SHERWIN WILLIAMS CO annual report, FY2009

The Sherwin-Williams Company: FY2009 Form 10-K Summary

Business context and reporting period

The filing covers the fiscal year ended December 31, 2009. Although the request identifies 2009 Q4, this is an annual Form 10-K; the provided text does not include a separate fourth-quarter income statement. Sherwin-Williams develops, manufactures, distributes and sells paint, coatings and related products primarily in North and South America, with additional operations in the Caribbean, Europe and Asia.

  • Reportable segments: Paint Stores Group, Consumer Group and Global Finishes Group; corporate and other activities are reported in Administrative.
  • At December 31, 2009, the Paint Stores Group operated 3,354 company-operated specialty paint stores.
  • The Global Finishes Group operated 539 branches, including 252 in the United States and 287 internationally.
  • The Company employed 29,220 people at year-end.
  • Approximately 14.5% of consolidated net sales, or $1.03 billion, came from foreign subsidiaries.

Financial metrics

Metric20092008Change
Net sales$7.094 billion$7.980 billionDown approximately 11.1%
Net income$436 million$477 millionDown approximately 8.6%
Basic earnings per share$3.84$4.08Down approximately 5.9%
Diluted earnings per share$3.78$4.00Down approximately 5.5%
Total assets$4.324 billion$4.416 billionDown approximately 2.1%
Long-term debt$783 million$304 millionUp $479 million
Cash dividends per share$1.42$1.40Up approximately 1.4%
Ratio of earnings to fixed charges5.6x5.6xUnchanged

Reported net income margin was approximately 6.1% in 2009, compared with approximately 6.0% in 2008. The filing text provided does not state operating income, gross margin, operating cash flow, free cash flow, cash balances, current debt, or liquidity availability.

Interest expense, net, was $40 million in 2009 versus $66 million in 2008. Total fixed charges were $134 million versus $156 million, including $94 million and $90 million, respectively, attributed to the interest component of rent expense.

Material changes versus the prior comparable period

  • Net sales declined $886 million, reflecting the continuing downturn in housing, construction, commercial and industrial markets.
  • Net income declined $41 million, while diluted EPS declined $0.22.
  • Long-term debt increased materially to $783 million from $304 million; the provided text does not explain the full change or provide total debt and cash figures.
  • The Company opened eight net new Paint Stores Group locations, with 53 openings and 45 closures, compared with 21 net new stores in 2008.
  • Global Finishes Group branches decreased by two net locations, reflecting 18 openings and 20 closures.
  • The Company repurchased 4,122,395 shares during the fourth quarter at an average price of $60.54 per share. Remaining authorization at December 31, 2009 was 10,750,000 shares.
  • Cash dividends increased to $1.42 per share from $1.40 per share.

Guidance, outlook, commentary, risks and unusual items

  • Management expected raw materials, fuel supplies and products purchased for resale to be available in sufficient quantities during 2010 and believed productive capacity was adequate through 2010.
  • Sales are seasonally concentrated in the second and third quarters; inventories are generally built during the first quarter and seasonal working capital is partly financed through short-term borrowings, credit lines and commercial paper.
  • The filing identifies continuing risks from weak global economic conditions, reduced housing and construction activity, customer credit deterioration, competition, raw-material and energy costs, foreign currency movements, acquisitions, regulatory changes and adverse weather.
  • Environmental investigation and remediation liabilities may exceed amounts currently accrued.
  • The Company is involved in lead pigment and lead-based paint litigation. Management stated that no amounts had been accrued because potential liability could not reasonably be estimated; a significant adverse outcome could materially affect results, cash flow, liquidity or financial condition.
  • Other litigation, product liability, tax, compliance and environmental contingencies may also require additional accruals or payments.
  • The Company used foreign-currency and commodity hedging contracts during 2009, but none were outstanding at December 31, 2009. Management did not expect related market-risk exposures to have a material adverse effect based on information available at filing.
  • The filing incorporates the detailed MD&A and financial statements from the 2009 Annual Report; the supplied text does not provide a clear 2009 cash-flow statement, segment profit figures or detailed liquidity balances.

Most important facts for investors to verify

  1. Review the incorporated 2009 Annual Report for operating cash flow, free cash flow, cash balances, total debt, maturities, credit capacity and covenant compliance.
  2. Verify the causes of the $479 million increase in long-term debt and assess refinancing and commercial-paper dependence.
  3. Review segment sales and profit trends, particularly the effects of housing, construction and industrial weakness.
  4. Examine environmental accruals and the status and potential exposure from lead pigment and lead-based paint litigation.
  5. Confirm the assumptions supporting goodwill and intangible-asset impairment testing.
  6. Assess the sustainability of share repurchases and dividend growth relative to cash generation and leverage.