharwin-Wiiliam* Co. of Pum Rico PRODUCTS/MRVICES MARKETSSERVED Broad line ofinterior and exterior paints, varnishes, stains and other decorative, protective and special-purpose finishes. Purchases for male: painting tools and equipment; carpeting and other floor coverings; paper, plastic and fabric wall coverings; drapery fabrics, unfinished Aamituta and other decorating items. Markets paint products under the Jherwin-Williams, Acme, Lawrence, Lowe; Martin-Seaour and Rogers labels. Retail Market; Wholesale Market; Industrial Market*. Automotive Aftermarket: AUXILIARIES Container Division Dtihlte Products Division Printing Division Rubbertet Division (U. S.) Rubbersct Co. (Caoads) lid. The Osborn Manufacturing Co. The Osborn Manufacturing Imeranrioosl Co. Sodacc Anoayme dee Machine! Osborn Schons and Ludwig GmbH Jtmt Vtmtun Rose-Tbe Osborn Manufacturing GmbH General linn of metal containers; psint rollers and trays, tack rags, color metering devices; printing services; paint brushes and pains spray equipment; power driven industrial brushes, grinding wheels, foundry equipment and supplies,janitorial brushes; vehicular enginecomponents. Retail Market: Wholesale Market; Industrial Market: IS 0007-SWP-035108 0007-SWP-000116529 Home-owners and other do-it-yourself customers. Mating coatncton; architects anti builders; industrial, commercial, educational and health-cart facilities maintenance accounts. Original equipmem manufacturers including: manufacturers of wood, plastic and metal building components: producers of Furniture, appliance* office equipment; manufacturers of igricultoral impiemeuti and earth-moving equipment; the automotive Seid; paper converters; railroad, marine and aircraft operations. Automotive rellaishert, commcrciaJ float meinlroaime accounts. DISTRIBUTION CHANNSLS Most of mail market served through company-operated branch stone and leased departments in mass-mailing outlets. This distribution augmented by tatetuive dealerorganization, multiple-unit retailers and dealer-owned buying groups. Bulk of wholesale musket served by company-operated branch stone; certain tagmsots served by company's speciaiiztd sales force and by eertaia dealers. Industrial merkst sieved by company's specialized sales organization and by the branch moms. Automotive aftermarket strved by company-operated automotive reflnishes service centers and by automotive supply jobbers. All distributionin Puma Ricois throughSuci^eA.Mayol ft Co., a wholesale-retail distributing organization that serves the retail market through its own stores and independent danian. Hm wholesale market it served through a specialized sales force. Home-owners end other do-it-yourself customers. Industrial and hardware supply distributors; SherwinWilliams branch stores, dealers, multiple-unil retailers and dealer-owned buying organizations; painting contractors. Contract Silers and packagers; jobbers; manufacturers of paint and allied products, chemicals and chatnical specialties, petroleum products, specialty food and personal products: metal cutting; cleaning, polishing, finishing and fabricating industries; foundry industry; European vehicular industty. Consumerproducts reach the ultimate user through Sherwin-Williams branch stons and leased departments. Independent dcilsts and multiple-unit retailers. The wholesale market it served by specialized tali* organization for each divirion and subsidiary. Industrial customers purchase from direct representatives of the divisions and subsidiaries and from distributors. 0007-SWP-035109 0007-SWP-000116530 BUSINESS CHEMICALS Sherwin-WUliamt Chemicals Division Taatlle Chemical Division Mu o n flitor ud Fngnncn Division PRODUCTS/SERVICES MARKETS SERVED Pigments; which* and rains; or**nic snd inorganic chemicals; Am chemicals; plastic color concentrates and plastic colorant systems; products for metal fabrication, finishing and protection; custom chemical manufacturing; thcrmo-curing textile printing and pad-dyeing formulations; extenders, bidden and anti-crocking agents; Ravor and aroma chemicals. intermediates and pheromones. Wholesale Marker, Industrial Marker. CANADIAN OPERATIONS Tho Sharwio-WOliams Co. of Canada, Ltd. Z. Hattie Co. Division Wiampag Paint A Glass Die. Products and sarvictsclosely pasallei thorn of the Coolings Group ia the Halted States and include, in addition, building supplies and hardamim Activities art eanSned to Retail Market: Wholesale Market: Industrial Market: Auroaotivt Aftermarket: AEROSOL PACKAGING Sprayon Products. Inc. Custom packaging ofaerosol products snd n line ofaerosol-packaged industrial products. Wholesale Market: Industrial Market: INTERNATIONAL OPERATIONS Compaala Sheraria-Williams, S. A. da C. V. (Mexico) Ralston B. V, (Netherlands) Sherwin-Williams da Btaatt S/A Timas eVnmiaes Thu Sberwio-Williams Co. of Europe. Inc. Sbcrwin-WUlltms (Ciribbean) N. V. Sbeswia-WUUaau (Vest ladies). Ltd. J*mt Kmnr The Sherwin-Williams Co. of Belgium Sbenria-WOUiflu de Psaamd, S. A. Licensees m X Gumtrht t7 Interior and extarior paints, varnishes, stains and othtr decorative, protective and special-purpose itusbts; provides serricas to liccniens, soma ofwhom produce a full line ofSherwin-Witthms paint products while othett art licensed to produce cetthin spsetaiiad contings; Expoet Pepsrtaeat suppflm countries when no reprasenutioa exists. Retail Market: Wholetale Market: Industrial Market: 0007-SWP-035110 0007-SWP-000116531 DISTRIBUTION CHANNELS kec Agents in 39 countries other than the L'nited States who All domestic markets ate served by specialized sales purchase products lor resale to' industrial market. organizations within the divisions. k- Paint and printing ink manufacturers; produeeri of anti-otidants: plastics, glass and ceramics industries; salt dnnk, food and pharmaceutical industries: animal feed and agricultural chemicals industries; dyestuff and pigment industries; textile finishing industry; petroleum industry; tobacco processors; rubber industry: pbotogriphie and copier chemicals industrits; paper industry: metal cutting, cleaning, polishing, finishing and fabricating industries. lctt Homerowners and other do-it-yourselfcustomers. kc Point dealers; painting contractors; architects and builders; industrial commercial, aducalional and health-care facilities maintenance accounts. k: Original equipment manufacturers ofa variety of products. etc Automotive refliiishen; commercial Heat maintenance accounts; truck body builders. Ratail markst tarred through company-operated branch stores aod anestsorivsdealee organization. Compnny-optniad braaeh stores and n specialized tales organization serve the bulk ofthis market. This market served by company's specialized tales force. Sperialirrd automotive sales organization augmented by automotive supply jobbers. Producers ofpeinti, cosmetics, marking inks, soaps, lubricants, insecticides, cleaners, polishes, fhbric protectors and othir aerosol specialties. tt: Broad spectrum of industries with emphasis on the metal-working industry. A tpecialized sales organization serves all markets, with some distribution handled through mill supply, bearing and electrical wholesalers. ret: Home-owners and other do-it-yourself customers. -et: Paint dealers: painting contractors; architacts and builders; industrial commercial, educational and health-care facilities maintenance accounts. .CK Original equipment manufacturers of a variety of products. IB In countries where company branch stores are operated, notably Mexico, the Netherlandsand Belgium, these are a maior source ofsupply for the rctad market. Ia other eouatrin this mark* is wvud by dealer orgaoizuioas. The wholesale nmrket is served by company-operated branch stores end by sperieHrod seles organizations. The industrial markat ia served by spacialized isles orpaiatioat ofsubiidittfcs aod iicoasm. 0007-SWP-03511X 0007-SWP-000116532 entblei us to have our products where people want to buy them when they want to bu> them. Basic to both ate quality products that will perforin j veil or better than customers expect them to perform. No less essential, in our view, is fulfillment of the respon.ibihtt to inform buyers on the propet way to use our nr.'Juct-, w results will measure up to expectations. Your company produces a broad range of products de signed to meet a wide vaiiety ofneeds. This requires that our marketing efforts be equally varied. Overleaf is a tabular 5 summary showing how we channel our marketing energies ^to serve the many people in many plica who are our cus. toners. We believe it will give you an informative overview {ofour approach to serving them welL 0007-SHP-035112 0007-SWP-000116533 COLOR HARMONY GLIDE III is t Jpac*-lc va*on of the lorf-popubr Color Harmony Guide book offend to cuitomcn to help than make satisfying decorative color selections. In place of the familiar printed mataial. Color Harmony Guide HI uses microlklie and a large TV*hhe screen to show mtamtinf color combmationa in a variety of materials. Each full-fidelity color illustration -- and then are more than 1,500 m the Color Harmony Guide III library -- identities the paint color, the wall covermi pattern and the carpet color and texture used in the photographic vignette. This makes it easy to locate in-store samples of Hit materisls displayed on the screen, thus saving the customer time in making a Anal decision. Color Harmony Guide III wu developed in cooperation with Eastman Kodak. It it a unique application of imcronlm technology. Only Sherwin-Williimt has it. In addition to the in-store viewer shewn here, portable viewers are available tor m-ltome showing of the professionally-selected color ideas that an the heart ofthis intriguing innovation in decorating guidance. 20 0007-SWP-035113 0007-SWP-000116534 The Year in Review Continued emphasis on marketing was a dominant activity during the 1973 fiscal year. It led to the development of programs designed to insure even more direct involvement with the users of our products. An outstanding example was the transition in our branch store marketing from the "More Than A Paint Store" concept to the "Idea Center" approach. This grew out of the desire, among do-it-yourself customers particularly, for ideas as well as products for their home decorating and improvement projects. To underscore our position vis-a-vis our customers, we are now going to market with this promise: "Sherwin-Williams Helps You Do It All." The new advertising-merchandising theme bespeaks our determination to give our customers the products, the services and the aid and direction they need to accomplish what they set out to do. The concept is being applied corporation-wide. Whether the customer purchases products of the Coatings, Auxiliaries or Chemicals Croups, or chooses from the products and services of The Sherwin-Williams Co. of Canada, Ltd., Sprayon Products, Inc. or International Operations, your company is committed to helping the purchaser reap the full benefit of what we offer. With all segments of the company pursuing such a total concept marketing approach, the corporation is moving more deeply into the strong marketing orientation envisioned a few years ago. U is an orientation geared to meet not only present market demands but also the demands the future will bring. It is also an orientation we believe is essential to the fulfillment of other corporate objectives: the expectations of shareholders; the aspirations of employees; and our responsibilities to society in general. 0007-SWP-035114 21 0007-SWP-000116535 Th Coatings Group Sals of die Coalings Group rose 6.3% in fiscal 1973. Despite die ptmsure of higher nw material costs, the Grou|> achieved a 7.5% increase in pre-tax earnings. This was accomplished through eflbctivu internal cost control and greater productivity. Steps have now been taken, within Phase IV guidelines, to modify the growing imbalance between costs and sefliag prices and bring the latter more nearly into line with present economic realities. The planned program to improve branch store effectiveness continued throughout the year. After opening 35 new units and closing or consolidating 95 branches, time were a total of 1,778 in operation. During the year, 73 of time were relocated, end an additional 88 were expanded end remodeled. The avenge sire ofstone increased, with the sales area growing mote rapidly than total store space. Saks increases lad to improved opetating margins and stepped-up earnings in the branch organization. Sustained interest in wall coverings other than paint was a highlight ofthe considmblr increase in sata of interior decorating products moving through the bmneh stores. Sneb sales of wall coverings carpeting, draperies and associated items produced approximetcly one-quarter of the total volume of Group sales and over one-third of the volume of trade sales branches. The trend in (eased department operations continues to be for retailers to conduct these businesses themselves. As this occurs, the Coatings Group in most cases bacomei a supplier ofpaint products, and the departments formerly tensed become denier outlets. This change in relationship, end stepped-up teles to dealer-owned buying organisations, resulted in an increase in sales to daaJers. A record number of housing starts in fiscal 1973 had a favorable effect on sties to painting contractors. This was reflected not only in sales for new construction but to an even greater extent in sales for redaeoration and homo improvement. Such salts art generated in chain reaction fashion as new housing units an occupied and people move into newly-vacated older homo. Industrie! maintenance silts continued! their steady growth. They wen enhanced by the ineroduction ofnew products that provide higher corrosion resistance yet meet safety aad environmental requirements by being free of heavy metals aad containing a minimum ofphoto-chemieally reactive solvents. Greater use of color in industrial plants for safety and esthetic considerations also figured prom inently in expending the use of industrial maintenance products in a broad range of industries. 22 1 Architects specified Sherwin-Williams materials mote frequently end in greater volume during the year than aver before. This favorable development stemmed directly from the comprehensive program of service to architects begun some time ego. Finishes for the products of industry were in strong demand throughout the year, and indications are that this trend will continue. Coil coatings, electro-deposition materials and finishes thu can be rapidly cured through the use of high energy mechanisms showed particularly good mice guns. Air pollution and energy conservation factors as* spurring increased interest m powder coatings, and further expansion of the Pontiac, IJUnoauw plant is underway. Salas of automotive reflaishei by Sherwin-Williams rod the Mnitia-Seaour, Acme, and Rogers divisions again exceeded those of a year ago. At year's and, 53 automotive reflnisbee service centers were operating, ami this number is scheduled to be increased in fiscal 1974. Three asternal factors had derisive influence on the direction of much of the Coatings Group's research and development effort during the year. These were: (1) raw material shortages; (2) changing and potentially more restrictive air pollution requirements; and 01 the developing energy crisis. These translated into; < I) intensified search for substitute raw material s and reformulation of products to accommodate procurable materials without affecting quality; (2) development of finishes, particularly industrial finishes, whose character istics will enable customers to meet more stnngtni pollution regulations: and (3) development of finishes that cure by methods requiring less energy, notably chemical cross-linking end ultraviolet and electron beam curing. Marked progress has been made m all three areas. Tbs Group's 13 plants broke all previous records for gallons of product during the year. This was achieved through u moderate improvement in productivity and an increase in second and third shift activities. Mutually satisfactory labor relations were maintained at all facilities. Contract negotiations will be conducted at two locations during flscal 1974. Capital investment amounted to approximately 56,762,000 during the year. Improvements ia marketing facilities riaimed a large shat*. Occupational Safety itnd Health Act and environmental control requirements were other important investment areas. In fiscal 1974 advertising and merchandising effort will again be increased. Some of the sdUiig tools becking this expansion, such as the Color Hamqay Guide III described on page 20, an now fttnetiouing. Coupled 00 07-SWP--03 5115 0007-SWP-000116536 "1 with th* indicated strength in ell markets served by the Coatings Group, this stepped-up advertising and merchandising emphasis should bring further growth during the 1974 fiscal year. * Th* AuxfllariM Group Although sales of the Auxiliaries Group climbed 17.7% over the - previous yew, the pre-tax eontingi gain was held to 3.1 % due to the advene effects ofprice controls and cost increases. The metal container division had a sales gain of IS. I% and accounted for 37.| % of total Group sales. About 70% of the division's shipments wen to outside customers, the bolance going to the Coatings Gronp end the Sprcyon Products. Inc. subsidiery. Although performance ofell four container plants continued to improve; the division was frequently hard-pressed to keep up with demand and allocation of production time was occasionally required. Reflecting the stepped-up activity in the capital equipment market, sales of the Osborn Manufacturing Co. subsidiary rose 17.7% and made up 31J% ofthe Group's overall sales. Both the French and German opantions shared in the sales improvement. A joint venture in Germany, formed by the A. J. Rose Manufacturing Co. and Osborn to produce vehicular engine components, is curtenUy engaged in market exploration and has had initial success in having in products accepted for lest by a prominent automobile manufacturer. Marking its centennial in 1973. the Rubberset Co. division scored a 5.4% gain in sales. Divisional sales were 5.3 % of the Group total. The increase in sales lo mass merchandisers was especially noteworthy. Not included in sales were shipments to the Coatings Gronp which represented 54.3 % of total production. Planned changes in manufacturing procedures, use ofalternate raw materials and price relief should cast cost-price pressures in the year ahead. The Rubberset Co. iCanada) Ltd. subsidiary enjoyed one of its best years in sates with a gain of 17.7% and accounted for 5.3% of Group sates. Lumber for brush handles was a special problem since it was in short supply and at increased prices. The installation of equipment for producing plastic brush handles is reducing dependence on lumber and improving the outlook for a more favorable corn picture. Introduction of DANELLO*, * universal-type paint roller fabric, has had the anticipated favorable effect on manufacturing and inventory coals at the Deshier Products divison. Furthw cost reductions are expected to develop through recent improvements in plant layout, materials * handling and warehousing procedures. Production at the printing division, virtually ell or which is Tor internal use, was iaemsad through the installation of new equipment Much ofthe production increase was necessitated by thachanga from metal lithographed containett to paper faff labeli fora number of the Coatings Group's point products. Thu Auxiliaries Group had capital expenditures of 53,114,000 in IIseal 1973. Funds were invested primarily in production equipment at number oflocations. Additionally, the Henderson. Kentucky, plant of the Osborn Manufacturing Co. subsidiary was enlnrged, and a new warehouse at the Deshier Products division is currently underway. In July the company acquired Hadley Adhesives. This is an initial move into the fast-growing adhe sives market and provides n broad base for growth in this area. The acquisition includes modern plant at Fallon. Kentucky. Sates and enmings or this new sub sidiary, which were not signilcant for the two-month period, aw included in the Anancial review or the Auxiliaries Group. However, the division is being considered e new venture at present with the manager reporting to the Director of Corporate cnt. Th Chpnticalp Group Regaining most of the stiles volume lost when seven operations were discontinued in fiscal 1971 and 1972, the Chemicals Group closed fiscal 1973 with sales approximately 14 of I % under the previous year and a substantial improvement in operating results. Higher costs and the general shortage of chemical raw materials have created problems in many operations. However, despite this situation, operations were proliuble ' during the test two quarters of the year. Production ofitophihalonitrile. a versatile chemical intermadiate, in the converted phthelic anhydride plant at Chicago is on target. Its derivatives and certain co-products 0007-SWP--035116 23 It. 0007-SWP-000116537 or this operation appear to be promising chemical compounds themselves, and these am being offered to various chemical users for testing and evaluation. The titanium dioxide pigment plant at Ashtabula substantially exceeded design capacity. Plans are now being drawn for a facility that will produce synthetic rutile ore to replace the expensive, scarce natural rutile now need as a raw material ia the manufacture of titanium dioxide pigment. Para-cmol ctpecity at Chicago was signiVaintly increased during the year, end farther incites* in productioo of this important chemical interzaadiale is planned for fiscal 1974 as a result ofcapital expenditures for pracass improvements. Prodartion of barium chemicals at Cofftyvil)*, Kansas, is also slated for expansion. A second rinc*moiybate pigment fat the MOLY-WHITE* line has beta introduced for us* ia watar-besa paint systems. This new product, MOLY.WH1TZ 2I2", as well is the original MOLY-WHITE 101'* for us* in solvent* base systems, is attracting world-wide attention ia dm paint industry. Both pigments am highly corrosion* resistant and non-toxic, a combination of qualities of particular importance from in scological point ofview. The textile chemicals division continued to male progress during the year. A new textile printing material that masts strict tire retardant standards has bean brought to market and a water-baiad system for printing on linoleum is now being tested. The Maumee Flavor sod Fragrance Division has moved into its new facility at Danbury. Connecticut. A synthetic jasmine has been developed for tu* ia the fragrance and soap industries. This new chemical compound, methjlanthranilate, and new psn-cresoi derivatives are expected to be significant additions to the division's broad ha* of products for the perfrroe, cosmetic, food and beverage industries. Capital investment in the Chemicals Group totalled S2.329.000 in teal 1973. A mqior portion of this went into facilities begun prior to the beginning of the year for the purpose of producing isophthtlooitril* and a new type of zinc oxide. Further invesrmwit was also made in the waste water treatment and handling system it the titanium dioxide installation. An addition to the Greensboro, North Cswlina, plant is being hoik to house offices and labomoriet of the textile chemicals division. 24 Shurwlrv-Wllllnma Canada Sales of this Cansdian subsidiary increased 4.1 % in fiscal 1973, growing to 142,647,000 with n 2% increase in local net profit. However, because of an advene ehanga in the currency exchange rate, the parent company's pre-tax share of earnings was taduced to $492,000 from $<97,000 last year. The improved tales performance summed largely from iocicucs la the trim ofthe branch stons, chemical coatings and automotive rafinishes. Consumer sola throat dealers were it about the same level as in the previous year. During the year, thrae new branch stores were opened, seven wen reloceiod and five were dosed. A tots) of 131 bnaeh stons wen in operation at year's end. A program ofconsolidation and renovation of branches is underway. In the coming year, particular emphasis is being placed on certain retail centers and on facilities to serve the professional painter and industrial nxaiatenance accounts. The Quebec himitun industry continued to be a strong growth nrea for industrial finishes. Manufacturen or all types of feuititute me finding new markets in the United Stases, a development tint augurs well for future sales. The powder coatings plant recently completed at Montreal is now in eommareisl operation. Prospects for growth ia sales of its produett an highly promising. The & Harris Co. division enjoyed another taler, inertas* in fiscal 1973. This division is a supplier of graphic arts materials and sign finishes. The Winnipeg Feint * Gists division, which sells building sappKes and hardware as wall as paints, benefited from the high level of building activity in Western Canada and particularly in the Winnipeg ana. A compensating price increase effected in recent months helped to offset, in part, the increased costs brought about by inilatioaaiy influences in Canada. Investment in plant improvements also helped in this itgaid as productioneflldeocy incteascd. However, inflation continuer and, in addition, shortages of many kay raw materials am now being fek. These add another dimension to the problem of controlling costs. 0007-SWP-035117 Sprayon Products Total sales of Sprayon Products, Inc. in fiscal 197) rosa to SI8.42S.000, an increase of 8.9 % ovar tha previous year. Pre-tax n^MP , e,rmn8l *ere 52,0)7,000, up 7.7% from A*e*I1972- SMptnenu to tire wftoytQYT* Coatings Croup srere 24.5% of ** total production. Tha industrial supply segment of tha business was particularly strong, and tha subsidiary has introduesd a number of new products for this marital An especially promising area for growth is the elactrical and electronics business where aerosol-packaged products -- cleaners. degreases*. circuit coolers, ate. -- are in growing demand. To serve this expanding market more effectively, several raw distributors have been secured to insure broader distribution of products for this industry. A new Reid in the custom packaging pact of Sprayon'* business is that of garden specialties. Spa* weed kiffen and other usefiil garden chemicals in aerosol packages am comparatively new and demand is expected to grow rapidly in the Allure. The additional automatic packaging system instalM during the year at the Bedford Heights, Ohio, plant i now operating satisfactorily, and the anticipated changeover difficulties have been overcome. The system hat brought an almost 30% increase In production capacity. Similarly, tha warehouse addition at Anaheim, California, has eliminated tha bottlenecks that were interfering with shipping efficiency. Leasing of additional tractors and trailers has also contributed to better service for customers. Sprayon w31 mark its 25Ui year in business in fiscal 1974. As a pioneer custom packager, it hat paead the aerosol packaging industry in both technological innovation and growth. It expects to continue that pattern. International Operations Overall results in intsmational Operations were better than forecast. Pre-tax earnings climbed to SI.650.0W. a 50J% increase over a year earlier. A new joint venture, SherwinWilliams Belgium S.A., has been established in Belgium. Sherwin-Williams holds a 60% interest and a Belgian group the balance. This company has three breach stores and early results art encouraging. Results at Ralston B.V., the subsidiary in the Netherlands, were improved sub stantially. Three new branch stores were opened in Holland, and 71 new Kent Products dealers were established. In the Caribbean, a plant is underconstruction in Kingston, Jamaica. This facility is expected to be in production early in 1974. A branch store was established in Jamaica, and plans are to open several more In various parts of tha West Indies in fiscal 1974. The new factory of Ptioturss tddalas S.A., the licensee in Haiti, began production during the year. Compenia Shenrin-Williams, 5,A. da C.V. in Mexico continued to steady growth. Seven new brenclli stores ware added duriag the year increasing to 31 the number now serving tha Mexican marital Sherwio.Williams da Panama, S.A., the joint venture in Panama, tad improved multi. In Hong Kong, i license agreement for technical services has been entered into with China Flint Mfg. Co. (1944) Ltd. This company produces a broad end diversified line of coating products. Nearly all lictnsset enjoyed improved business in fiscal 1973, end many showed improved earnings. Especially good results were achieved by Sherwin-Williams de Centro America, S.A. and Starwin-Williams Ventzolana C.A., the oldest licensee which celebrated its 10th anniversary in August Political uncertainties and foreign exchange controls imposed hardships on some companies. During the year ea Iniernaiional Coil Coating Seminar was hrid to bring tpgtther anticentre and subsidiary companies interested in this market Those attending were brought up to date on recent devsioptnsnts. Improvement in technical service to ovaneas affiliates continues, and over the next two yate* the Technical Department wilt be strengthened still Anther. For to expansion. International Operations hss increased needs for skilled end experienced stair. Development plans have worked well and are bring intensified. Management around tha world now comprises more than 11 different nationalitits and origins. Tha cost df maintaining staff in a number of overseas posts increased markedly as a result ofcurrency changes. However, the recurring currency crises during the year had no other significant advent effects. Currently, latrenetioml Operations b exploring number ofjoint venture possibilities, ft is believed this approach will bsiag more satisftciory, stable sad rapid growth than could be achieved throagh traditional licensing. 0007-SWP-03S118 25 0007-SWP-000116539 Sherwin-Williams Products at Work THE TRUE BEAUTY oTnotural wood i*npliMiid end protected fey new exterior ruin* developed through rtaetreh. TW> type ofexterior hour* treatment it gainlnf wMeepnad popularity. 29 0007-SWP-035119 0007-SWP-000116540 4 ^* .* ` ;*! The varied products produced by the several segments of Sherwin-Williams touch the lives of many people in many different ways. Some of tljose products are as familiar as the proverbial household name. Others are more exotic and the ultimate user might not recognize them even when their names are clearly spelled out These and the following pages present a pictorial portfolio of Sherwin-Williams products at work. Space limitations preclude a complete catalog. However, this telescoped presentation suggests some of the contributions made to the daily lives of many people by the people ofShcrwin-Williams. These contributions range from enhancing and preserving homes to safeguarding pedestrians and motorists. From providing ingredients for cosmetics to improving the environment in factories. From making household tasks easier to insuring longer useful lives for motor vehicles. The foregoing brief summary is far from allinclusive, for the world of Sherwin-Williams is a broad and diverse one. It is dedicated to serving people by providing readily-available, quality products that meet a variety of needs. v TRANSMISSION TOWERS had a kxttiy. rasa* lift u ihwSOOiM hithmamptat ttuit 1Wcolon -- Uii and imareuioiul ortnat -- uvutd forumy, iapaiatt *h prottct Um mw I gidtn aR tht haanto of wMt^pMpMtt txponuv. 0007-SWP-035120 0007-SWP-000116541 MILADY'S MAKEUP bffifol From Km of the product! produced in Sherwin-wniittme chemical ptars. An inmdint of Rpmek * ano example. fragrance! for perfuma and cotopnec an when. HOUSEHOLD BEAUTY AIDS. itrotsl-peduped b> Spnyon Product* lot;, keep hmttim marbling, Thevibetdiiry >l<o mppliea inthwtiy with Ita many aeroaol-pukagtd induitrul product!. NOT A NEW CAR -- hot a new faith! Automotive rcfalahing product! give old* an new, loof-Uved eye appeal and protection. Colon of both domotic and imported can caa be icaddy matched. b 0007-SWP-000116542 TRAFFIC SIGNS mni bo bripht anouph to hi rwAly oat and mart roouphto wiihiuod comiaMtiipawnioihtdonmtt. Prothictsof tht Chnnical Couth* Ohfuoo, uood on my inAc uint ftillUl bah nouircmniu. COLOR IN INDUSTRY arat may purpoM. It Ktauifta tquipnwr* iml ugiub the eoMMli of procai papas: i> (fleowuH pood hotaokacoini Hut coatnbuia to ufcty: It (ha unployono pqcholopical that prombut productivity. Color pUnaing Tor ladoury it a arm* of iht Profoaontl Co mm* Divulea. 0007-SWP-035122 0007-SWP-000116543 THE SHERWIN-WILLIAMS COMPANY (MMIb 1K< EXECUTIVE OFFICES 101 Pnp*ct Arena*, N. W., Oeveland, Ohio 44115 Directors & Celia Baldwin CWmt ofikt Jberrf Keith S. Benson Ettmh* Vkt httUmtl fbmmt eaC .MVhliirarlm Oghtajr Nartoa Company Willis B. Boyer CM^lnwJn Q0nr JUpvkHt SMl CWpanulOB GenoC. Brewer VkwCkakmm Soatoat Fontf Intfittani lac. Richard G. Bull An t Hw/niKrn (TwSp WiUtani C. Fiat Mm Ammt a*4 <WaWnMM Robed F. Hennig Mtt Anriiiii^AKtafiv Jobs_A. Hill CkakmmiftitemhrCammtnM HMpiH) CoifMvfioi tTAMiici AIImC. Holms Hnmr tas Ow^CtcUo A Inti Airoreeye Victor Hall. In AS filfW1^nftf,l.H--rlf rTnMm TV Gooeyeer Tin A Rutter Cotnpeey William Moonan Robert W.Ramsdell AAii Ftrmgrljf Ckakmm TV Ean Ohio Oee Company Georgs F. SchJaudecker Ane HnAW-OVUI Weller O. Spencer JhtsHiHf iCWlaftfie Officer John D. Wright AWr aeC Per* erf Omkmm TAW lot. Arthur W, Sttudd niuev OfflCSTS E. Colin Baldwin CVS-- VW ><e Welter 0. Spencer r AnMm miOfftMmMht OjUttr Wiffiem C. Fine rmSW FrfmlBF* Ah HKV4MNf Riebard G. Bufl William Moonan Pay Her IVwMnw .leadaWi ,, Oerngs F. Sehlaudecker ffai Jemcs F. Cole Mee rmtimmi Tnmmwr Richard R. Crow FHB frMHF^rinVMf Ronald F. Curley HaWeVASe CUAmOis Robed F. Hennlg VirgB A. Hollis FHf nnMHovMBMI IfRinMI Robert A. Tschannen f r b it raavHr i^inniM^itipvfvwnp Michael D. Welsh Robed Cain SSIaHaIJRjei^vi BFAHflSf /TVRM^OnwIHI Alan O. Childs Mae Hrr AwiVar --i Ctmni Commri Harvey L. Piepho .lease Hw .heilihi AtrASe William F. Inman Semr and Cameras Metier ef 7km Frank H. dark lielilee rreeeevr aaC/tirineer Sammy Martin J. Donelaa /Wear Jhameer Frank C. Koliath aliilwieer Beeeeeer John R. Skinner AuUtam rweeir 0007-SWP-035123 0007-SWP-000116544 SuMdtariM Hadley Adhesives Inc. Th Osborn Manufacturing Company Tho Osbom Manufacturing International Company The Sherwin-Williams Company ofEurope, lac. Shcnria-WilUuns TntemadoncJ Company Spmyon Products, Inc. Compatfa Sbsrwin-Wmiams, SA. 4 C.V,, Mexico City, D.F, Marian Ralitoa B.V.. Zabt, Netherlands Rubberset Company (Canada) Limited, Gmvariuuit, Ontario, Schmitz and Ludwig GmbH, Fraakeaberg, Germany SherwiifWiBiaina Belgium 1A, Brumrii, Belgium Sbanrin-WOttama (Caribbean) N.V, Cancan, NathariandaAatiOce The Shenria-WiBigaM Company ofCanada, Limited, Moatreri. Canada Tba Shatwin-WMiam* Co. of Fnim Rico, lac, San Joan, Puerto Rico Tba Sbarwin-WMiam* Company Raaotncaa LimM, Kington, Janmica ShanrimWOliam* do Biaril $(A Tbnu a Vamizta, Sio Paulo, Brazil Sherris-Waiiams (West Indim) limitad, Kingston, Jamaica keM Anonyma daa Machines Osborn, Paris, Franca (90% orlaaaownad) The Carter White Lead Company ofCanada Limited. Montreal Canada Oaadia Brashes Limitad, Chepstow, Monmovtbthira, England Lowi Shorwia-WOUains GmbH, WabUuaibuig, Germany Rosa -- Tba CMom Maaufteturing GmbH, Frsnkanberg, Germany Sherrin-Williams da Puemd, S.A, Panama City, Futuna Aktiebriagat SYD Farrias (Sweden) Astral Std da Peiatures, Vstris tt Enema d'Imprimerie (Fmnee) C. A. Qrinricn intagmda (Vencaueia) C. A. Vcaemlua da Pigmentos (Vannwela) China Paint Mfg. Co. (I94C) Ltd. (Hong Kong) Donald Macpharson Group, Lid. (England) Duco S. p. A. -- Montedison Group (Italy) Fdbrica National da Fintums "Eipfatbol" SA. (Bolivia) Fdbrica Nacional da natures Sbanrin WBBams da Colombia SA. (Colombia) Industries Quimkas Procolor SA (Spain) Nippon Paint Company, Ltd. (Japan) Oay Foundry Equipment Dmaioa (England) Pemtura Iddales S.A. (Haiti) Piachia Johnson A Co. (NX) Ltd. (Near Zealand) Piaturas Aadina SA. (Chile) Shetwia-Williami Argentina laduurial y Coaaaiciil SA. (Argentina) Sbenriu-wnUame del Ecuador Fdbrica Nacional da Piataraa SA. (Ecuador) Shenrin-WJUiams Peruana SA. (Pard) Sherria-Williams Philippines, toe. (HdEppiaes) Sbtnria-Wiiliaaaa da Gmtro Aaairica SA. (El Salvador) Sbanria-WiUiam. da Costa Rica SA. (Coata Rica) Sbanrin-Williams Veaazoiaaa CA. (Vrntiuala) Sbints Paint Co, Ltd. (Japan) Taiyo Cboki Company, lid. (Japan) Taufamana Industries Limited (Australia) Plants Domaotte Printa Anaheim, California Ashtabula, Ohio Bedford Heights, Ohio Chicago. Illinois Cincinnati, Ohio Cleveland, Ohio CoflhyvBle, Kansas Crislltld, Maryland Danbury, Connecticut Dayton, Ohio Deahltr, Ohio Detroit; Michigan Elgin, Illinois Fulton, Kentucky Garland. Texas Gibbsboro, New Jersey Greensbore. North Carolina Henderson, Kentucky Hubbard, Ohio Lot Angeiai. California Morrow, Georgia Newark, New Jersey Oakland. California Pontiac, Illinois San Leandro. California Foreign Plasm Bayamdn, Puerto Rico Fmnksnborg, Gormany Gravcnbant, Canada Mexico City, Mexico MonrreeL Canada Monmouthshire, England Panama City, Panama Sio Paulo, Brazil Toronto, Canada Vancouver, Canada Wianipeg. Canada Zeist, Netherlands 0007 SHF-035124 0007-SWP-000116545