Skip to content
AnalystLens

SHERWIN WILLIAMS CO Annual Report, Year Ended Dec 31, 1997

Filing Date
Filed March 11, 1998
Period End
December 31, 1997
Security
SHW
In the record · 2016–202610-K1110-Q328-K145

SHW filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 145 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Jun ’17Jun ’17
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Material agreement8-K · Nov ’21Nov ’21
  4. Material agreement8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K filed March 11, 1998. Cited figures are marked; the original filing is the authoritative source.

The Sherwin-Williams Company (SHW) reported a transformative 1997 for its top line and balance sheet, driven largely by the $830 milliona acquisition of Thompson Minwax Holding Corp. and several smaller deals.

Net sales rose 18.1% to $4.88 billionb and net income rose 13.7% to $260.6 million ($1.50 diluted EPS). However, excluding acquisitions, sales grew only 3.7% and the Coatings Segment's organic sales declined 0.5%, as the company chose not to match low-priced competitor offers and lost some business. Management attributes the weaker underlying growth partly to the company's refusal to chase price, and it warned that first-half 1998 earnings growth would be slightly dampened by these lost sales.

The balance sheet changed materially. Total assets grew to $4.04 billionc from $2.99 billion, goodwill rose to $1.16 billion, and long-term debt jumped to $844 million from $143 million. Interest coverage fell to 6.3x from 16.3x, and the company remains in a borrowing position through 1998.

Operating cash flow of $439.5 milliond covered capital expenditures of $164 million and dividends of $69 million, and the board raised the quarterly dividend to $0.1125 for 1998. Investors should weigh strong gross margin expansion (43.0% vs. 41.8%) and a Paint Stores Segment that is performing well against higher leverage, heavy goodwill and intangible amortization, and ongoing environmental and lead-pigment litigation exposure, which management says is not expected to be materially adverse. Looking ahead, management expects 1998 sales and earnings to exceed 1997 levels, though Year 2000 costs and a multi-year IT project will weigh modestly on near-term profits.

The company is also restructuring its Coatings Division, consolidating Coatings and Consumer Brands and building new plants in Brazil and Chile. Key items to monitor are the pace of integration of Thompson Minwax, the recovery of Coatings volumes, the environmental accruals tied to the southeast Chicago facility, and whether the company can deleverage from its current debt load.

02—Key points

Key Highlights

  1. Net sales rose 18.1% to $4.88 billion, but only 3.7% excluding 1997 acquisitions, primarily Thompson Minwax (approximately $830 million purchase price).
  2. Net income increased 13.7% to $260.6 million; diluted EPS was $1.50 versus $1.33 in 1996 (SFAS 128 restated).
  3. Long-term debt increased to $843.9 million from $142.7 million, pushing interest coverage down to 6.3x from 16.3x.
  4. Gross margin improved to 43.0% from 41.8%, while SG&A rose to 32.2% of sales from 31.7%.
  5. Coatings Segment external sales grew 32.5% from acquisitions, but organic sales fell 0.5% after the company declined to match low competitor prices.
  6. Operating cash flow was $439.5 million; capital expenditures were $164.0 million and cash dividends $69.0 million; quarterly dividend raised to $0.1125 for 1998.
  7. Management expects 1998 sales and earnings to exceed 1997, though Year 2000 and IT project costs and lost Coatings sales will slightly pressure first-half results.

03—Questions

Frequently Asked Questions

  1. How much of the 1997 growth came from acquisitions rather than the core business?

    Most of the headline growth was acquisition-driven. Net sales rose 18.1% overall but only 3.7% excluding 1997 acquisitions, led by Thompson Minwax. Operating profit rose 21.6% overall but only 7.2% excluding acquisitions. The Paint Stores Segment's organic sales grew 6.6%, while the Coatings Segment's organic sales declined 0.5%.

  2. Has the company's debt and financial risk profile changed significantly?

    Yes. Long-term debt rose to $843.9 million from $142.7 million after issuing $400 million of notes and $300 million of debentures in February 1997 and $50 million in October 1997. Interest expense rose to $80.8 million from $24.5 million, and interest coverage fell to 6.3x from 16.3x. Management says it does not anticipate needing specific external financing for its 1998 capital plans and expects to remain in a borrowing position through 1998.

  3. What are the main environmental and litigation risks?

    The company faces lead-pigment paint lawsuits, which management believes are without merit and is defending vigorously. It also has a 1997 Consent Decree with the EPA (civil penalty of $4.7 million plus $1.1 million in remediation spending) and an ongoing investigation at its southeast Chicago facility, where the ultimate liability could be significantly higher than the amount accrued. Environmental-related long-term liabilities were $143.3 million at year-end 1997.

  4. What is the outlook for 1998?

    Management expects 1998 sales and earnings to exceed 1997 results. It noted that lost Coatings Segment sales will slightly impact first-half earnings growth, and that Year 2000 and multi-year IT project costs will slightly reduce operating profit and net income. The company plans new products, two new distribution centers, and facility construction in Brazil and Chile.

04—Continue

← View all 10-K filings