Document qddxD860nYq61azQmX9V9gY4E

I Sherwin -Williams Report to Shareholders 1972 I 0007-SWP-035062 v* rx.* TABLE OF CONTENTS i* Financial Htfhiighii.................................. 1 Letter [o Shareholders......... ............................ 2 Financial Review....................................... 3 Financial Statements................... Tha Year la Review................1.. Caatinfi Croup........................ Auxiliaries Group..................... Chemteale Group................ ... Shcrwin-Williams Canada........ Sprayon Products..................... Intemaiional Oporstions.......... Directon and Olllcan.................. Products and Plants...................... .......................... 26 Subsidiaries and Linmeca........... Inside Back Cover 1 Annual Meeting Th annual matin* of Shareholders will be held at 10:00 A.M. December 20, 1972. at tha SheratonCkvaland Hold, Public Square. Cleveland, Ohio. TRANSFER AGENTS The Cleveland Trust Company Cleveland. Ohio The Chasa Manhattan Bank. n .a . New York. New York REGISTRARS The Cleveland Tiua Company Cleveland. Ohio The Chase Manhattan Bank. N a. New York, New York TRUSTEES 3.43** Dtbtmmrn Dm W.' The Cleveland Trust Company Clr relend. Ohio JJ*; CmumlUr Sukmknolnt flr*rirmr.i Dm ,'W.t Central Nanenal Bank of Cleveland Cleveland. Ohio 0007-SWP-035063 0007-SWP-000116483 ** , * !( *.' `+*>4 f financial Highlights Net sales..................................................................................................... Income before incotnc taxes and extraordinary charge.................... Income taxes .............................................................................................. Income before extraordinary charge................................................. (Inetudes loss from discontinued segments of chemical operations of 51,22* in 1972 and $1,391 in 1971) Extraordinary charge--provision for loues on disposition of certain chemical facilities resulting from discontinuance of operations, net of income tax of 52,240 ................................................................ Net income................................................................................................ Cash dividends declared: Preferred................................................................................................. Common................................................................................................. Per common share: Income from continuing operations................................................ Loss from discontinued operations................................................ Income before extraordinary charge................................................. Extraordinary charge........................................................................ Net income............................................................................................. Cash flow............................................................................................. Dividends paid...................................................................................... Working capital..................................................................................... Ratio ofcanent assets to current liabilities............................. Capital expenditures..................... ............................................. Provision for depreciation...................................................................... Thousands of Dollars Aagust31 1972 $658,28$ 38,745 18,248 20.497 1971 (Restated) (A) $590,969 29,404 14,063 15,341 2,260 18,237 1,107 10,659 3.86 .23 3.63 .42 3.21 6.27 2.00 208,256 4.07 to 1 17,354 12,519 -015,341 1,110 10,631 2.94 .26 2.68 02.68 5.31 2.00 201,523 4.35 to 1 13,278 12.333 (A) Beginning with 1972, The Sherwin*WiUiams Company of Canada, Limited, has been included in the consolidation, and accordingly 1971 has ben restated. 0007-SWP--035064 0007-SWP-000116484 Letter To Shareholders V '* *>r * Fiscal 1972 reflected continued pragma, with record setae sad e substantial increase is earnings, despite the feet that the year was marked with a larger than normal number of uncertainties end unusual circumstances. The year began just wo weeks after President Nixon announced the wage and price freeze and ended in the midst of a heated presidential election campaign. In between, we worked our way through Phase It wage and price controls, new international monetary exchange rates, and constantly changing environmental and consumer protection refutations. However, the economy continued on its study recovery path led by increasing consumer spending and an accelerated housing construction boom. These lending segments of the economic recovery were good for our coatings and coatings-related businesses. As a result, we achieved record sake of $653,285,000, or 11.4% over last year. Because of previous investments in expansion and modernization, we were able to meet this surge in demand and translate it into an after-tax income from ppantions of 120,497,000, representing a33.6% increase over last fiscal year. After providing for preferred dividends, this results in $3.43 per common share, compared to 52.6S last year. Continuing our program of eliminating unprofitable operations that do not fit into our forward planning, wo did dose thru such chemical facilities. This mulled in an extraordinary after-tax charge of 52^60,000, or 42g per common share, giving a final net income of $19,237,000, or S3.2I per share. This represents an increase of 119% over the previous year's net of 315,341,000. or J2.65 per share. During the year we made substantial progress toward meeting our ongoing objectives. Om of these has been the restructuring of our chemicals operations to provide a bast for future permanent growth. In 1972 wo reduced our total pretax operating loss to 13,657,000, as compered to (4,341,000 in 1971; however, those businesses which have been discontinued accounted for $2,333,000 of that 2 loss in 1972, compand to $2,676,000 in 1971. The balance of the operations fit into our present and future planning, and nra being continued and given substantial support While they accounted for a pretax loss of $1,304,000 in 1972, oompnnd to SI,165,000 in !97|,, wo fully anticipate that they win contribute to future earnings. The closing down of operations noted in the previous paragraph, plus the starting up of two new chemical spe cialty plants and the formation of a Flavor and Fragrance Division, should put our Chemicals Croup on a much flrihtr foundation for the future. Our Auxiliaries Ctoup, led by higher production from our now Elgin Container Plant, n trend we expect will continue, increased their before tax income by 52.472,000. or 34.9%. Not only the Container Division, the largest unit within the Group, but other operations also showed sales and earnings gains in fiscal 1972. We continue to build management strength and support functions for our International Operations. We expect to expend our operation* in the Wen Indies tbit year and re discussing x joint venture coatings marketing opera tion in Belgium. Considering the higher developmental and organizational costs, we are pleased with International Operations* bafora tax income of SI,094,000 compared to Jest year's 51,331,000. Our Sprayon subsidiary had record sales of 516.923,000 and recond pretax income of SI.S92.000. We are expanding their operations in Bedfoid Heights. Ohio, and Anaheim, California, and expect continuing gxins in the aerosol business. As indicated in the balance of the report, we have for the first time consolidated the results for majority-owned The Sherwin-Williams Company of Camilla, Limited. For the year, they achieved a 10.8 % sales gain to 540.970.000. Our sham of pntax profits after currency conversion ameuatad to SI97.000, a 73,2% gain over last sear. We an optimistic about the potential in Canada and arc mounringanaffratiivcnuirkctingcxpaMion program ihere. 0007-SWP-033065 0007-SWP-000116485  Chairman B. C. Baldwin ' Our Coatings Group finished the jeer with record sale* of S47S.67S.000. 12.4% gain over Int year. This resulted in a pretax profit of S2S.97l.000, equal to a 22.1% gain over last year. The major factor was a strong increase of coatings sales and related items through our Company-owned branch sores. We continued our aggressive expansion and modernization of our branch stores backed by an imaginative, increased advertising campaign featuring the "We're More Than a Paint Store" theme. Industrial coatings sales continued to accelerate during the year with improved high technology products, such as coil coatings, eleeirodeposition coatings and high performance urethanes leading the way. Our new specialized Powder Coatings plant at Pontiac, Illinois, was completed and we began operations in September 1972. Capital expenditures during the year were 517,354.000, an increase of S4.076.000 over lest >ear. la fiscal year 1972-73 we expect another increase to approximately S20.000.000. Again a major portion of this will go to support and expand our coatings marketing effort. During the year we completed negotiations for new multiple year tabor contracts covering 72% of our orgzmzcd factory employees. Labor relations continued good with only a one-weak interruption at our Cleveland Coatings and Printing plants. Prmident W. O. Speacv We have also mounted a major Affirmative Action program for the employment end upgrading of minorities and women it alt of our locations. Progress has been made, but we recognize that much more is necessary and this effort wilt continue to gel concentrated attention. In December 1971, acceding to Mr. E. C. Baldwin > wishes to be relieved of active day-to-day management responsibility, the directors elected Vfr. W. O. Spencer as President and Chief Executive Officer. To achieve an orderly transition in management. Mr. Baldwin was elected to continue as Chairman of the Board of Directors. As we move into our new fiscal year, many of the national and international economic and political uncertainties are stilt with us. However, wc look for a continued strong economy in 1973 and continued benefits from our internal changes and accomplishments already in place. With confidence in our employees and appreciation of our customers, we look for further improvements in results for fiscal year 1972-73. Oleirewa / tht 8*4iJ Recognizing our responsibility in the matter of environ mental quality, we considerably expanded the staff support in this area and completed or began major installations to improve environmental conditions end safety at many of our operations. We estimatt that up to IS% of our capital expenditures for the new fiscal year will be in such improvements. Cleveland, Ohio October 19, 1972 frauitxt 3 0007--SHP--035066 , 0007-SWP-000116486 0007-SWP-035067 0007-SWP-000116487 pottdakirw (MIAWiD FOWDU COATIHOt mi jtmti mtmmm. mMfiutm* la tta mm VnUit. mtoofc, that Tfc Mlltr to nftAr MPWI ahit tal >wdaetla. *' 0007-SWP-03S068 0007-SWP-000116488 Financial Review The fallowing table preset!tr ulei and pretax income for each of the openting group* for the fiical yean 1972 and 1971, and the changes that occurred in 1972 when compared to 1971. The income figures have been computed after fall absorption by eaeh of the units of aU direct and indirect coett and allocation to those unite of ell corporate costa including interest, pension and general administrative expense*. Since all costs have been fully reflected in the operations of each unit, the tout of the income figure* agrees exactly with the income before income taxes and extraordinary charge reported in the Statements of Conanlidated Incomes Sates coatmm........................... unjm Auutiahaa...................... 60,017 QuireIs: Cendnutaa epsndeiw........... SlteenUaetd oparslioei........ 39.4I6 9,7*0 Tout Chenkali................. 49.374 Shsrwte-Wiinum Ctaads......... Spraroo................................... International............................ 40,970 I *,921 12.211 TotxJ UJU 1972 (Ttaetaads ofDollars! 1971 Peruse of Isnonro.ian-s rinm of Tool Total Sate XOCDM at Total Tan* 72.7V. 521,971 9.1% 9t54g 74.1% 5425.791 24.6% 30,417 72.1% 313,392 SJ% 7.074 40% 1.5% 7.5% 42% 2.4% 1.9% 1900% 1,304 -2.351 -l.*ST <97 1,192 I.0M 111,745 3J% 34.431 -6.1% 17,41) 94% 32,0*4 2.1% 4.9% 11% 100.0% 36,9*9 14.211 11.447 5596,9** 54% 16% *.*% U% 24% 1.9% 100.9% 1445 -2,*7* 4441 518 1,42* 1,3)1 129,464 hmoi of Total Saliaa 004% 552.917 24.1% 9.144 44% -9.1% 15.4% 1.7% 4.9% *J% 1064% 5.165 -7,15) 1,690 4.061 2.642 934 S47J.I6 Before Tun 55,379 2.472 341 323 994 379 464 237 59341 Beginning with 1972, The Sherwin-Williams Company of Canada. Untried, a majority-owned subsidiary (74 JJ of common stock), has been included in the consolidated financial staiemeirts. as weil as the Five-Year Comparison. In accordance with generally accepted accounting prsetices, the various statements include sales and other accounts at full value, before provision for minority in terest. Net income before taxes, as reported in the above table, gives effect to the minority interest adjustment and, therefore, properly represents the parent Company's share of that income. Certain Chemicab operations were discontinued in 1971 and others in 1972. In order to present a clear picture of the effect of these decisions on operating results, total Chemicals sales and losses before taxes have been separated into those associated with continuing oper ations snd those resulting from operations that have been discontinued. 6 Salts Consolidated net sales in fiscal 1972 amounted to S638.285.000 compared to SS90.969.0CO in 1971. This is e record high and represents an 11.4 % incret.se aver the prior year. Incvmt Consolidated net income from operations totalled $20,497,000, or S3.63 per common share after providing for preferred dividends. As a result of the discontinuance of certain Chemicals operations, provision was made in 1972 for losses on the disposition of facilities associated with those operations. The net after-tax effect of this provision was a reduction in income from operations of $2,260,000 or 42p per common shore, producing net income of SI8,237,000 or S3.21 per common share. These results compere to net income In 1971 of $11341,000 or $2.68 per common share. 0007-SWP-035069 0007-SWP-000116489 . **/ Financial Review Currency Conversion The eflhet of latter significant changes during 1972 fa the value oT various eunenriei vis-a-vis tte dollar was favotabla to the penal Company. The net effect on after tax income war an addition ofapproximately If par common share in 1972 and 21 in 1971. Taxes The provision for U.S. and foreign income taxes for ilscat 1972 amounts to $18^48,000. Taxes other than Federal continued to rite, fa gmnd total, these amounted to $17,522,000, up (torn SIS.57S.000 In 1971. Dividends Total dividends of $11,766,000 were declared in fiscal 1972, common stack dividends amounted to $10,659,000 and dividends on preferred stock amounted to $1,107,000. Common stock cash dividends for fiscal 1972 were at the annual rata of 5200 per sham. The Company hai paid cash dividends in every year since 1815. Capital Expenditure* Expenditures during fiscal 1972 for property, plant end equipment amounted to 517,3$4,000, compered with $13,278,000 in 1971. The budget for 1973 fitcal year pro vides for such expenditures et slightly more than $20,000,000, a significant portion of which is designated for expansion, relocations and renovations in our branch stores system. Cloud Facilities The Cleveland Linseed Otl Mill end Bound Brook. New Jersey, Insecticide Plant, closed in 1971, have been disposed of. Convenioa ofour Phthaiocyunine facility to otter uses is under way and the manufacturing plant for Axo pigments has teen demolished. Both of these units were located in our large Chicago manufacturing complex. A Strontium Chemicals plant at Ashtabula, Ohio, waa shut down in 1972. Provision for the disposition of this facility has been made in this year's extraordinary charge. General Financial Condition Working capital at August 31. 1972 amounted to 5208,256,000. up from $201,523,000 in 1971. The redo ofeurrent assets to current liabilities was 4.07 to I. Accounts reeeivabie increased somewhat more then normal, largely due to heavy volume during the late weeks of the fiscal yarn. Credit lecres continued to fail well within animal sad ecceptshfa range. Tent inventories increased modestly; however, the pemaniaga ofiacreaM was very much less than the inerseas in sales and, therefore, considered to be satisfactory. The raw material inventories decreased sightly, wtereei the fanesfaed goods inventories were higher, providing good support for continued high level of sales volume into the new year. During the year, 12,462.000 prioripal amount of the Company's 5j 45% Debentures Due 1992 were re purchased by the Company, increasing tha imouat held in the Treasury at August 3t, 1972 to $3,765,000 principal amount. It it the present intention of the Company to use there bonds to meet 52,000,000 annual snnkiag fund requirements which first becoms effective April 1973. Our projections indicate no need for additional financing during fiscal 1973 except for seasonal borrowings. Pennon Plan* Substantially all employees of the Company and its domestic subsidiaries participate in non-conlributory pension pleas. Tha Company's pension expense for fiscal 1972 was $6,620,000, compared to $5,509,000 in 1971. All such expense ha* beta allocated to cost of sales and selling, general end administrative accounts to reflect more properly true operating costa. Employeec Stock Purchase and Savings Plan Just over 6.700 salaried employees currently are parti cipating. through regular payroll deductions, in the Plan which wat starred April 1, 1969. llndtr the Plaa, the employees have the option of directing that their con tributions be invested in amounts ranging from 50% in the Common Stoek of the Company end 10% in Federal government securities, up to 100% in the Company's Common Stock. The Company in turn, contributes to the fund in an amount equal to 25% of the employees* con tributions and all such contributions an invested in the Company's Common Slock. At August 31. 1972. 259.000 thane of Common Stock, representing approximately 5% of the total number of shares outstanding, were owned by this employee fund. 0007-SWP-035070 0007-SWP-000116490 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES Statements of Consolidated Income Tb--ss*Js /DtSUrt Ytat Ended A|mt 31 Net tales................................................................................................................. Other income--net............................................................................. Costs and expenses: Cost of products sold..................................................................................... Selling, gctiertl and administrative expenses . ........................................ Interest................................................................................................................. Income Before income Taxes and Extraotdinaty Charge Income taxes--Note A: Piyibic currently............................................................................................. Deferred............................................................................................................. Income Before Eatraordiany Charge (Includes loss from discontinued segments of chemical operations of $1,22* in (972 and $1,391 in 1971) 1972 5653,283 1,444 619,729 ; 419,492 196,254 6,231 620,984 38.745 15,750 2,498 18,248 20,497 1971 Restated (Note A) $590,969 1,161 592,130 379,771 176,336 6,599 562,726 29,404 12,395 1,668 14,063 15,341 Extraordinary cherga--provision for losses on disposition of certain chemical facilities resulting from discontinuance of operations, net of income tax of $2,2*0............................................................................. Net Income Per Share of Common Stock--Note D: Assuming no dilution: Income from continuing operations . . . Loss from discontinued operations . . . Income before extraordinary charge . . Extraordinary charge............................. Net income................ ..................... ... Assuming full dilution: Income from continuing operations. . . Loss from discontinued operations . . . Income before extraordinary charge . . Extraordinary charge............................. Net income............................................. 2,260 S 19,337 -0t 15,341 $ 3.86 .23 3.63 .42 $ 3.21 $ 3.44 .18 3.26 .34 8 2.92 $ 2.94 .26 1M -OS 2.68 S 2.72 .22 2.50 -O$ 2.50 Set notes to consolidated financial statements. 0007-SWP-035071 0007-SWP-000116491 THE SHEKWIN-WHIIAMS COMPANY AND SUBSIDIARIES Statements of Changes in Consolidated Financial Position Scum tf From operations: Income before extraordinary charge......................... Add beck charges to operations not requiring funds: Provision for dapraciitioa--Nolo A..................... Increase in nooeiintnt deferred income taxes . . Fund* Provided From Operations Exclusive of Extraordinary Charge..................................... Extraordinary charge ............. Add beck components not requiring Iliads . . Funds Providtd From Operations.................... Proceeds from sole of stock under stock option plea . Application tf fundt Cash dividends declared................................. Additions to property, plant and equipment, net of normal retirements......................... Purchase of S.4S % debentures..................... Increase in working capital............................. Other--net...................................................... Chomgts m Wcrkmg Cupitul-- Inert*** (Dtcrtoto) Cash and short-term investments............................................................. Trade accounts receivable......................................................................... Inventories................................................................. .... Trade accounts payable............................................................................. Pensioa, interest and other eccruals......................................................... Income taxes......................................................... .... .. Other-net......................................................................... Increase In Working Capital TiMMsA a( DtUmrs Year Haded August 51 1972 1971 Restated (Note A) S 20,497 12,519 1,782 34,798 (2.260) 4,636 37,174 937 S 15.341 12333 1,578 29.252 -0-0- 29,252 254 SJ93W S 11,766 16,178 2,462 6.733 992 8 38.131 S 11,741 12,128 1.303 4.140 194 S 29,506 S 417 11.173 3.137 (5.861) (2.222) 3.312 . (3.223) S 6,733 5 (6,230) 8,091 1.250 627 1748) 1.875 (725) $ 4.140 See notes to consolidated financial statement!. 9 0007-SWP-035072 0007-SWP-000116492 Statements of Consolidated Shareholders' Equity Balance et September 1, 1970 as previously reported . . . Undistributed nrniap of Cenadien subsidiary (Note A)................................................................. Balance at September 1,1970 u restated..................... Common stock isiued: 6,150 item upon exordia ofstock option! and 31 ehaitt upon convtnion of It share* of Serin A pretend itock................................................. Subsidiary's repurchase of its pretend them.................... Nit income............................................................................ Caih dividmdi declared: Serin A pnfwnd stock--34.00 pir show........................ Serin B preferred itock--MAO per thin......................... Common--52.00 per thin.................................................... Bsbmtt st Aa(tl 31,1971 Common stock iuucd: 22,381 iftirn upos metche ofstock option* ad 2, IM shares upon conversion of 1.255 there* of Serin A prefund itock................................................ Subsidiary's reputchasi of it* pretend iham................... Net income......................................................... Caih dividend* declared: Serin A preferred itock--S4.00 per dm......................... Scriet 9 preferred stock--54.40 per than ....... Common--S2J00 par ehata ................................................. Balance of Amgmtt $1,1972 Serial Pfttorid Stock S 9.199 Thtmandi *f D*lUn Common Stock - S 33441 Other Cepitel S 14 Retained Eairoings $181,090 Common Stock la Treasury * (MO) -- 9.199 -- .33441, 1,219 6,573 194,663 -- (90) (D -- -- _ -- -- 9,191 39 -- -- -- -- 33487 216 104 -- (87) 15,341 -- -- 1,609 (296) (814) (10,631) 198,176 - -- -- (690) (44) 153 846 -- -- 1,049 (935) - -- -- -- 18,237 -- -- -- 3 9,134 -- -- S 33,340 e -- -- S IjOt (293) (814) (10,659) 5203,712 -- -- I (690) See aotn to coaeolideted financial stttcmean. 10 0007-SHP-03S073 0007-SWP-000116493 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES Consolidated Balance Sheets Assets Curmt As m* CmIi .......................................................... Short-term investments--at coil (approximate market) Trade accounts receivable, leu allowances (Sl,590in 1972; S1.4I6 in 1971)................................. Inventories--at lower of cost (avenge or latte, Ant-out method) or market: Finished merchaadiie............................................ Work in process, raw materials and supplies .. . Prepaid expenses.............................................'.......................................... Deferred income taxes--Note A ............... . Othrr Auttt Total Cnmnt Assets Receivables, advances and other assets.................................................... Intangibles arising from previously acquired businesses--Note A................................................................ Praptrtj, PUnt mnd Zqmpmtnt-- on the basis of cost Land................................................................................. Buildings......................................................................... Machinery and equipment............................................ Leu allowances for depredation................................. Liabilities and Shareholders' Equity Current UaMitm Notes payable.................................................................... .................. Trade accounts payable........................................................................ Compcasatioe and mounts withheld................................................. Pension, interest and other accruals....................... .......................... Taxes, other thin income taxes................................................................ income taxes .... ... ....... . ... . . . Total Current titbifittea La*f-T*rm B 5.4S V, Oebeaturea lexcluiv* of13,765 in treasury in 1972; 31,303 in 1971)......................................................... $.25 % Convertible Subordinated Debentures...................................... D*jrmd Innmm Tmxn--NMv A. . , Rmrw*t--frptmtjmt end otktr ittmt Mhtority Infrtit at SmbiUimrits, , , SbsnbtMvrt qi>y Capital stock--hiotes C and G: Serial preferred--.without par value Commoa--S12J per value . . . . Other capita)........................................ Retained earnings................................ Lass cost of common sham in treasury See notes to consolidated Roancial statements. Tk--Umdt *J DtlUn August it 1972 - 1971 Restated (Note A) t 13,44} 5,239 S 13,267 5,000 88,337 77,164 113,761 67,147 160,913 6,468 1.753 276,137 4,473 2,324 1797 3,981 78,908 162,423 247,314 101067 141.247 5424,201 108,963 48,813 157,778 1106 2,438 261.733 1283 2,324 6,587 6,006 81,341 161346 233,693 110,169 142.824 WUjJM S 2,817 23,720 17,186 16,033 4.T36 3.409 67,901 41233 40.000 81233 8,768 6,307 3,368 9.154 33,540 3,506 203.712 249.912 690 249.222 S421201 t 2,117 17,839 14,643 13,811 4,377 6,721 60,230 48.697 40.000 88,697 7,583 6.236 6,736 9.198 33,387 1,609 198,176 242470 690 241.610 S411.164 II 0007-SWP-035074 0007-SWP-000116494 Notes to Consolidated Financial Statements Yeses Ended August 31. 1972 sad 1971 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include all significant subsidiaries. Beginning with 1972, The Sherwin-WilKams Company of Canada, Limited, a majority-owned subsidiary, has been included in the consolidated financial statements, whereas the invest ment in this company was previously recorded at cost This change was made to reflect more appropriately consolidated operating results. The financial statements for' 1971 have been restated to give effect to this change, which did not have a material (fleet on net income in either year. Intercompany transactions have been eliminated. Appropriate rotes at exchange hove been used to translate foreign currency amounts into United States dollars, and the gains of $441,000 in 1972 and $117,000 in 1971 ore included is other income in the statements of consolidated income. Salas, costs and expenses of discontinued operations have not been segregated in the statements of consolidated income because the respective amounts are not material income Torn The Company has recognized the deferred income tax li&biBties and benefits resulting from timing differ ences between financial end tax accounting. The principal differences relate to depreciation and reserves. Investment lex credits (accounted for by the flow through method) aggregated 5598,000 in 1972 and $216,000 in 1971. Depredation Policy Provisions for depredation are based on annual rates calculated to amortize the cost of depreciable asseta over their estimated economic lives. Such provisions sre computed principally by the straight-line method. Intangibles Artsing From Previously AcquiredBusinesses These intangibles, principally relating to TheSherwin- Williams Company of Canada, Limited, are not being amortized because in the opinion of management, there has been no decrease in value. Research and Development The Company charges research and development costs to operations as incurred. NOTE B-LONG-TERM DEBT The 5.45% Debentures Due 1992 and the 6.23% Convertible Subordinated Debentures Due 1995 are redeemable in whole or in part at the option of the Company at the rates of 103.75% and 105.63% re spectively and at declining rates to 100% in 1987 and 1990 respectively. The related indentures require annual sinking fluid payments of 52,000,000 for each of the issues, commencing in 1973 for the 5.45% Deben tures end in 1981 for the 6.25 % Debentures. The Com pany presently intends to moke the payment required in 1973 from debentures held in treasury. The Con vertible Subordinated Debentures are convertible into Common Stock el $46 a share, subject to adjustment in certain events. NOTE C--CAPITAL STOCK. Authorized and istuad shores of the various classes ofisock at AuiiDl, 1972 and 1971: Authorized Issued Shares S)um 1972 *1971 Serial Preferred Stock: 1,500,000 54.00 Cumulative Convertible Pre ferred Slock, Series A................. 54.40 Cumulative Convertible 72,751 74,006 Preferred Stock, SericsB .... 184,913 184,913 Common Stock (including 22^00 shares facid in treasury in 1972 and 1971) . . 15,000.000 5,366,419 5,341,867 The shares of Series A snd Series B preferred stock are convertible at bare conversion prices of S57.93 and 562.50 per share of Common Stock, respectively, taking each share of preferred stock at $100 for this purpose. The holders of the preferred stock are entitled to one vote for etch share. The Company may redeem the Series A preferred stock until March 1973 at $104 per shore snd at a declining amoont each year to $100 per share in 1980 and thereafter, and the Series B preferred stock at $107.50 until December 1972, and at decUning amounts to $100 in 1981 and thereafter. The aggregate pref erence of the Serial Preferred Stock in involuntaiy liqui dation for 1972 is 525,766,400 and 1971, 525,891,900. At August 31, 1972 and 1971, an aggregate of 1,611,422 shores and 1,641,193 shores, respectively, were reserved for couvctticm of Serial Preferred Stock, convershm of Convertible Subordinated Debentures and exercist of stockoptioot. 12 0007-SWP-035075 0007-SWP-000116495 NOTE D--NET INCOME PER COMMON SHARE Net income per common share has been computed based on the avcta|e number of sham outstanding during the year after deducting from net income the dividend requirements of the Serial Preferred Stock. Net income per common share assuming fell dilution also assumes the conversion of Series A preferred stock and the 6.25% Convertible Subordinated Debentures (after adding to net income interest on the debentures net of income taxes) and the exercise of stock options - (with the proceeds from options used to purchase Common Stock of the Company). For 1972 the conversion of Series B preferred stock was also assumsdt whereas for 1971 its inclusion would have been snti-diiutive. 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 ofservice, participate in non-contributory pension plans. The Company's policy is to accrue contributions for its pension funds ' representing normal cost and amortization of un funded prior service cost over 30 years. Certain plans were amended effective September 1,1971, to increase benefits. The net effect of these amendments tad t chtnge in an actuarial assumption resulted in additional pension expense in 1972 of approximately 51,000,000. Pension expense was 56,620^)00 in 1972 and 55,509,000 in 1971. For two of the plans in 1972 the actuarinlly computed value of vested benefits at the most recent actuarial determination date exceeded the assets of the pension fund and the related balance sheet accrual by approximately 54,900,000. For the other plans, vested benefits arc ftiliy funded. NOTE F--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, 1972 was approximately 515,909,000. Approximately 85 % of these rentals relate to losses expiring in five years or less. NOTE Q-STOCK OPTIONS During fiscal 1971, the shareholders approved a restatement of the Company's stock option plan authorizing the issuance of an additional 200,000 shams ofCommon Slock to officersand key employees. Options are granted at prices not less than fair market value of the shams at date of giant. The options are exereisablc to the extent of one-half or one-fifth of the optioned shares for each fell year oil'employment following the dnte ofgrunt, and expire five or ten years after date ofgrant No options were granted in 1972. In 1971. options were granted for 178,139 shares. During 1972, options for 22,388 shares (6,150 in 1971) were exercised at sa aggregate price of 5957,337 (3233,719 m 1971) and options for 3,337 shares (50,666 in 1971) were canceled. At August 31,1972, options foe 223,632 shares (249,357 in 1971) were outstanding at an aggregate price of 59,044,455 ($10,137,086 in 1971), options for 34,392 shins (72,457 in 1971) were exercisable and 84,448 shares (81,111 in 1971) were reserved for future grants. Accountants' Report Board of Directors Tlw Sherwin-Williains Company Cleveland, Ohio We have examined the consolidated financial autcmaia of The Shcrwfn-WUKHM Company and subsidiaries for the years ended August It, 1972 lad 1971. Ourcmnumtianswere made in accordance with generally accepted auditini standards, and accordingly included wen tan of dm accouMinf records and such other luditmg procedural ee we considered nrrewety in ihe cirrumeuncw. In our opinion, die accompanying balance sheets and statements of income, shareholders' equity, and chtnaes in finsnaai position present feisty the corsofidated taandal position of The Sherwb>.WI|liains Company and subsidiwies at August 31,1972 end 1971. and tha consolidated tesulu of dinar operehonu. changm in share holders' tquity and chanme in Anancisl position tor the yean then ended, in conformity with generally accepted accounting pmciples, which, alter giving effect to the Comotidttioe Of the Canadian subsidiary dewnbiat in Note A, hava been applied oo a comment baa*. Cleveland. Ohio October 17,1972 0007-SHP-035076 13 0007-SWP-000116496 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES CMkltor m IN MILLIONS ' Caq IMI EifHAvwsiOipiicMM IN MILLIONS ?iS5S4,B TAXI* i i ParCaamaShan IN DOLLARS ------------------ 4JS $%%&*** -" of facws 41 IN MILLIONS 4) im im ivs ii< g EAJKMINGS Q DIVIDENDS Itfl [RETAINED tAUNCNGS I DIVIDENDS n TAKES LJ oONn INCOME CaariMMNMMa IN MILLIONS ............ m DMMm of TM RiVflMS YEAR ENDED AUGUST Jf. 1972 0007-SWP-035077 0007-SWP-000116497 * v *** " . THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES - ... * {"-* ' ' . - Five-Year Comparison -->--- < * rt Year Ended August 31 ;---------------------------------------------------------- ------------- --i--*-- -------------- -- ' ' - - . 1972 1971 1970 1969 1968 Net asks..................................................................... Income before income taxes aai extraordinary items..................................... Income taxes / . .................................................. Income before extraordinary items.................... .... S6SMSS 38,745 18448 20.497 3190,969 3359,924 8534,068 29,401 J 29441 i4A6i^; 14,689 15441 '&+ 14,852 ' 30.835 IZI50 18,685 5490,163 37469 18,044 19,22$ Extraordinary (charge) credit ................................. Net income. . ................ . (2060) 18.237 . -o. 15441 * i 1,745 16497 4). 18,685 -019,225 Earnings per share of Common Stock: Income before extraordinary item ................. Netincome. . ..................................................... Cash flow per share of Common Stock . Eaniop as percent of tales..................................... Return on invested capital--Common Stock (A). 3.63 341 $6.27 2.77% 7-94% 2-68 2.66 3541 i60% 6.72% 248 Z91 35.07 2.96% 7.46% 3.30 3.30 35.29 3.50% 8.84% 3.41 3.41 SS.25 392% 9.44% C*jh dividends declared; Preferred................................................................. Common................................................................. SI.107 10,639 51,110 10,631 51,110 10,657 31.043 10,651 5299 10,617 Cash dividends par share of Common Stock..................................................... 2.00 ZOO ZOO 2.00 2.00 Number of shareholders: Common............................................................. . 1,030 9.353(B) 1,027 9.903(B) 1,078 8.996(B) 1,073 8478 (B) 1,280 8.252 Preferred and common shareholders' equity. . . 5249422 3241,610 3237,721 $233,432 3225.872 Common shareholders' equity................................. Per there................................................................. Capital expenditures.........................*...................... 223,436 41.94 17454 213,788 40.60 13478 211,828 39.73 13,900 207,548 38.98 31,106 199,568 37.56 31,594 Provision for depredation..................................... 12419 IZ333 11,061 9,690 8.322 Working capital......................................................... 208,256 201.523 197,318 180481 173,828 Ratio of current assets to current liabilities . . . 4.07 to 1 445 to 1 442 to 1 4.41 to 1 4.50 to t Total assets................................................................. 3424,201 8411,164 3408,152 1378,921 5346,081 Number ofemployees............................................. 21,908 21,480 22,017 21.935 21,129 Aieee nflaeU consolidation of Sktnrin-WiUiamt Canada. (A) Bucd oa common shaieholdeia' equity at beginning ofyear. (0) la addition to tbs registered shareholders, there were beneficial shareholders participating ia the Company'! Stock Pusdiaae Bad Savinp Plea for salaried employees (6,732 ia 1972, 6,802 ia 1971,7,061 ia 1970 and 7,220 ia 1969). 0007-SHP-035078 is 0007-SWP-000116498 0007-SWP-035079 0007-SWP-000116499 The Year in Review * Expanded services to customers keynoted our 1972 fiscal year. This was reflected in activities in all segments of the business. The services ranged from new products to new distribution facilities, with considerable emphasis on the latter as we sought to move closer to the ultimate users of everything we make and market. This underlying thrust of our efforts is readily discernible in the reports that follow. It is particularly evident in the increased emphasis on retail selling in the Coatings Croup; the broadened scope of production capabilities in elements of the Auxiliaries Croup; and the continuing transition within the Chemicals Group toward specific end-use markets. Other evidence is found in the moves by The Sherwin-Williams Co. of Canada, Ltd. to improve production and distribution efficiency; the introduction of several new and highly useful products by Spreyon Products, Inc.; and the organizational planning and staff {Photo loft, otooo) A MEW VERSION at tha Color BotJqoo dkptoy* mm dun S00 point colon. TIM tnlquo dbptor oUo diapouoo Urf* color mptoo a help noromoro lo color Mitctiao. (Photo lo/l. Moo) COLORFUL CARPETING toovoiloUoia may bnaoh Mom. Ifco Motophii, Tnoomoa, wsnhouio fo o comvooioot tad reoacailcal awn* ot ruppty lor brudt out* la aiiMototo ana. building carried through by International Operations with a view to giving greater assistance to subsidiaries and licensees in serving their customers more effectively. All of these developments are in accordance with our previously expressed philosophy of committing the corporation to a strong marketing orientation. That orientation has as its basic tenet a determination to produce quality products, to promote them honestly and to sell them at fair prices. Beyond that, it calk for making our products readily available in the marketplace and sharing with purchasers all of our technical skills to insure their satisfactory use. While this commitment requires us to focus our resources on fulfilling market needs, we recognize that we have broader responsibilities with which our marketing objectives must be correlated. These responsibilities include: treating employees fairly and rewarding them adequately; providing equality of opportunity; cooperating as fully as possible in the protection ofour environment; and participating appropriately in the resolution of social problems. All of these responsibilities, must be met within the framework of the fundamental obligation of safeguarding the interests of the owners of this enterprise. 0007-SWP-035080 17 THE COATINGS GROUP In an industry is fragmented as the coatings industry (u estimated 1600-plus produced), effective marketing Is ths key to increasing salts oe t national mis. Tin Coatings Group dsmoastntcd the truth or thst axiom s<ain in fiscal 1973 when it posted record sales and earnings. With the branch organixation setting the pace, iD scimentt of the (roup contributed positively to results. Appropriate steps were taken to keep the branch stores closely seared to the dynamics of the marketplace. These inchuUd opening 24 new branches, relocating 105 units, remodeling end expending 7fi others and closing or consolidating 33 outlets. These changes resulted in an increase in total square footage in the branch Mores despite a decline io the number to IMS exclusive of automotive finishes service centers. We will continue upgrading our branch stores through relocations and renovations during die year ahead. We will also open new branches to broaden our penetration in specific markets and continue our strong multiple-line selling programs with Rogers and Lawrence products. As the "more than a paint store" concept continued to be implemented, sales of products other than paint also increased. This occurred in spile of the fact that the number of company-operated leased departments, excellent channels for associated products sales, decreased in fiscal 1972. The reduction stemmed from the continuing program under which certain retail chains assume operation of such departments themselves. In such cases the Coatings Group becomes a supplier of paint products to the units instead of e merchant of paint and associated products within them. The conversion of leased departments, coupled with sustained high levels ofMks to othermultiple-unit retailers and to dealer-owned warehousing organizations, brought an increase in sales to dealers. Smaller independent dealers, although still important and valued customers, again accounted for a diminishing proportion ofsales. Professional coatings sales to painting contractors continued in excellent volume during the year. Increased ia housing stuff tad home modernization were important factors in this area. Similarly, the higher level of industrial activity, expanded industrial construction and the growing interest in the use of color to enhance industrial environments and safety contributed to greater tala of those products designed for industrial maintenance applications. Sales through architects were expanded and communication srith this important segment of the building mttket was further strengthened. Continuing the trend begun in mid-1971, sales of finishes for industrial products (frequently identified as chemical coatings) moved upward again. Finishes for appliances, furniture, wall pancltng. exterior sidinjg and ocher housing components ware in particularly strong demand. The introduction of coatings that cure in seconds through the use of such high energy sources as ultraviolet light and electron beam has laid the groundwork for future growth in the hardbeord and plywood mdustnei. Increased acceptance of our total systems approach to electrodeposition, involving design of the application equipment as well as the coatings, suggests sales will continue to expand in this field. Salta of automotive refinishes scored strong gams. All four divisions active in this market -- Sherwin-Williams, Martin-Scnour, Acme and Rogers -- contributed to the increase. The number of automotive finishes sen. ice centers grew to 52, n increase of 4 over last year. The group** 12 plants achieved record production during the year. This was accomplished largely by inaugurating multi-shift operations at all plants. Even though production increased substantially, finished goods inventories wen kept in good balance. The new powder coatings facility at Pontiac, Illinois, is expected to come fully on stream early in Hscal 1973. This plant has been producing pilot quantities of powder coatings for several months. Labor relations continued good at all factories. Contract negotiations were recently completed at six locations. 0007-SWP-035081 0007-SWP-000116501 with economic provisions within Phase II guidelines. The new contracts are effective through varying dates in 1975 and 1976. The group's capital investment during the year amounted to $10,206,000. Much or that was put into facilities to strengthen our marketing position. Also included were environmental quality control measures and plant changes dictated by the Occupational Safety and Health Act. Projects relating to the environment wen undertaken at the Chicago. Cleveland, Oakland and Newark plants. Among several promising research projects aow underway is the search for improved polyester Insulating materials for usa in tho electrical industry. A number of interesting formulations ate currently being evaluated in the laboratory for further development. Considerable research and development effort was concentrated on reducing or eliminating lead in coatings product!. This was given further urgency by a recant Food anti Drug Administration regulation requiring the reduction of lead in products packaged in a form suitable for household use. Practically all of our household painta are at or below the lead level restrictions of the regulation that becomes effective December 31, 1972. An order to reduce lead levels further by December 31.1973 has not yet been implemented. We do not anticipate difficulty achieving complete compliance should the lower lead levels be prescribed. Another area of technical effort centered on the regulations growing out of tha Occupational Safety and Health Act, particularly the preparation of required Material Safety Dam Sheets. These frequently call for tha development of test method*, conduct of tests and compilation of detailed data. This work is progressing satisfactorily but will undoubtedly demand continued attention in the future. At the same time we am working to meet these federal requirements, we also M an obligation to help our customers, particularly those using our industrial finishes, to meat local regulations regarding air pollution. Technical developments nearing commercial! usefulness in this area am new resins for powder coetings, water, dispersed coatings and coatings that cure under ultraviolet light radiation. All of these materials are essentially pollution-free. With tha economy continuing to exhibit increasing strength, coating sales can be expected to enjoy forther growth in the coming year. Other segments of (be corporation will support that growth with materials and services they snpply the Coatings Orbup.Tor example: titanium dioxide and other pigments from the Chemicals Croup; metal containers, printed labels, brushes and paint rollm from the Auxiliaries Group: and the packaging of aerosol products by Sprayon Products, Inc. Our stepped-up advertising and merchandising programs along with aggressive marketing effort should also contribute to that growth. THE AUXILIARIES GROUP Practically ail of the diverse elements of the Auxiliaries Croup showed sales and earnings gains in fiscal 1972 with a total pre-tax income gain of 34.9% over fiscal 1971. Saks of the container division increased 19.3%overthe previous year. They accounted for 56.5% of total group sales. Aerosol container production at Elgin, Illinois, improved markedly during the year. Oblong container production, while not up to our expectations, is showing improvement as a result of concentrated engineering efforts. Performance of the Osborn Manufacturing Co. subsidiary, including its two consolidated subsidiaries -- Societe Anonyms des Machines Osborn in France and Schmitt * Ludwig in Germany -- showed improvement, with sales up 23.2% over last year. Osborn Manufacturing sales continued to reflect the general softness in heavy capital aquiptnam demand but wtre buoyed by nn active market for power-driven brushes. Both the French subtidiniy end Schmitt It Ludwig posted sales gains. However, the latter continued to haw operational difficulties and sustained an operating loss. Changes now in effect should improve this subsidiary's results next year. The total Osborn operation accounted for 31.3% of the Auxiliaries Otoup's overt!! sales. 19 0007-SHP-035082 t 0007-SWP-0.00116502 Generating 6.5 % of total group tale*, the Rubbenec Co. division enjoyed both sales and caroinp gains.With Chinese bristles again becoming available, the division was able to achieve improvement in the quality of its professional and consumer paint brushes. Emphasis is being put on . sales to mass merchandising outlets which are judged to offer exceptional potential for Rubberset products. Although Rubberset Co. (Canada), Ltd. scored a sabs increase, the cost-price squeeze depressed earnings from their year-ago level. As part of the solution to this , . problem, the company is planning to accelerate production of plastic brush handles in order to teduce raw material costs. The Canadian subsidiary posted 5J % of total group sales during the year. Productivity at the Deshler Products division phut continued upward. More than five million paint roller coven were produced, and marked gains wete made in other product arras. Development of DANELLO*, a paint roller fabric that cen be used to apply all types of consumer paints to all types of lurfhccs, is contributing significantly to cost reduction by lowering Inventories and simplifying production procedures. The printing division continued to supply the major portion of the corporation's label, stationery and ndvertisug-metchandisiog sabs aids requirements. At present, pmctieally all of the division's production is for internal use. New plant Investment for the Auxiliaries Giroup amounted to S3,649,000 during the year. A large portion of this was spent in bringing equipment into compliance with Oecupeiioeal Safety aad Health Act requirements. Environmental control projects tt the Chicago container plant and the Henderson, Kentucky, plant of the Osborn Manufacturing Co. subsidiary wars also covered by these expenditures. A nve-dey work stoppage at the printing division affected soma operations than. The issues were resolved with aegotiatiaa of a oaw two-year labor contract expiring in 1974, In Steal 1973, labor negotiations within the Auxiliaries Group w9l involve employees at the San Leandro container plant sad Rubberset Co. (Canada), Ltd. f THE CHEMICALS GROUP With the shutdown ofseveral operations. Chemicals Group sabs declined 52'/, in fiscal 1972. However; because the closed units were improvable, results of continuing operations showed some improvement, and the group's overall operating loss was somewhat lev than in fiscal 1971. Elimination of these profit drains from all of next year's operations can be expected to result in continued improvement Affected by these moves ware strontium carbonate production at Ashtabula and azo and phthakxyanine blue pigment production at Chicago- Theas closings, following earlier discontinuance of anenie chemicals, leaded zinc oxide, vegetable oil products and pblhalk anhydride, eliminate those chemical operations we perceive to hold no appreciable promise ofcontributing to earnings. We have converted the phtbalic anhydride facility to production of isopfctbalonitrita; an important chemical intsrmediaia, and the process is expected 20 to be ftilly on stream shortly. Similarly, conversion of the Coffeyvilie, Kansas, leaded zinc oxide plant to production Of an improved sine oxide for the coalings, rubber sad plastics industries is virtually completed. The Pontiac, Illinois, facility for manufacture of color concentntaa for plastics is scheduled to become operational early In fiscal 1973. A sew sum-molybdate pigment, trade-named MOLY-WHfTE 101TM, which is corrosion resistant yet non-toxic, is generating favorable interest in the costings industry. This product is assn as tbs nucleus of a family of pigments designed to replace load products and chromates in corrosion-resistant coatings. The textib chemicals division has mads encouraging pragmas in supplying the textib industry. New formnbtions oftextib printing inks for urn with nonwovtn fkbrics sin being introduced, and a number ofother new products an in the development stage. We havn maligned the stWog organization to conform 0007-SWP-035083 0007-SWP-000116503 more closely with market requirements, end headquarters for the divisioa ere now in Greensboro, North Caroline. A Flavor end Freirenct Division has been established. This new division will develop, produce and market a number of aroma, flavor and perfume chemicals. A new leased plant is under construction at Danbury, Connecticut, and the division will be headquartered there early in fiscal 1973. We are continuing to emphasize marketing of our triazole corrosion inhibitors sold under the trade name COBRATEC*. At the same time, we ate expanding our line of corrosion inhibiting additives Co broaden areas of application and increase participation in both existing and new markets. Initially, these new products will be sold to to the metal working and metal finishing industries under our SHERTEC* trade name. This new activity it expected to provide the basis for supplying complete systems to that markets. Pollution abatement programs at the Chemicals Group's four plant sices see concinumg on schedule. At Chicago, highly effective air end water pollution controls have baas installed in the part crttol plant, and an absorber/scrubber installation in tha eolor intermediate plant it adequately removing ammonia and sulfur dioxide vapors. Treatment IhciUtics for water effluent at Ashtabula am now under construction. A comprehensive engineering study of environment-related problems at the Coffeyville. Karnes, facility it in progress. Although complete cost estimates ate not yet available, we anticipate that environmental control expenses there will not be unduly burdensome. Tha Chemicals Group is confident the difficulties that have interfered with profitability over the hut few years am now on the way to being solved. The elimination of consistently unprofitable operations and the introduction of promisilig new products point to encouraging prospects for the entire operation. i SHERWIN-WILLIAMS CANADA This year, for the first time, results of The SherwinWilliams Co. of Canada, Ltd. have been consolidated into those of the parent Company. However, this subsidiary continues to operate with a high degree of autonomy so it can effectively meet the special require ment* of the Canadian market. Although exterior painting activity was adversely affected by the inclement weather that swept Canada through much of the summer, total sales in fiscal 1972 climbed to S40.970.000. an increase of 10.1% over tha previous year. The parent company's sham of pre-tax earnings alter currency conversion increased 73.2% over lest year. The improved salee performance wae general throughout the organization. While automotive sabs scored the highest gains, branch Moms followed closely with excellent increases. At year's end the company operated 133 branch stores. During the year two new branches warn opened, eight were closed and two remodeled. The decline in the total number reflects a management decision that, in view or market changes now occurring, larger and mom strategically located branch stores are presently indicated. A steppednip program of branch modernization to further this objective is planned for next year. Highly instrumental in promoting retail and {painting contractor tales was the new "Fashion Right" color service introduced early in the fiscal year. This provides consumers and professional painters a wide selection of colors in a broad range of products. There were good glini in industrial sales, particularly in the Quebec division where wood finishing materials were in strong demand. Only the Ontario division suffered g modal decline in industrial sales due to a drop in industrial activity them. The E. Harris Co. division, which supplies materials to the graphic am industry, achieved sharply increased salts. However, thorn of the Winnipeg Paint A Glass division (building sopplbs and hardware) dipped from year-igo levels, primarily because lest year's sales included e number ofexceptionally large bid contracts not repeated this year. 21 0007-SHP-035084 0007-SWP-000116504 Flint efficiency confirmed to improve during the yexr, and production reached a new record. This record output, phi* a determined cost control program, had a favorable effect on unit coat*. A number of production improvement projects have been launched with a view toward further efficiency gains in the future. New ware* housing procedures are row bang followed, and these can be expected co have a positive effect on distribution costs and customer service. Research and development work on powder coatings is produeiag highly promising results. Construction oft powder coatings manufacturing unit is now under way. *. The economic outlook for Canada in the year ahead is somewhat mixed. Forecasts generally predict further growth in consumer spending but caution against the possibaity of escalating costs giving rise to another period of serious inflation, lit view of this we will further intensify cost control measures in order to participate profitably in the anticipated increase in demand for our products. SPRAYON PRODUCTS Historically, the Sprayoo Products. Inc. subsidiaqr has consistently posted year-to-year sales gains. Fiscal 1072 was no exception as sales climbed to $16,923,000, an IS.3*.' increase over the previous year. Both the custom division and the industrial supply division contributed to the sales increase. The former packages aerosol products for many different industrial; the latter markets over 60 industrial specialties tanging from stnppaMc coalings, paints, gasket adhesives and mold release agents to lubricants, corrosion inhibitors, electronic cleaners and stencil marking inks. Several new products were introduced by the industrial supply division during the year. These include an ultrathin Eransparent demoisturant for use in the electrical industry, a welding ami-spatter material for the quick and easy removal of weld spatters and a line rich galvanizing compound which makes practical the field application of protective galvanizing chemicals. The subsidiary foresees further growth in the aerosol packaging of insacticidas and weed killers. Developments along these lines involve more sophisticated propellant blends winch, in tun, are expected to find application in the packaging of other materials. Sprayon t marketing thrust ia the immediate future wilt capitalize on this developmental effort to seek new customers whose products have thus far been barred from aerosol packaging because of product/propellant incompatibility. Increasingly higher production is necessitating some plant expansion, and Sprayon will invest over S80G.00O in this effort during the coming year. Eatly in fiscal 1973, additional radiitie* with a completely automatic packaging system an scheduled for completion nt Bedford Heights, Ohio. At about the same time, a 30*; addition to the Anaheim. California. warehouse is slated to be in service. tabor relations at both of the subsidiary's plants continue to be mutually harmonious. New labor contract negotiations involving employees at the Bedfoid Heights plant wBI he conducted during 1973. There appean to be no diminution of interest in aerosol packaging, and the prospect* for the industry are excellent. 22 0007--SWP-035085 0007-SWP-000116505 INTERNATIONAL OPERATIONS Although revenues of this division increased over last ' year, pre-tax canting^wan down to 11.094,000. Tha dip ih^eernings mi eouiad largely by contimad problems at Vrrffxbrieken Ralston, N.V. in tha Netherlands. Also contributing wen the shortfall in operationi of The Sherwin-Williams Co. (Wot India), Ltd. and tha diffieultia in transmittal oT nqialdM bom , licensees in Colombia, Quit and Argentina. During tha saeond half of tha year, planned tad extensive management changes weft effected at Ralston to revena the past unsatisfactory trends then. We an also strengthening our West India operations by maligning our approach to tha market. In line with plans initiated in Jbcal 1971, we have strengthened our organixation through the atablishment of a European regional oflfea and inereaaa in staff at headquarters, the Latin American regional office and tha international technical laboratory. While these additions add to costs, sve believe they ere a necessary prelude to effective expansion of our international activities. During the year we entered into a licensing agreement with Peintures Idealcs, S.A. iq Haiti. The joint venture in Panama, established late fast fiscal year, fa operating satisfactorily and has reached the goals set fnr tha first year. We are presently negotiating a joint marketing venture in Belgium. In Mexico, Compania Sbcewin-Williams &A. da C.V. med# steady progress. Eight new branch turns were opened during tbs year, miring to 51 tha number of such outlets new in operation. Wo anticipate that an additional seven orcigltt branch stores will be opened in the coming year. Our licensees continued to expend their businesses. Certain new developments in coil coatings which have now been adapted to the international market should prove of Anther help to (hose licensees who produce these specialized finishes. As in Use United States, many other countriis ere now putting into effect regulations regarding the environment. Among them are Mexieo, Brazil and the Netherlands when air tad water pollution have become matters of quite urgent concern. We are endeavoring to meet ail requirements through the most practical measures, and we do not anticipate any difficulties in this regard. The recurrent monetary crises of the pat year have not had a material effqet on our international operations. However, devaluation of the dollar his increased oversea stiff expense. In fiscal 1973 we will continue to develop and tram management and staff for our international operations. Wo are convinced there is ample opportunity for further perticipetion in international markets. 0007-SWP-035086 0007-SWP-000116506 Directors E. C*ila BaMoia Wlta* 0. S|IWT U'Ulti B. Uo) Cmh r. ScUttdtcktt Mln> IMohan SkharA G. BuM MaA.HU Rohortf. Hd I( KoitkS. Williaai Mimam 0007-SWP-035087 0007-SWP-000116507 THE SHERWIN-WILLIAMS COMPANY Rwadd in IM6 EXECUTIVE OFFICES 101 Prospect Artoua, N. W., CMu4 Ohio 4411} Directors E. Colin Baldwin Ofirmm eftkt Bear* Keith S. Benson AiMr 0 llaiMw. Aaerana Willis 1. Boyer rEWHs WHm oWV MnlRsT VJK-Ir RapubfcSMlCerpontfeft GantC. Brawer VWCMmaa SoMtuarmihMolK Richard C. Bull ' fivo HsrAn*a--Casrfssa William C. Raa MMT FMf fTMnmavMMn Rohan F. Hennig WoBirths Hwlutf John A. Hill HsspMI Csipentfai ofAissrira AUmC Holmes JWSssr Jonaa,Day,Cockier 0 Ranis Aostaars Victor Hole Jr. Mmr ThaGeadyaarTM hRuhbqrCMV*i* William Moonan Grata HttAlSan .inWarWt Rohan W. Ramsdall Its CanOhioOnCmpaar Georgs F. Schliudccker Cram Wet friMm, CtmUab Walter O. Spencar rnMMwtCHtfbmtotOf** John D. Wrighl OOacaar nrf <a0rW Ctatraraa TRW In. Arthur W. Steudel HummrUnmr Officers E. Colin Baldwin Ckthmm ifll* Saard Walter O. Sponctr ftaddsst and CMaTAwwAa Ojlfcsr William C. Fisa Mar Wm ftnWa ffisn asdldWatitratlas Richard Q. Bull Asnn i a ---* Wilfiam Moonan sa Wra.Prartdnw AnWtrto Gaorta F. Schlaodcekcr cram War fraUm--Cknnkth Jamas F. Cola nsMtstaODwinr Richard R. Crow Ht Ab Mw i hijaasil Ronald F. Curtsy its Mlllwf MMaMr*Ciw|i Gran Robert F. Hennig rirf /ifjwfw ifnirf-Wa--JlH.-- Virgil A. Hollis Hk# Aaiirfmr /tanoaf Opemtmni Rohan A. Tichinnea Ket frttUnt OfmHhuf Caaiarn Croup Michael D. Welsh Kct fiuUnu /wnaariraat Optraium Alan O. Childs ilntm Kct AnUnraWfimnl Cuwwf Earl W. Ptck AslfMasf Ms# AraxMM and Cvniroltir Harvey L. Piapho AHlum* Kct KnUtM--ParrAsnVia William P. Inman Stemmy asiCarprm* hwa o! Texts Frank H. Clark Aobirnu IVaanrar and dsauNM Strmorr Martin J. DoneIan AoUtmu Tnmunt Frank C. Kollath jtoafcMtt 7)vsir*e 0007-SWP-0350H8 2S 0007-SWP-000116508 Products and Plants Principal Products Paints Enamels Varnishes Lacquers Stains Aerosol Specialties Zinc Pigments UUiopotie Metal Contaiaen Industrial Poster-Driven and Maintenance Brushes Alkali Blue Pigments Synthetic Pam Crenel Saccharin Barium Chemicals Foundry Machinery and Equipment Finishing Machinery and Grinding Wheels Organic Chemicals Titanium Dioaide Pigments Textile Printing and Dyeing Colon > PossdtrCoatings* Plastic Cotonou* Print Brashes* Rollers tod Other Painting Accessories. Domestic Plants Anaheim, California Ashtabula, Ohio Bedford Heights, Ohio Chicago, Illinois Cincinnati, Ohio Cleveland, Ohio Coffeyville, Kansas Crisfield, Maryland Dayton, OMo Oeshler, Ohio Detroit, Michigan Elgin, lUsnoU Garland, To ms Gibhtboro, New Jersey Greensboro, North Carolina Hendcnoo, Kentucky Hubbard, Ohio Los Angela, California Morrow, Qiofpi Newark, New fancy Oakland, California Pontiae, Illinois Sen Leandro, California Foreign Plants Bayamoo, Puerto Rico Frtakenberg, Germany Gcavenhurst, Canada Mexico City. Mexico Montreal, Canada Monmouthshire, England Panama City, Panama Sao Paulo, Brazil Toronto, Canada Vancouver, Canada Winnipeg, Canada Zeist, Netherlands Printing Center North Olmsted, Ohio Research Center Chicago, Illinois The A. W. Steudel Technical Center Chicago, Iffinois Container Technical Center Ceunuptidt, Illinois As ia years past, this Annul Repost was misted at the Shsnrin-WUlaaw MadagCsaiar, tbnh OtouMLOhio. Many of the lake used la Its predueUea eemrin n^awitt eappltad by the ghsrel>inBlum Ckrodeda Omw 2* 1 0007-SWP--035089 0007-SWP-000116509 Subsidiaries Domestic Sprayon Product!, Inc, The Osborn Manufacturing Company The Oibort Manufacturing International Company The Sherwin-Williams Company of Europe, Inc Sherwin-Williams International Company Foreign Companie Sberwio-Williams, S.A. da C.V., Mexico City, D. F., Mexico Rubbenat Company (Canada) Umittd. Gravenhurst, Ontario, Canada The Sherwia-WiUiarns Co. of Puerto Rica, Inc, San Juan, Puerto Rico The Sherwin-Williams Co. (West ladiaa) Ltd, Kingwon. Jamaica Skareia-Wtlliaou (Europe) SodM Anonyme, Aatwtp, Belgium Schmitt 4k Ludwig GmbH, Ftmnkenberg. Germany The Sherwin-Williams Company ofCauda, Limited, Montreal, Canada Shanrin-WiSiaaM do Brasil S/ATintti a VcrniacSao Paulo, Brazil Sodata Anoaymadai Machint! Osborn, Faria, Franca Verfiabricken Ralston N. V,, Zebt, Netherlands Other Affiliates (50% or las owned) The Cuter Whitt Land Company of Canada, Limited, Montreal, Canada Dtadix Brushti, Limited, Chepetow, Monmouthshire, England Lowi Sherwia.William! GmbH., Wsldkraibwg, Germany Shenrin-WilUams da Panama. S. Panama City, Panama Licensees Aktieboiaget Syd-ferniss (Sweden) Aural St*da Peintum, Verni* at Encm Dlmprimarie (France) Dooald Macphanon Group, Ltd. (England) Fabrica Nadonal da Piaturis "EspintboT S. A. (Bolivia) Fabriea Nadonal da Fiaturaa Sterwia-Wilfiaina dc Colombia SA. Induitrias Qaimicas Precolor, S. A. (Spain) Mootacatisi Edison S. p. A. (Italy) Nippon Faint Company, Ltd. (Japan) Oay Foundry Equipment Oivisioa (England) Printuraa Idaaks, S. A. (Haiti) Piuchia fohnsoa A Co. (New Zealand), Ltd. Pintutu Aodina S.A. (Chile) Rhodlaceta, S.A. (Franca) Sherwin-Williams Argentina Industrial y Camtretal 5.A. Sherwin-Wiltianu dd Ecuador Fabrica Nacional da Finturee S.A. Sherwin-Williams Peruana S-A. (Peru) Sherwin-Williams, Philippines, Inc, Sherwin-Williams da Centro America, S.A. (El Salvador) Shcrwin-Williems da Costa Rica, S.A. Sharwin-WilBams Vettczolana C.A. Shinto Faint Co., Ltd. (Japan) Taiyo Chuki Company, Ltd., (Japan) Taubmans Industries, Ltd. (Australia) 0007-SWP--035090 0007-SWP-000116510