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
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Net sales | $7.094 billion | $7.980 billion | Down approximately 11.1% |
| Net income | $436 million | $477 million | Down approximately 8.6% |
| Basic earnings per share | $3.84 | $4.08 | Down approximately 5.9% |
| Diluted earnings per share | $3.78 | $4.00 | Down approximately 5.5% |
| Total assets | $4.324 billion | $4.416 billion | Down approximately 2.1% |
| Long-term debt | $783 million | $304 million | Up $479 million |
| Cash dividends per share | $1.42 | $1.40 | Up approximately 1.4% |
| Ratio of earnings to fixed charges | 5.6x | 5.6x | Unchanged |
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
- Review the incorporated 2009 Annual Report for operating cash flow, free cash flow, cash balances, total debt, maturities, credit capacity and covenant compliance.
- Verify the causes of the $479 million increase in long-term debt and assess refinancing and commercial-paper dependence.
- Review segment sales and profit trends, particularly the effects of housing, construction and industrial weakness.
- Examine environmental accruals and the status and potential exposure from lead pigment and lead-based paint litigation.
- Confirm the assumptions supporting goodwill and intangible-asset impairment testing.
- Assess the sustainability of share repurchases and dividend growth relative to cash generation and leverage.