Document wDGYyXq7LVEj692rp4DYN34vd

Report to Shareholders *1974 0007-SWP-035125 Table of Contents Financial Highlights................................................., 1 Letter to Shareholders ....................................... 2 Financial Review....................................................... 4 Financial Statements.................................................. 6 New Face for the Future........................................... 14 The Year in Review................................................... 17 Coatings Croup...................................................... 19 Auxiliaries Croup.....................................................21 Chemicals Croup..................................................... 22 Sherwin-Williams Canada...................................... 23 Sprayon Products.....................................................24 International Operations.......................................... 23 Directors and Officer]..................................................26 Subsidiaries, Licensees and Plants.. Inside Back Cover Annual Meeting The annual meeting of Shareholders will be held at 10:00 A.M., December It, 1974, (I the ShcratonClevdand Hotel, Public Square, Cleveland, Ohio. On The Cover: A new corporate symbol for your company. Why and hour it will be used is outlined beginning on page M. Transfer Agentt The Clevehnd Trust Company Cleveland. Ohio The Chaaa Manhattan Bank, SI A. New York. New York Registrars The Cleveland Trust Company Cleveland, Ohio The Cheat Manhanaa Bank. N A. New York. New York Trustees SM% Drtmtms Dee mi The Clevehnd Treat Company Cleveland. Ohio 3JS% CcmeniUf Seberdimted Dtbtelum Due /W Central National Bank of Cleveland Cleveland. Ohm 0007-SWP-035126 0007-SWP-000116547 / __r Net salf Incest before income taxes income taxes.................... Net income.................... Cash dividends declared: Preferred.................... Common.................... Per common share. Net income . . . Working Ratio of current Capital Provision for I V \ ' ... ..... .... Tio,mssadt of DolUrt August 3t , ........... 1974 ; " 1 ' ' itr '- 55,578 26.299 29,279 5704.729 43.589 19.35* 24,502 1.102 10,746 1.(02 10.736 5.24 2.00 227,626 2.75 to 1 20.553 13.555 4.36 2.00 216,549 3.95 to 1 16.042 12.869 S 0007-SW-035127 0007-SWP-0001 Letter To Shareholders The pice of change in The Sherwin-Williams Company continued to accelerate during fiscal 1974. Perhaps the most visible evidence appears on the cover of this Annual Report that displays for the first time our new corporate trademark. After seventy years of universal worldwide recognition, we decided to retire our famous "Cover The Earth" trademark. We felt that it no longer was descriptive of the total present and future growth directions of the Company. A summary of the research and planning behind this decision begins on page 14 of this report. Fiscal 1974 was an exciting, challenging and sometimes frustrating year. At times economic, political, and supply situations seemed to be changing by the hour on both the domestic and international scenes. For the first eight months we were under economic controls. This artificial disruption of normal markets was further exaggerated by shortages of vital raw materials and rapidly rising costs brought on by the worldwide petroleum price increases. It is evidence of the strength of our organization and the dedication of all of our employees that, in spite of these conditions, we posted a record sales year of 1802,266,000, or 13.8 % over last year. Accompanying this was a record year of net income of 129,279,000, or a 19.5% increase over last year. This translated iato earn ings per common share, after preferred dividends, of S5.24. an increase of 20.2% over last year's $4.36 per common share. This was the third straight year of substantial salts and earnings growth at our forward' planning picked up momentum. White the increase of profits from last year's 3.5 % ofsales to 3.6 % is gratifying in a difficult period, it is still well below the margin necessary for long-term good health of the business. Our total tax expense, exclusive of payroll taxes, also reached a new record of $34,951,000 or $7,245,000 over a year ago. This, of course, is in addition to taxes our shareholders will have to pay on their dividend income. Our employees, as was true or most of our country's population, suffered severely in purchasing power from the ravages of inflation during the year. But the continued success of the Company meant that we were able to pay in total employee wages, salaries, and benefits $243,015,000; an increase of 517,461,000 over the year before. With confidence that our earnings growth is moving upward, the Board of Directors voted a 10% increase in the quarterly common stock dividend at our meeting on October 24, 1974. Our capital expenditures during the year rose to $20,553,000, or 28.1 % over last year. Thesa expenditures will grow rapidly over the next few years as we continue to expand and modernize our branch stores and build new factories to increase our capacity and efficiency to 2 serve an ever-growing number of customers for all of our products. On a 70-acre site in Richmond, Kentucky, we are starting construction of a large plant to produce coatings for repainting automobiles. A new emulsion coatings plant is now in the engineering design phase. In chemicals, we are doubling our capacity for production of para-cresol and saccharin as demand continues to outstrip supply. Substantia! amounts of money are being spent in many locations to upgrade environmental protection and increase efficiencies. As part of our strategic forward planning we announced the sale of our Ashtabula ritanjum dioxide operations in October 1974 for approximately $30,000,000. This action will not materially affiset our fature operating enmings but will result in substantial non-recurring credit to earnings in fiscal 1975. Further, it has freed up capital for use in pursuing our other planned marketing and manufacturing objectives. Because of erratic supply and rapidly escalating prices, our inventories were but of balance and higher in dollars and units tt year end thin would normally be justified by our sties level. This in turn contributed to our increased interest expanse of $1,660,000 over last year. There are now indications of a more normal supply condition developing and we expect that this situation will improve in the first half of fiscal 1975. barring another worldwide petroleum crisis. This year's results were led by the continued successful tnm-xround in our chemical operations. The Chemicals Croup before-tax operating profits this year were $8,396,000, whidi was an increase of $8,485,000 over last year's loss of $89,000. Our strategy is io continue to emphasize specialty chemical products and systems where we have particular technological strengths, as opposed to high fixed capital commodity-type chemicals. Our Auxiliaries Group also had a very good year, with pretax operating profits of $16,526,000, a gain of 51.5% over last year, and a $17,002,000 sales gain to S87.697.000. The Containers Division did particularly well with an operating profit gain of 82.2% on a sales gain of $9,017,000. Seventy-one percent of their sales are now nude outside the Sherwin-Wiltiams orgunizaiion. The reorganized Applicator Division (bo turned in a strong improvement with a 38.4% operating profit gain on a $1,159,000 sales gain. Following the trend of the capital goods industry, our Osborn Manufacturing subsidiary posted a 16.9% gain in operating profit on a S4.746.000 sales gain. As the end of the year. Osborn also had the highest backlog of oirien in the history of the Company. Hadley Adhesives had a small loss for the year as we continued to spend heavily for reorganization and marketing expansion. However, projections indicate that for next year they will be solidly in the black. 0007-SWF-035128 0007-SWP-000116549 The large Coatings Croup continued to move ahead in spite of erratic raw materia! shortages and rapidly in creasing costs not fully cohered by price increases under economic controls. In spue of these difficulties, sales increased 10.2 %to S562.943.000. Operating profit before tax increased by SI.544.0CC. This represents continued progress, particularly in the face of substantially increased raw material costs and increased expenditures for branch store expansions, advertising, and merchandising. During the last quarter of the year we were able to establish price adjustments more in line with our cost increases. This bodes well for the new year as we continue to put more resources behind our marketing program in the Coatings Group. Particularly gratifying was the 12.6% sales in crease in our branch stores and the exciting new store concepts detailed in the coatings section of this report. Sprayon Products had a most difficult year. In spite of record backlogs ail year long, the critical shortage of propellants seriously interfered with production schedules and customer shipments. This, together with the inability to raise prices as fast os material costs were increasing, led to a sales increase of $1,520,000, or 8.2%, but a decrease in pretax operating profits of 5940,000. Backlogs are still at a record high and material shortages end pricing difficulties are abating. We look forward to a return to their past record of continuing sales and profit increases in fiscal 1975. of the Executive and Finance Committees of the Board. At our annual shareholders meeting in December. Mr. It. F. Curley, Group Vice President -- Coatings, was elected a director, replacing Mr. R. F. Hennig, VicePresident -- Purchasing, who retired in August of 1974. We were saddened by the sudden death in January of Mr. W. B. Boyer, our good friend and fellow director since 1967. He served the Company well as a member of the Executive, Finance, and Audit Committees and his helpful counsel will be missed. We were fortunate that Mr. W. J. De Laneey. President and Chief Executive Officer of the Republic Steel Cor poration. agreed to accept an appointment as a director, filling the vacancy on the Board. International Operations results wert very satisfying despite continued high expenditures for plant expansion and strengthening our organization capabilities. Sales reached a new high of 518.291,000 and before-tax operating profits were S2.345.000. an increase of 29.2%. We opened a new paint manufacturing plant in Jamaica in the spring. We also announced a joint venture in Indonesia with a new plant now under construction in Djakarta. We continued our branch store expansions in Brazil, Mexico, and Europe. In May we also opened our first Modecor store in Hertogenbosch, Holland, bringing the total home decorating concept to Europe. The new fiscal year of 1974-75 promises to be just as difficult and unpredictable as the one just past. The general economic picture is very cloudy. Home construction is still sluggish. Capital remains tight and expensive. Supplies or petroleum based raw materials are approaching a more normal situation but could be changed by the major oil producing nations. An ongoing energy conser vation program has already achieved a 15*, savings. Inflation is still strongly with us. But our changes and new strategies in Chemicals and Auxiliaries are beginning to show mincreased profits in these areas. As we expand our branch store concept and add new product tines, we expect to capture a bigger share of the paint and allied The majority-owned Sherwin-Williams Company of home decorating markets. With our resources, people, and i Canada, Ltd., continued its progress with sales of 550,714.000. representing an 18.9% gain. The parent objectives we are confident of our ability to mm the challenges and continue our forward momentum. company's share of profits was $1,597,000, a 231-3% gain over last year. However. 5152.000 of this was due to a For the continued support of our customers, we are favorable currency exchange rate and 5156,000 to a gain most grateful and pledge to do our best to serve them. on the sale of a small parcel of land. We expect to continue our marketing drive and branch store program to substantially improve this operation in the coming years. At our organization meeting in December of 1973, Mr. E. C. Baldwin requested retirement as Chairman of the Board of Directors. However, we are fortunate that Mr. Baldwin agreed to remain as a director and Chairman Cleveland, Ohio October 25, 1974 PrtuJtnt 3 0007-SWP-03 5129 0007-SWP-000116550 SHU Financial Review The following table presents sales and pretax operating income for each of the operating groups for the fiscal years 1974 and 1973, and the changes that occurred in , 1974 as compared to 1973. Corporate expenses including -interest and certain general administrative expenses plus developmental expenses associated with major new pro* grams the Company is undertaking are shown separately. The tout of the income figures after deducting the corporate expenses agrees with the income before income taxes reported in the Statements of Consolidated Income. 1974 (TbouMAcb of Dollus) 197$ Chang* Cotrinfi.................................... Auxiliaries.................... -.......... Chemicals................................. Sherwia-Williaim Canada.......... Sprayon.................................... International............................. Croup lotils Corporate expenses uni!located Income before income taxes Salas S562.943 87,697 62.673 30,71*1 19,94* 18,291 sny Parent of Tout 70.2 V. la.**; 7J\ 6.3': is;; 2.3% sa&Sfc Ib c o s m Before Taxes S3933* 16,326 S.396 1.397 1,097 2345 69399 14421 355371 Parent of Total Sain 36.9*; 23.7V; 12.1 J4 2j;. ux 3.4 ; 2511.043 70,695 47,901 42.647 13.423 14.010 IWO*. 5704,729 Potent of Tool 723\ 10.0*. 63*. 6.i;; 2.6V. 2.0*; OMj. locome Before Ttxea S38.094 10,90? 432 2,037 MIS 53.246 -9.357 343,339 Parent of Total 71.5*. 20.5*. -1*. .9*. 3**,. 3.4*. 1004% Seles S5I.395 l`.002 1V2 1.061 t,s:o 4.2SI S47,sy Income Before Twee 5 1.544 5.614 1,115 **40 550 16.553 -4.664 3II.6S9 Sales Consolidated net sales tn fiscal year 1974 amounted to Sg02.266.000 compared to S704.729.000 in 1973. This is a record high and represents a I3.S *; increase over the prior year. Income Consolidated net income totalled S29.279.000 or 55.24 per common share after providing Tor preferred dividends. This also sets a new record. These results compare to fiscal 1973 net income of S24.S02.006 or S4.36 per common share after providing for preferred dividends. Currency Concersion The changing value of various currencies vis-a-vis the dollar creates some adjustments to the final profits as a consequence of converting local currencies to dollar values. In total, the net effect on 1974 after-tax income 4 was an addition of approximately lc per common share compared to an additjon of approximately 2c per common share in 1973. The change in the currency conversion rate and the conversion itself had a modestly distorting effect in reporting the sales and income of The Sherwin-Williams Company of Canada, Limited. In fiscal 1973, the parent company's share of the Canadian company's pretax income of S4I2-000 as reported in the table, had been reduced by approximately St73.000 due to an unfavorable exchange rata. In fiscal 1974, the parent company's'share of pretax income of 51,597,000 as reported in the table, included approximately S 152,000 due to a favorable currency exchange rate. Taxes The provision for U. S. and foreign income taxes for fiscal year 1974 amounts to 526.299.000. Taxes other than Federal and foreign income taxes continued to rise. In total, these other taxes amounted to S20.S29.000. np from SI9.034.000 in 1973. 0007-SWP-035130 0007-SWP-000116551 Financial Raviaw Dividends Tout dividends of St l,84*,000 were declared ia fiscal 1974. Dividends on common stock amounted to 110,746,000 and dividends on preferred stock amounted to SI,10X000. Common stock cash dividends for fiscal 1974 were at the annual rate; ofSXOO per common sham. Meeting on October 24, 1974, thc Board of Directors voted a 10% increase in the common stock cash dividend payable November 18,1974 to holders of record on November 4, 1974. The Company has paid dividends in every year since 188S. Capital Expenditures Expenditures during fiscal year 1974 for property, plan! and equipment amounted to *20,553,000, compared with SI6,04X000 in fiscal 1973. The budget for the 1973 fiscal year provides for an increase in expenditures to n level or just over $47,000,000, A major portion of the increase represents proposed expenditures for new and enlarged manufacturing facilities and further expansion and modernisation of our branch store system. Depreciation in fiscal 1974 was Si3,555,000 compared to $1X169,000 in fiscal 1973. General Financial Condition Working capital at August 31, 1974 amounted to S227.626.000, up from $216,849,000 ia 1973. The ratio of current assets to current liabilities was X7S to 1. The current ratio is down from last year due to the higher level ofinventories and receivables, and the short term borrowings required to support them. Accounts receivable increased more than normal primarily as a result of higher sales levels and heavy sales volume during the last few weeks of the fiscal year in certain segments of our business. Abo, there was indication ofsome minor slowdown in payments by customers during the late months of the year. Credit losses continued to be well within a normal and acceptable range. Due to rapidly rising raw material prices and other costs associated with manufacturing (including disruptions and some temporary stockpiling caused by shortages), inventories increased by an amount of $36,500,000 over last year. While some important raw sjiateriils remain in short supply, the situation, in general, is improving. During the 1974 fiscal year, SI,935,000 principal amount of the Company's 5.45% Debentures Due 1992 were repurchased by the Company, bringing total repurchases to 310,165,000 principal amount lit April 1974,3X000,000 in principal amount of these bonds were used to meet the second annual sinking fluid payment. At August 31, 1974, $6,185,000 principal amount of bonds were held in the Treasury. It is die present intention of the Company to use such bonds to meet future sinking fund requirements. In October 1974, the Ashtabula tiunium dioxide operations were sold for approximately $30,000,000. The capital thus generated becomes available for use in other anas of our business. Revolving Credit Agreement On September 3. 1974, the Company entered into a $75,000,000, seven-year credit agreement with a group of nine banks. The agreement establishes a three-year standby credit, permitting the Company to barrow and repay as requirements dictite during the period ending October 3, 1977. On that date, the Company wilt have the option to convert all or any part of the outstanding borrowings to a four-year term loan. This agreement supplements other normal bank credit lines available to the Company. Pension Plans Substantially all employees of the Company and its domestic subsidiaries participate in non-contributory pension plans. The Company's pension expense for fiscal 1974 was 59,063,000, compared to $6,937,000 in 1973. Employees Stock Purchase and Savings Plan Slightly more than 7,i00 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 of directing that their contributions be invested in amounts tanging from 50% in the Common Slock of the Company and 50% in Federal government securities, up to 100 % in the Company's Common Stock. The Company, in turn, contributed to the fund an amount equal to 25% of the employees' contributions and all such contributions were invested in the Company's Common Stock. At August 31, 1974,451,682 shares of Common Stock, representing approximately 8.4% of the total number of shares outstanding, were held in this employee fund. 0007-SWP-035131 0007-SWP-000116552 THE SHERWIN-WILLIAMS COMPANY ANO SUBSIDIARIES Statements of Consolidated Income Net sales........................................................... Other income--net........................................... Costs and expenses: Cost of products sold................................... Selling, general and administrative expenses Interest............................................... .... Income taxes: Payable currently. Deferred . . . . Income Before Income Taxes Net income per share of Common Stock: Primary.................................................... Fully diluted............................................ Net Income ThtMutmit tj DolUrt Year Ended August 3 t 1974 $802,266 1,993 804,259 1973 $704,729 2,109 706,838 513,713 226,884 8,084 748,681 451.27$ 205.250 ___6,424 662,949 55,578 i ! 43,889 22,361 3,938 26,299 J i 16,126 3,261 19.387 i 29,279 | ' S 24,302 'i S 5.24 ; S 4,36 5 4.59 j S 3.87 See notes to consolidated financial statements. Accountants' Report Board of Directors The Sherwin-Williams Company Cleveland, Ohio We have examined the consolidated financial statements of The Sherwhs-WOUams Company and subsidiaries for the years ended August 31,1974 and 1973. Our examinations were made in accordance with (enereJIy accepted i auditingstandards, and aosordmilyincluded such testa ofthe accounting records and such other auditing procedural is we considered aecetrery in the circumstances. t In our opinion, the accompanying balance sheets and statements of income, shareholders' equity, and changes in financial position pwwnr fairly the consoiidatad financial position of The Sherwin-WBfiams Company and subsidiaries at August 31, 1974 and 1973, and the consoUdated results of their operations, changes in shareholders' equity, and changes in finaadai position for the yean then ended, in conformity with generally accepted accounting principles applied or a consistent basis. Cleveland, Ohio October 16,1974 0007-SWP-035132 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES Statements of Changes In Consolidated Financial Position Scores of Foods From operations: Net income . ...... .................................. . .................... Add back charges to operations not requiring funds: Provision for depreciation.................................................................. Increase in noncurrent deferred income taxes................ Funds Provided From Operations............................................... Proceeds from sale of stock under stock option plan........................... Applieatiao oj Foods Cash dividends.............................................................................................. Additions to property, plant and equipment, net of normal retirements...................................................................... Purchase of 5.45 % debentures.................... ?.......................................... Increase in working capital...................................................................... Other--net................................................... -....................... Tbeosands aj Dollars Year Ended August 3 l 1974 197) S 29.279 13,353 2,724 45.558 0* $4*538 S 24,502 12,869 2.335 39,706 1,218 S 11,848 19,242 1,955 10,777 1,736 S 45,558 S 11,838 15.669 4.465 8.593 359 S 40,924 Ckaogat so Wmrtiog Capital--Increase (Decrease) Cash and short-term investments.............................................................. Trade accounts receivable....................................... .................................. Inventories.................................................................................................. Short-term borrowings.............................................................................. Trade accounts payable ........................................................... Compensation and amounts withheld . ............................................... Pension, interest and other accruals........................................................... Income taxes................................................................................................. Other--net.................................................................................................. Increase In Working Capital 5(11,707) 21,890 56,525 (29,742) (10,949) (2,665) (10,486) (2.591) 502 S 10,777 I (2.342) 11.071 5,907 (3.162) (2,059) (1,799) 5,027 (3.654) (396) S 8.593 B C c < See notes to consolidated financial statements. 0007-SWP-035133 0007-SWP-000116554 THE SHERWIN-WILLIAMS COMPANYAND SUBSIDIARIES Statements of Consolidated Shareholders' Equity Balance at September t, 1972 ............................................... Common Stock issued: 28.276 shares upon exercise of stock options; and, 93 and 992 shares upon conversion of 54 and 620 shares of Series A and Series B preferred stock, respectively........................................... Subsidiary's repurchase of its preferred shares ...... Net income.............................................................................. Cash dividends declared: Senes A preferred stock--$4.00 per share........................ Series B preferred stock--$4.40 per share........................ Common--$2.00 per share.................................................. Balassa at August St, 1973 Subsidiary's repurchase of its preferred shares.................... Net income................ .................................. Cash dividends declared: Series A preferred stock--$4.00 per share........................ Series B preferred stock--54.40 per share........................ Common--$2.00 per share................................................... Balassa at August 31, 1974 Serial Preferred Stock Thousands tj Dullart Common Stock Ocher Capital Retained Earnings Common Stock in Treasury 5 9.154 S 33,540 $3,506 $ 203,712 $(690) (24) -- -- 184 -- -- 1,058 39 -- -- (34) 24,502 -- -- -- _ -- 9,130 -- -- -- -- $ 9,130 _ -- -- 33,724 -- -- _ -- -- $ 33,72* -- --- 4,603 91 -- (291) (811) (10,736) 216.342 (82) 29,279 -- -- (690) -- -- _ -- -- $4,694 (291) (BID (10.746) $ 233.691 __ -- -- 5(690) See notes to consolidated financial statements. O007-SWP-035134 a 0007-SWP-000116555 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES Consolidated Balance Sheets Assets Cmrmt Assets Cash................................................................... .......................................... Short-term investments.............................................................................. Trade accounts receivable, less allowances (52,007 in 1974: Sl,637in 1973) . ....................... Inventories: Finished products..................................................... .. . . Work in process and raw materials....................................................... Prepaid expenses....................... ....... Total Current Assets Other Assets Receivables, advances and other assets ........................ .......................... Cost in excess of net assets of businesses acquired........................... Pnyerty, Plmmt atU Eqmipmtnt Land............................................................................................................. Buildings..................................................................................................... Machinery and equipment........................................................................... Less allowances for depreciation.............................................................. Liabilities and Shareholders' Equity Cmrmt Liabilities Short-term borrowings....................... ...................................................... Trade accounts payable.............................................................................. Compensation and amounts withheld....................................................... Pension, interest and other accruals........................................................ Taxes, other than income taxes....................................... .................... Income taxes................................................................................................. Long-Term Deist Total Current Liabilities 5.45% Debentures (exclusive of 56,185 in treasury in 1974: SIS.230 in 1973)............................... 6.25% Convertible subordinated debentures ... .................... Deferred Income Tastes........................................ Resems--forpensions rWother itesns. . . Minority Imtorott to Subsidiaries..................... Shareholders' Equity Capital stock: Serial Preferred--without par value. Common--56.25 par value................ Other capital........................................... Retained earnings................................ Less cost of Common Stock in treasury See notes to consolidated financial statements. Thousands of Dollars August 31 1974 S 4.065 1,000 121,298 138,638 84.709 223,347 7,699 357,409 6,096 2,324 8,420 6,025 83,707 185,530 275,262 125.528 149,734 1973 S 12.671 4,101 99,408 113,811 53,011 166,842 6.695 289,697 4.737 2,324 7,061 6,004 80,631 173,312 259,947 115,900 144.047 S440.805 S 36.346 36,728 21,650 21,297 5,861 7,901 129,783 39,815 40,000 79jl5 13,827 5,902 5,687 j l S 6,604 25.779 18,985 10,811 5.359 5,310 72.848 41.770 40.000 81.7)0 11,103 6,376 5,599 9,130 33,724 4,694 233,691 281,239 690 280.549 15,563 9,130 33,724 4,603 216,342 263,799 690 ~263,i09 *440,805 0007-SWP-035135 9 0007-SWP-000116556 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended August 31, 1974 and 1973 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include all signifi cant subsidiaries and intercompany transactions have been eliminated. Current assets and current liabilities offoreign subsidiar ies are translated at the rates of exchange in effect at the dose of the period. All other assets, liabilities and share holders' equity are translated at historical rates of exchange. Revenue and expense accounts art transitted at the rates in effect at the close of the period, except for depredation which is translated at the rates in effect when the respective assets were acquired. Gains or losses from foreign currency translations are included in other income. The Company has recognized the deferred income lax liabilities and benefits resulting from liming differences between financial and tax accounting, relating principally to depreciation and reserves. It is the Company's intention to reinvest undistributed earnings of foreign subsidiaries: accordingly, no deferred income taxes have been provided thereon. At August It. 1974, such undistributed earnings amounted to approximately $16,264,000. Investment tax credits (accounted for by the flow-through method) aggregated $982,000 in.1974 and $869,000 in 1973. 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 lives, computed principally by the straight-line method. inventories are stated at lower ofcost (average or first-in, first-out method) or market. Short-term investments are stated at cost which approxi mates market. Cost in excess of net assets of businesses acqnlred is not being amortized because in the opinion of management there has been no decrease in value. Research and developmcntcosts are charged to operations as incurred. NOTE B-LOXG-TERM DEBT The 5.45% Debentures Due 1992 and the 6.25% Con vertible Subordinated Debentures Due 1995 are redeemable in whole or in part at the option of the Company at the rates of 103.25% and 103.00%, respectively, and at dedining rates to 100% in 1987 ihd 1990, respectively. The related in dentures require annual sinkingftmd payments of$2,000,000 for each of the issues. The 1974 requirement of $2,000,000 on the 5.45% Debentures was satisfied from debentures held in treasury, and the Company intends to make the (975 payment in the same manner. Annual sinking fund payments will commence in 1981 for the 6J5% Debentures. These Debentures are convertible into Common Stock at $46 a share subject to adjustment in certain events. 10 NOTE C-CAPITAL STOCK Authorized and issued shares or the various classes of stock at August 31, 1974 and 1973: Authorized Shares Issued Shares 1974 1973 Serial Preferred Stock: $4.00 Cumulative Convertible Pre ferred Stock, Series A .... 1,500,000 $4.40 Cumulative Convertible Pre ferred Stock, Series B . . . . Common Stock (including 22,500 shares held in treasury in 1974 and 1973)................ 15.000.000 72,697 184,293 5,395.780 72,697 184,291 5.395,780 The shares of Series A and Series B preferred stock are convertible at base conversion prices of $57.93 and 562.50 per share ofCommon Stock, respectively, based on a value of $100 per share or preferred stock for this purpose. The holders of the preferred stock era entitled to one vote for each share. The Company may redeem the Senes A preferred stock until Match 1975 at $103.00 per share and declining an nually to $100 per share in 1980 and thereafter, and the Series B preferred stock at $104.40 until December 1974 and at declining amounts to $100 in 1981 and thereafter. The aggregate preference of the Serial Preferred Stock in involuntary liquidation for 1974 and 1973 is $25,699,000. At August 31, 1974 and 1973, an aggregate of 1,569,728 shares and 1,576,971 shares, respectively, were reserved for conversion of Serial Preferred Stock, Convertible Subordi nated Debentures and exercise of stock options. NOTE D-NET INCOME PEB COMMON SHARE Primary net income per common share has been com puted based on the avenge number of shares outstanding during the year after deducting from net income the dividend requirements of the Serial Preferred Stock. Fully diluted net income per common share assumes the conversion of Series A and B preferred stock and 6.25% Convertible Subordinated Debentures {after adding to net income interest on the debentures net of income taxes) and exercise of dilutive outsanding stock opiions- 0007-SWP-035136 I NOTE E-RETIREMENT FLANS Substantially all employees of the Company and its domestic and Canadian subsidiaries who meet certain re quirements as to aye and length of service, participate in non-contributory pension plans. The Company's policy is to accrue pension fond contributions, representing normal cost and amortization of unfonded prior service cost over 30 yean. Pension expense was 19,063,000 ia 1974 and 16,937,000 in 1973. The increase in pension expense result ed principally from increased benefits. For three of the plans in 1974, the acCuariaUy computed value of vetted benefits at the most meant actuarial determination date exceeded the assets of the pension fund and the related balance sheet accrual by approximately 58,500,000, For the other plana, vested benefits are fully funded. NOTE F--LEASES {Thotatmh ofDothrs) Tottl rental expense, primarily for retail stoma, ware houses end equipment for the yean ended August 31 amounted to: 1974 1973 Financing leases: Minimum rentals . .................... 5 5,330 Contingent rentals . . Operating leases: Minimum rentals . .................... Contingent rentals. , 5,830 19,138 5 3,369 259 3.62B 17,117 2.297 26,262 19,414 Total rental expense................ 532,112 523J042 The contingent rentals are based on additional usage of equipment and agreements based on sales in excess of specified miaimums. The future minimum rental commitments as ofAugust 31, 1974 for all noneancelable leases am as follows: 1975 1976 1977 1978 1979 . 1980-1984 1985-1989 1990-1994 Thereafter Total 5 20,126 14,570 10,444 7,432 4,567 9,864 1,929 1,133 1,087 Financing 1 niff 5 4,645 2,794 1,549 849 566 2,178 1,634 1,228 1,113 Operating LctMt $ 15,481 11,776 8.895 6,583 4,001 7,686 295 (95) (26) The majority of the leases have renewal options beyond the current lease expiration dates. The present value of noncapitalized financing leases is not material. Likewise, the impact on net income if such leases had been capitalized would not be material. NOTE G-STOCK OPTIONS Under the Company's stock option plan for certain ofllcen and key employees, options are granted nt prices net less than fhir market value of the sham at data ofgnuu and become exercisable to the extent ofone-half or one-fifth of the optioned sham for each foil year or employment following the date of grant, expiring five or ten years after date of grant. No options were granted in 1974 or 1973, Stock option transactions for the two years ended August 31, am as follows: 1974 1973 Aggregate Aggregate Sham Price Sham Price Options out standing-- beginning ofyear 183,176 57,304,729 223,632 39,044,455 Exercised -O- -O- (28,276) (1,217,784) Cancelled (31.910) (1,480,988) (12,180) (321,942) Options out standing-- end of year 151.266 55,823,741 183,1TO 57,304,729 * Options for 88,186 sham (83,426 in 1973) were exercis able. and 128,338 sham (96,62* in 1973) were reserved for foture grants. NOTE H--SUBSEQUENT EVENTS On September 3, 1974, the Company entered into a 375,000,000, seven-year credit agreement with a group of nine beaks. The agreement establishes a three-year stand by credit, permitting the Company to borrov' ind repay as its requirements dictate during tbe period ending October 3, 1977. On that date, the Company will have the option to convert all or any part of the outstanding borrowings to a four-year tam Icon. On October II, 1974, the Company sold alt a substantial gain its titanium dioxide pigment operations located at Ashtabula, Ohio. 0007-SWP-035137 11 0007-SWP-000116558 THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES EoratepaodDfrldfadsPtrCoMMBSIun IN DOLLARS WTO \m IfTi 1ST* B nCcxAiHvTNAO1 duna L-J OSORSeiATION 1074 DboNtfaEIPr4Xlcow IN MILLIONS RETAINED EARNINGS ' Dtorftotbi ofTotalAmnoo YEAR ENDED AUGUST 31, 1974 t axes ON INCOME *U7 Mmw w Ii, mt iw Mi ottar c mv fNm Nmih -- 4, M TiwlailMnlHw MMOu miI Vs. I? WspK. u Imm and 0007-SWP-035138 0007-SWP-000116559 THE SHERWIN-WIUJAMS COMPANYAND SUBSIDIARIES Five-Year Comparison , Net sales........................................................... ... . Income before income taxes and extraordinary items............................................... Income taxes........................................................... Income before extraordinary items........................ Extraordinary (charge) credit............................... Net income...................................................... . . Earninp per share ofCommon Stock: Income before extraordinary items .................... Net income................................... ....................... Earnings as percent of sales.................................... Return on invested capital--Common Stock (A) . Cash dividends declared: Preferred............................................................... Common ! i * Cash dividends ptr short or Common Stock................................................... Number of shareholders: Preferred............................................................... Common (B)....................................................... Preferred and common shareholders* equity . . . Common shareholders' equity................................ Per share............................................................... Capital expenditures............................................... Provision far depreciation........................................ Working capital....................................................... Ratio ofcurrent assets to current liabilities . . . Total assets............................................................... Number ofemployees............................................ 1974 $802,266 TitMuntJs of DoUm Year Ended August 31 1973 5704,729 1972 5658,28! 1971 $590,969 1970 5559,924 55.578 26,299 29079 -O29,279 43.889 38,745 29,404 `WW, 18048 24,502 ^ 20,497 . 14,063 15,341 -o-' *x (2060) 24002'^ 18,237'. -015,341 29,541 14,689 14,852 1,745 16,597 ' 5.24 . 5.24 3.65% 11.87% : 406 4J6 3.48 ^ 10.47% : 3.63 301 2.77% 7.94% 2.68 2.68 160% 6.72% 2.58 2.91 2.96% 746% 10,746 S 1,102 IO;736 S 1,107 10,659 S 1,110 10,631 $ 1,110 10,657 2.00 2.00 2.00 2.00 2.00 1,024 10,423 S280.549 254,850 47.43 20.553 13,555 227,626 2.75 to 1 $515,563 22,080 1,018 9,852 5263.109 237,410 44.23 16.042 12,869 216,849 3.98 to t 5440,805 21,646 1,030 9,353 $249,222 223,456 41.94 17.354 12,519 208456 43)5 to 1 $424,631 21.908 1,027 9,903 $241,680 215,788 40.60 13.278 12,333 201423 4.35 to 1 $411,164 21.480 1,078 8,996 $237,721 211,828 39.75 15.900 11,061 197,318 4.22 to 1 $408,152 22,017 (A) Based on common shareholders' equity at beginning of yew. (B) In addition to the registered shareholders, these were beneficial shareholders participating in the Company's Stock Purchase and Savings Plan for salaried employees (7,106 in 1974; 5,793 in 1973; 6,732 in 1972; 6.802 in 1971: and 7,068 in 1970). I I t 0007-SHP--035139 0007-SWP-000116560 I 0007-SWP-000116561 in , New Pace for the Future For the second time in its 108*year history, your company has adopted a new corporate ^symbol As was the case when the familiar f"cover-the-earth" trademark replaced the ^original chameleon mounted on an artist's tpaktte early in this century, the change has been dictated by the new directions in which the company is moving. We are no longer only a producer and marketer of coatings. We are also significantly involved in such varied fields as chemicals, aerosol packaging, adhesives, metal containers, coatings application tools, graphic arts services, power driven brushes and grinding wheels and foundry equipment and supplies. And our horizons are expanding further as we move aggressively into decorating materials and services, creative packaging and highly specialized chemicals. Such diversity clearly calls for a new identifi cation symbol that more accurately reflects the new dynamics of yow company. We believe the straight-forward statement of the company name as a symbol accomplishes this aim. Intensive, in-depth research among people with whom we do business and with whom we expect to do business led to this conclusion. Since the symbol is not oriented to a specific product, it lends itself to the broad application required by our thrust into multiple fields of activity. At the same time, the new symbol provides immediate corporate identification for all the many facets of the business. Research also revealed that the new symbol lends further credibility to your company's emerging posture as more than a paint company -- and a company that is modern, colorful, diversified and whose reputation for quality products and services is strengthened by a strong commitment to innovation. 1 0007--SWP--035141 is From an investment standpoint, the new symbol preserves and increases the equity built up over many years in the name SherwinWilliams itself. Sustained effort through more than a century has earned ready recognition of our name as synonomous with financial acumen and reliability. The added emphasis given the corporate name as our corporate symbol enhances the equity that name has come to represent. The new symbol wifi identify SherwinWilliams in all areas and in all fields in which we operate. However, for very practical reasons. the change in identification will not become immediately evident everywhere at once, ft is planned that the total change will require a considerable period of time so it may be accomplished in an orderly, effective and fiscally-responsible manner. That change is already underway. Pictured on this and preceding pages are some of the company facilities on which the new identification will soon be seen -- telling the public who we are in a way that is readily understandable and truly reflective of our attitude toward serving our customers. TIm mw corpora* idrnriSetiion will toon bt fcom coax to cout on A* Sb*rwin-VVitlimi Im of truck* ui oclwr nUcto. 0007-SWP-035142 0007-SWP-000116563 ggHH The Year in Review Operations in fiscal 1974 continued to reflect the commitment to planned change which has shaped ail our activity over a considerable period. The objective has been to develop new, more efficient ways to achieve goals so the market-place might be served more effectively. One instance of this determination was the creation of a new marketing position, senior vice president -- marketing, with responsibility for corporate-wide marketing guidance. This move casts our approach to marketing into a broader mold designed to streamline and unify total marketing effort. Further evidence of change is found in the business-area reports that follow. The Coatings, Auxiliaries and Chemicals Groups, The Sherwin-Williams Co. of Canada, Ltd., Sprayon Products, Inc. and International Operations have all made solid progress toward the common goal of providing customers the products and services they want, when and where they want them. Production facilities have supported these moves with effective effort that brought new production records in a number of product categories despite perva sive raw materials shortages. The aim of all innovation continues to be the improvement of service to customers. This challenges researchers to find new materials and processes; marketers to anticipate customer requirements and have products available to meet them; and production people to develop new and unproved techniques that result in greater efficiency. Constant movement toward the goal of customer satisfaction serves all participants in this enterprise -- shareholders, employees and customers -- well. And insures that the company will continue to be able to fulfill its role as a responsible corporate citizen. 17 0007-SWP-035143 0007-SWP-000116564 i lit many Sharwia-WUltama mail atom full-timt coanluau now ad c--n with thair dacoradap probtami, larpa and amall. Thaw aooaultaata, who haa adoptad tba promotional aama ^Shirlay Williama", da*ota a tarpa than of tkair lima to maedap IS with ibt cunoawr in tba homa.Han.tlia homamakotr and Shirtar ViUltnu eu ulKtlmm aampita of paint, mil and floor cocariiapa andaccaaaoriaauadariba lipfcoap and in tba aaniap whara tha producta wall ultimatalr ka uaad. 0007-SWP-035144 0007-SWP-000116565 The Coatings Group DemandTor the product* arid services of the Coatings Croup this year was at an all-time high. Sales were up 10.2j. while pretax operating profit rose 4.1 A recurring area of concern continued to be the availability of raw materials. As urtous shortages developed, we were forced to break production runs and adjust manufacturing schedules in the interest of turning out as much product as possible: unfortunately, this was often done at the expense of the most efficient production practices, in spite of these problems, unit production increased 11V,. led by a 15.9 increase in emulsion coatings. It has become clear that we must increase our productive capacity. Accordingly, our long-range plan calls for construction of three new coatings plants. We have begun construction of the first plant in Richmond, Kentucky: plans for the others are in preliminary stages. The company-owned and -operated branch store is the key element in the Sherwin-Williams marketing concept. We continue to direct a major effort to upgrading and expanding our branch stores. During the year, 32 new units were opened: 24 were closed: and 30 relocated, resulting in a total of 1.786 in operation at year end. In addition. 242 stores were either remodeled or expanded. As a result of these efforts, we again increased total store square footage. More importantly, we are making more efficient use of space through better merchandising practices and our improved distribution system which has reduced the need for warehousing space in the branches. In March of this year, the company introduced a new approach to strengthening our retail marketing position. Initially. 96 stores in seven markets across the country are participating. Each of these stores is undertaking a tool retail merchandising effort which includes expanded and consistent advertising, broadened product lines, tout in-house decorating service plus special promotions and in-depth personnel training. During the last six months of the fiscal year the partici pating branch stores accomplished a gain in retail sales substanu'ally above that for all stores. An additional 80 branches will participate in 197$ to permit further development in this early soge ofthis continuing program. The longer-range consumer product interests of the company led us within the last year to undertake an in-depth analysts of what is happening within the home decorating market both here and abroad and how we can best relate to present and future market trends. Our studies included research with actual customers, panel discussions, analysis of store design and research on new products expected to be marketed in the future. As e result of these efforts, we have developed e new concept in reuil marketing which will be introduced in early I97S in the form of a revolutionary new prototype store: Sherwin-Williams Decorating World. This first store, to be located in Charlotte. North Carolina, will be about six times larger than our typical retail store and will be designed to appeal to the desires of today's consumer who demands a single source for all decorating needs and related services. The products to be carried at Decorating World will be vastly broadened to include such diverse lines as electrical hardware, arts end crafts, decorative gifts, kitchen and bath accessories, and ready-to-finish furniture. The store design will be as different ts the products carried, utilizing a module concept with display areas for each product line, selection and conference areas, "how-to-do-it" information centers and a child care center. We believe Sherwin-Williams Decorating World affords us an exceptional opportunity for further expansion of our services to consumers. In terms of real growth, the doubling of rales of professional coatings over the past six years stands out as a major achievement. During the past year we benefited from the diverse mix of customers and industries who purchased professional coatings at our commercial branch stores. Our increasingly effective architectural consultant program has put us in close contact with the important architectural firms in the In-store consultation with the customer in still an important parr ofch* mat Sherwin-Srilliema mail marketing philosophy. When Shirtejr WiUiems it not consulting in the customer's boms, ah* will be (bead in the store training visitors, answering decoratieg questions and aiding in material selection. 0007-SWP-035145 19 0007-SWP-000116566 T country Professionals in these firms are well aware of our abilities to assist in such phases of decorating as coatings, floor coverings and wallcoverings. The color styling oflarge corporate offices, manufacturing plants, schools, universities and hospitals was also an important factor in our growth this year. SaJes to the small and medium size painting contractor also increased. As new housing starts declined, there has been more than offsetting increase in the extenor and interior remodeling and home maintenance business, where the painting contractors play such an important role. The industrial maintenance market continued to grow. Of considerable importance to this growth is the heavy emphasis being placed on enhancing the industrial environment and the continued stress on plant safety. Sales of finishes for industrial products (also frequently referred to as chemical coatings) continued upward this year. The powder coalings plant in Pontiac, Illinois, which originally came on stream in fiscal 1973 completed an expansion program which increased its capacity by one-third. The country's continuing emphasis on air pollution and energy conservation programs makes these products particularly attractive. These same considerations suggest thatihe brightest future for coil coatings lies with high solids and waterbased systems product lines and with electro-deposition materials. In addition to providing, in many cases, a more uniform finish, these products help alleviate pollution problems in customer plants. New selective marketing techniques in the coil coaungs field have resulted in improved customer service. The recently implemented concept of product manager re sponsibility in this area convincingly demonstrated its effectiveness during fiscal! 974. A high point of interest in chemical coalings was the development of our "Monochromatic System" for color matching many types of finishes either at our commercial branches or in our customers' plants. This ability to blend quickly small quantities to the user's specifications is an obvious customer benefit. It also helps decrease the number of small, special blending orders ac our plants. Two chemical coatings products of interest to the automotive original equipment manufacturers are new water systems for underhood parts and Poland system-, for application on plastics and other nonferrou-i materials. Our automotive wflnishes go to markec under the Sherwin-Williams. Martin-Senour. Acme and Rogers names. During the past year three new automotive refinishes centers were opened, bringing to 56 the number of centers now in operation. Sales at these centers continue to increase through improved merchandising efforts aad through additions to the product lines handled. Bold new concepts exit for unique visual treatments. Thu frush ur- World symboliies the marketing approaches are will introduce chnectural styling of the prototype Shenria-William* Decorating when the first store opens in serly 19TS. 00D7-SWP-035146 0007-SWP-000116567 Capital investment during the year amounted to approximately SI0.S05.00O, compared to expenditures of $6,762,000 in 1973. During the current fiscal year we expect capital expenditures to increase to $26,000,000, as we begin construction or one new coatings plant and expand our consumer product business with the enlargement and addition of retail branches. During the past year mutually satisfactory labor relations were maintained at all of the group's 13 plants. Negotiations will be conducted at 4 plants in fiscal 197S. The emphasis of the Coatings Gronp research and development operation has this year been primarily on one aim: searching for substitute raw materials and new formulation methods to continue to satisfy the market place in a time ofwidespread critical shortages of many of our basic raw materials. Advertising and merchandising efforts this year were highlighted by the expanding of the decorator consultant staff. Over 600 of pur retail stores now have a full-time consultant who is promoted under the "Shirley Williams" name. To tie in with this theme, our advertising is more heavily oriented towards "helping people solve problems." The consultant staff Is expected lo increase by 460 in fiscal 197$. The Auxiliaries Group Sales of the Auxiliaries Croup were at a record high this year, up 24.0% over the previous year, and pretax operating profit improved SI.5% as pricing eased in the second half of fiscal 1974. Every division and subsidiary within the group contributed positively. Metal container sales were up 22.$% over fiscal 1973 as a result of not only greater sales from established accounts, but also the securing of profitable new business. Pnmery growth products were aerosol and paint cans. This trend is expected to continue, affected only by our ability to secure sufficient supplies of steel to keep our production lines running efficiently. Approximately 71 % of the metaf container division's shipments were to outside customers with the balance going to the Coatings Croup. During 1974 we began a planned program of replacing container press equipment. This will be carried through over the next two yeah. In the year ahead, a new quart container tine will be in operation at Hubbard. Ohio. At our Elgin plant we have installed high energy ultra violet cure equipment on one of our metal decorating lines. This will be a major help in meeting our antipollution objectives in 197$. 0007-SWP-035147 0007-SWP-000116568 Sales or the Osborn Manufacturing Co. both here and in Europe were up 21.4 ", over the previous year and represent 30.7 V, of total group sales All product lines showed improvement, however, foundry equipment was particularly strong Late in (he fiscal year, a major modernization program began at Osborn's Cleveland plant where approximately 10", more production space will be added. The Rosc-Osbom joint venture announced last year has made excellent progress in producing formed steel parts to be used in place of castings. A major European vehicle manufacturer has approved prototype parts, and two other European customers have expressed continuing interest. Production runs will begin in the near future. During the year we set up a new applicator division consisting of the Rubbenct Co. division, the Rubberset Co. (Canada) Ltd. and Destrier Products to make a more effective and concentrated effort to grow profitably. This new division accounted for 10.4% of total group sales. As m most operations, raw material shortages were the applicator division's biggest problem. The Rubberset Co. (Canada) is presently introducing its "Numetric" line of paint brushes which will be sized in millimeters rather than inches. We are setting a trend for the industry and expect to test market the line in the United States next year. Dd -u ^w imUc h discover tin worry-frv# answer to project* web ss purling a recreeiton room when ibty use Tiger-Grip* con struction adhesive. This easy-to-use produce is Mt el e line of adhesives and sealant* for home and industry manufactured by Hadley Adbeaivct. 22 Additional new equipment, including several high-speed presses, was installed at the Graphic Arts Services Division. Highlighting the year was the installation of a unique new Color-Flo machine designed to produce color sample cards more quickly and efficiently than has been possible in the past. This machine, the first of its kind anywhere, will en able us to make our own color sample cards more econom ically and increase our opportunities for external sales. Capital expenditures by the group amounted to 53.206.000 in fiscal 1974. These are scheduled to increase to S6.100.000 next year, with a rngjor portion being used to cover container division and Osborn Manufacturing Co. expansion as well as to meet occupational safety and environmental protection requirements, Hadley Adhesives, acquired late in fiscal 1973. continues to be operated as a new venture. However, sales and earnings are included in the financial review of the Auxiliaries Group, the venture experienced a small loss during the year due to increased costs that could not be completely olfset by price adjustments plus costs associated with restructuring the business to mesh with our long-range strategies. The restructuring of the business coupled w uh a realign ment of the adhesive/sealant product mix and expansion of marketing facilities are expected to bringawrafavorablt results in fiscal 1973. The Chemicals Group This has been a record year for the Chemicals Group with sales climbing 30.8% to an all-time high and pretax operating profit rising to 88.396,000 compared to an 889.000 loss in fiscal 1973. This dramatically improved performance would have been even better if several critical raw material and energy shortages had not held output below physical capacity. The domestic demand for para-cresol, a key ingredient in the production of widely used anti-oxidanu. continues to exceed supply. The substantial increases in production of this criticnl product at our Chicago plant, achieved by improved production methods and technical refine ments. are still insufficient for the demand. Therefore our previously announced plan to enter manuficture of anti-oxidants has been deferred ia fhvor of adding still mow para-cresol capacity. A multi-million dollar addition, scheduled for completion in the second quarter of calendar 1976, will provide additional output in stages and adequate supplies for the foreseeable future. These facilities could, if necessary, also be used for the production of related products. Demand for our saccharin has increased many fold in recent years. Our Cineiouati plant has a major program underway to provide ample saccharin capacity by early 1976. In conjunction with this, we are also expanding isatoie anhydride and methyl anthranilate capacity to satisfy their diverse and growing markets. 0007-SWP-035148 a-* ) 0007-SWP-000116569 Two product systems announced by the Textile Chemical Division continue to gam acceptance. Our ICem-Lok'* products are widely used in decorating fire retardant children's sleepwear. Our unique water-based systems for printing non-porous surfaces is showing promising results. WithTull commercialization, we will supply manufacturers of wall and floor coverings, as well as other processors of plastic films. Our Fine Chemicals facility continues to support our diversification program an$ supplies 30 organic chemicals to the Flavor and Fragrance Division, plastics, photo copy, photographic and agricultural chemical industries. Most of these products are now derived from our main stream organic produets. The Flavor and Fragrance Division is exploring a number of opportunities in aroma chemicals, foods and confections and has its expanded staff concentrating on these fields. Capital expenditures for the coming year will be approximately S5,900,000, up from 54,066,000 this year. The major portion of the investment will be at Cincinnati and Chicago where manufacturing expansions and cost reduction programs are underway. All plants have important programs to reduce effluents and to improve in-plant working conditions. The rapidly changing availability and costs of fuels have resulted in programs at all plants to reduce usage and to provide alternative schemes to sustain operation. Sberdye'.oae of the many Sherwia-VIlluat fabric printing metedait marketed by our textile chemicals division, is widely used in the semile industry. Brightly colored dresses nude from Sherdye* imprinted fabric ere eoid in specialty shope end department stores acroea the country. sag Sherwin-Williams Canada Sales of the Canadian subsidiary rose 18.9% and income from operations climbed 75.7% in fiscal 1974. In addition to an increase in paint sales, products such as wall coverings and other related decorating and maintenance products made a substantial contribution to the rales gain. All sales divisions of the company contributed to improved sales with the exception of The Winnipeg Paint & Glass Company which experienced a slight reduction in sales in the contracting end of this business. The E. Harris Company division which supplies Graphic Arts materials and sign finishes scored further gains in ales and the outlook for fiscal 1975 is highly promising. During the year three new branch stores were opened, five were closed, and three telocated. Major renovations were carried out in six branches. Branches in operation now total 129. of which four are of the new commercial branch type, specifically designed for the professional and industrial accounts. During fiscal 1975 the program of expanding branch operations will be continued and plans have been developed to open four new branches, close two and relocata nina branches. Twelve will be renovated and efforts to bring a wider range of decorating products to the consumer wilt be expanded. Long range plans have been developed for the general expansion and improve ment of branch stores to bring about further sales growth. Sofa drink manufacturer* am mejor uteri of the artificial larteunera manufactured by our Chemicals Group. During the put year our flavor and fragrance division has also begun supplying ibase same customers with flavorings for many of their moat popular brands of bevacagis- 23 0007-SWP-035149 0007-SWP-000116570 r [n [he new field of powder costings a steady growth in sales was experienced. As the advantages of powder coatings became more widely known, growth in this area can be expected to advance at a more rapid pace. Research activity is continuing to develop new products and processes in this field. Technical development activity centered largely on reformulation to overcome raw material shortages and to bang coatings products into compliance with the Hazardous Products Act. Progress was also made in research activity related to metric conversion to which the Canadian Government is fully committed. . Unit production was only slightly higher eompued to last year as plans to reduce inventory volume in the face of markedly higher unit costs continued. A sizeable shipment of latex coatings was made to Indonesia to supply the initial needs of the parent company's new joint venture there. Capital investment amounted to $6(2,000 during the year. The largest item was branch store development. Increased expenditures are planned for fiscal 197$. The general economic outlook in Canada for fiscal 1975 is for slowet growth accompanied by high rates of inflation. In spite of this, company plana have been developed calling for real growth in sales and earnings. Sprayon Products Although sales of Sprayon Products, Inc. increased 8.2*; to 519.948,000 in fiscal 1974, pretax operating profit of SI ,097,000 was 46.1 % tower than n year ago. The decline was caused largely by two factors: the subsidiary's inability to raise prices to offtet completely spiralling In ill pin ynr Sherwin-UPilliajBS of Canada baa placid apodal emphasis on expanding mtrdbaadiiing Unas in miss such as ibis where cuatonaen can now choose from a wide mage of the ieed. tag braoda and slyIsa of floor covering. raw materials costs and the production inefficiencies resulting from raw material shortages. The latter also contributed to a very large backlog of orders. In the custom packaging area, the quantities of garden specialties--spot weed killers and other garden chemicals --on which packaging was begun in fiscal 1973 exceeded forecasts by a wide margin. Other hew products, being custom packaged included a lire puncture sealer and infiaror which is finding ready acceptance among automobile owners and service station operators. Emphasis in the industrial supply field again centered on aerosol-packaged products for the electrical and electronics business. Demand for materials for such applications is increasing at a rapid rate, making n difficult to maintain sufficient inventory to insure prompt service to customers. Accordingly, plans are now being made to remodel existing non-automatic packaging lines to increase production. In February, 1974, in anticipation of a Consumer Products Safety Commission order banning the use of vinyl chloride as a propellant in aerosol packages. Sprayon discontinued its already minor use of this material. 'Shortly after the close of fiscal 1974 the order was issued j iu J included a provision that vinyl chloride charged aerosol packages in the hands of consumers, retailers and distributors must be repurchased by ihe manufacturer upon request. Sprayon believes that the costs of such repurchase will have only a minor influence on fiscal 1975 results. In a continuing effort to reduce costs throughout the operation, an in-house computer installation has been completed. This has streamlined the handling of production Modecor mm opening or about to open in Europe bite been deaignad to satiafr aophistieated continental Mini with x full line of decorating product! pteiented in a inviting setting that encourage! leiaarety ahopping. 0007-SWP-035150 0007-SWP-000116571 orders, inventory- control and billing. In a parallel move, ihe efficiency or the tractor-trailer fleet has been increased to improve deh\ ery service Capital investment of SI 17.000 during the year com pared to S754.000 last year. However, it is expected to increase to 5500,000 tit fiscal 1973 to cover ihe steps being taken to increase production capacity. International Operations Results of International Operations continued to improve over the past year. Pretax operating profit was up 29.2 % to 52J4J.000, with most subsidiaries, joint ventures and licensees contributing to the gain. We are introducing (as we have in the United States) the concepts of larger retail stores. In The Netherlands we have opened our Ant Modtcor store which caters in a most sophisticated way to the overall decorating needs of the retail and do-it-yourself customer. Two more such stores are planned for The Netherlands. The possibilities for similar outlets in other countries are being explored. The performance of Compania Sherwin-Williams, S.A. de C.V. in Mexico has been outstanding. Ten stores were opened during 1974. including expanded decorating stored We plan to continue our re-investment in this growing market by opening additional stores. Our subsidiary in Brazil, Sherwin-Williams do Brasil S/A Tintas e Vemizes, demonstrated an excellent turn around performance under a new management team this past year, in spite of the inflationary pressures which have affected most aspects of our operations. Plans for a new coatings plant in Brazil are under consideration. In June of this year we announced the establishment of a new joint venture in Indonesia: P. T. Unimas Chemicals and Coatings. Ltd. Sherwin-Williams and Great Harvest Co. of Hong Kong each hold 4S% interest with the balance held by Indonesian businessmen. Site preparation for a coatings plant near Djakarta has begun with completion scheduled in 1975. Our subsidiary, Sherwin-Williams (West Indies) Ltd., opened its new paint plant near Kingston in March 1974. In addition to the new plant--which makes SherwinWilliams the only United States coatings manufacturer with a direct investment in Jamaica--Sherwin-Williams also has two retail decorating stores and one auto motive refinishes center in Jamaica plus a branch store in Trinidad. No new licensees were added during the past year. Nearly alt present licensees reported very good results with especially Ine performance coming from those engaged in coil coatings. 1974 saw a stepped-up program of technical assistance going to the licensees. The companies in Venezuela, Peru and El Salvador had particularly good yean as did Sherwin-Williams Phillippines Inc. which opened a new coatings plant near Manila. The company appointed a special representative in the Pacific Region during the year to coordinate and advance Sherwin-Williams interests in Japan and the fast emerging industrial area of Southeast Asia. Problems of inflation, exchange rates and raw material availability were faced by every one of our operations around the world, and under the stress of these conditions advance planning is difficult We continue to build and strengthen our international staff, particularly marketing staff in Europe and financial staff in Latin America and the Caribbean area. Emphasis is also being given to all aspects of technical services. Our trie Modecor Hon io the Netherlands is the prototype for the future wore of thee# outlets will be earviag the wide-rengmg decorlarger retail store we ere developing on the continent. In the near utng aaeda of the Europaae cooiemer. 0007-SWP-035151 25 0007-SWP-000116572 1 Directors E. Colin Baldwin Rented--Formrrh- Chairman of the Rnorp The Shetunn-Willianu Co Keith S. Benson Exteaint I'in President Finance and Administration Oflcbey Norton Compsny Oene C. Brewer Vtee Chairman Southwest Forest Industries, tne. Richard G. Bull Scalar Her Fresidem--Marketins Ronald F. Curley Grand Vice President--Coatings William J. DcLancey FreHdem and Chief Exacnthc Officer Republic Steel Corportlion William C. Fine Eatcaina Flee Frestdem John A. Hill Vice Chatman ofthe Board and Chatman of Errcullve Committer Hospital Corporation of America Alien C. Holmes Fortner Jones, Day, Codeley A R**v Attorneys Victor Holt, Jr. Retired Formerly Frestdem The Goodyear Tire A Rubber Company William Moonan Croon Vice Frestdem- Auxiliaries Robert W. Ramsdell Retired "Formerly Chelrman The East Ohio Cas Company George F. Schlaudecker Gmp Htr Frestdem--Chtmaoh Walter O. Spencer Fresldees and Chief EttcaUet Officer John D. Wright Director and Retired Chairman TRW Inc. Arthur W. Steudel Honorary Director Officers Walter O. Spencer Fresidem and Chief Eseemire Officer William C. Fine Exeeutlre Vice Fresidem Richard G. Bull Senior Vice Fresidem--Marketing Virgil A. Hollis Senior Vice Frestdem--Administration Ronald F. Curley Crony Vice Fresidem--Coolings William Moonan Crony Vice Fretident--Auxiliaries George F. Schlaudecker Crony Vice Fresidem--Chemlenli James F. Cole Vice Fresidem and Treasnrer Richard R. Crow Mor Fresidem--Fersamel Billy H. Davis Vice Fresidem Marketing--Coatings Creep Harvey L. Piepho Vies Fresidem--Fnrchasing Harold E. SpiUer vice Fresidem end Teehnieet Director-- Coalings Greay Robert A. Twhannen Viet Fresidem Oyaratiamt--Coatings Group Michael a Welsh Viet Fresidem--inrrraationaf Operations Robert Cain Assistant Vies FrnsMsni--Ftrsomiel Alan D. Childs Assistant Vice FrcsUcnt and General Counsel.......... John R. Skinner Assistant Vkt FrtsMtm William P. Inman Stamary Bernard Zeller Asslstam Trtasurtt and Assistant Secretary Martin J. Doneiait Assistant Treasnrer Frank C. Kolath Assistant Trtnsmtr 1 _ .............. 26 0007-SWP-035152 0007-SWP-000116573 Subsidiaries Domestic Hadley Adhesives Inc. The Osborn Manufacturing Company The Osborn Manufacturing International Company The Sherwin-Williams Company of Europe. Inc. Sherwin-Williams International Company Sprayon Products. Inc. Foreign CompaSia Sherwin-Williams, S.A. de C.V.. Mexico City. D.F., Mexico Ralston B.V., Zcist, Netherlands Rubbcrsct Company (Canada) Limited, Gravenhurst, Ontario, Canada Schmitz und Ludwig GmbH, Frankenberg. Germany Sherwin-Williams Belgium S.A., Brussels, Belgium Sherwin-Williams (Caribbean) N.V.. Curacao. Netherlands Antilles The Sherwin-Williams Company of Canada, Limited, Montreal, Canada The Sherwin-Williams Co. of Puerto Rico. Inc., San Juan, Puerto Rico The Sherwin-Williams Company Resources Limited, Kingston, Jamaica Sherwin-Williams do Brasil, SA-Tintasc Vemizes. Sio Paulo, Brazil Sherwin-Williams (West Indies) Limited, Kingston, Jamaica Socitti Anonyme des Machines Osbom, Paris, France -Unconsolidated Other Affiliates (50 % or less owned) The Carter White Lead Company of Canada Limited, Montreal, Canada Dendix Brushes Limited, Chepstow, Monmouthshire, England L6wi Sherwin-Williams GmbH. Waldkraiburg, Germany P. T. Unlmts Chemicals A Coatings Ltd.. Djakarta, Indonesia Nippon Sherwin-Williams Chemicals Co.. Ltd.. Osaka. Japan Rose -- The Osborn Manufacturing GmbH. Frankenberg. Germany Sherwin-Williams de Panama, S.A., Panama City, Panama Unimas (Hong Kong) Limited, Hong Kong UeomMa Akuebolaget SYO-Ferniss (Sweden) Astral Sti de Peintures, Vernis et Encms d'lmprimerie (France) C. A. Quimica Integrada (Venezuela) C. A. Venezolana de Pigmentos (Venezuela) China Paint Mfg. Co. (1944) Ltd. (Hong Kong) Donald Macpherson Group. Ltd. (England) Fibnca Nacional de Pintuns "Espintbol" SA. (Bolivia) Fibrica Nacional de Pinturas Sherwin-Williams de Colombia SA. (Colombia) Industrias Quimicas Procolor S.A. (Spain) Nippon Paint Company, Ltd. (Japan) Oxy Foundry Equipment Division (England) Peintures Iddalcs S.A. (Haiti) Pmchin Johnson & Co. (N.Z.) Ltd. (New Zealand) Pinturas Andina S.A. (Chile) Sherwin-Williams Argentina Industrial y Comerdal S.A. (Argentina) Sherwin-Williams del Ecuador Fibrica Nacional de Pinturas SA. (Ecuador) Sherwin-Williams Peruana SA. (Peru) Sherwin-Williams Philippines, Inc. (Philippines) Sherwin-Williams de Centro America, S.A. (El Salvador) Sherwin-Williams de Costa Rica, SA. (Costa Rica) Sherwin-Williams Venezolana CA. (Venezuela) Shinto Paint Co., Ltd. (Japan) Taiyo Chuki Company. Ltd. (Japan) Taubmans Industries Limited (Australia) Domestic Plant* Anaheim, California Ashtabula, Ohio Bedford Heights. Ohio Chicago, Illinois Cincinnati, Ohio Cleveland, Ohio Coffeyville, Kansas Crisfieid, Maryland Danbury. Connecticut Dayton, Ohio Deshler, Ohio Detroit, Michigan Elgin, Illinois Fulton, Kentucky Garland, Texas Gibbsboro, New Jersey Greensboro, North Carolina Henderson, Kentucky Hubburd, Ohio Los Angeles, California Morrow, Georgia Newark, New Jersey Oakland, California Pontiac. Illinois San Leandro, California Foreign Plants Bayamdn. Puerto Rico Frankenberg. Germany Gravenhurst. Canada Kingston, Jamaica, W.i. Mexico City, Mexico Montreal, Canada Monmouthshire, England Panama City, Panama Slo Paulo, Brazil Toronto, Canada Vancouver, Canada Winnipeg, Canada Zcist, Netherlands 0007-SWP-035153 - ................ . . . 0007-SWP-000116574 ! Th Sharwin-Williamt Company 101 Prospact Avanua. N W Clavaiand. Ohio 44115 Phona 1216) 566-2000 .r-z. f,, ' . 0007-SWP--035154 0007-SWP-000116575