2005 Annual Report - Investor Relations - Sherwin-Williams

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(thousands of dollars unless otherwise indicated)
NOTE 6 – HEALTH CARE, PENSION AND OTHER
BENEFITS
The Company provides pension benefits to substantially
all employees through noncontributory defined
contribution or defined benefit plans.
In connection with the acquisition of Duron, the
Company acquired a domestic defined benefit pension
plan (Duron Plan). The Duron Plan covered all employees
who met certain eligibility requirements based
primarily on age, length of service and hours worked
per year. The Company operated the Duron Plan independently
from the date of acquisition until December
31, 2004, at which time it was frozen and merged into
the Company’s domestic salaried defined benefit pension
plan. The decision to freeze the Duron Plan and merge it
with the Company’s domestic salaried defined benefit
pension plan effective December 31, 2004 was made at
the acquisition date. Accrued benefits and vesting service
under the Duron Plan were credited under the Company’s
domestic salaried defined benefit pension plan. At
December 31, 2004, the Duron Plan was under-funded
by $2,574 with a projected benefit obligation and an
accumulated benefit obligation of $18,307 and a fair
value of plan assets of $15,733. The Company made
contributions of $1,175 to the Duron Plan in 2004.
Effective January 1, 2002, the domestic salaried
defined benefit pension plan was revised. All participants
in the domestic salaried defined benefit pension
plan prior to the revision retain the previous defined
benefit formula for computing benefits with certain
modifications for active employees. Eligible domestic
salaried employees hired or re-hired on or after January
1, 2002 become participants in the revised domestic
salaried defined benefit pension plan upon completion of
six months of service. All employees who become participants
subsequent to the plan’s revision will be credited
with certain contribution credits that range from two
percent to seven percent based on hire date or a combination
of age and service with the Company. Contribution
credits will be converted into units to account for
each participant’s benefits. These participants will
receive a variable annuity benefit upon retirement or a
distribution upon termination (if vested). The variable
annuity benefit is subject to the hypothetical returns
achieved on each participant’s allocation of units from
investments in various mutual funds as directed by the
participant. Contribution credits to the revised domestic
salaried defined benefit pension plan will be initially
funded through the existing excess plan assets.
The Company employs a total return investment
approach for the domestic and foreign defined benefit
pension plan assets. A mix of equities and fixed income
investments are used to maximize the long-term return
of assets for a prudent level of risk. In determining the
expected long-term rate of return on defined benefit
pension plan assets, management considers the historical
rates of return, the nature of investments and an
expectation of future investment strategies. At
December 31, 2005, defined benefit pension plan
assets were invested as follows:
Domestic Foreign
Plans Plans
Equity investments .................. 66% 66%
Fixed income investments ........ 31% 26%
Cash and other investments .... 3% 8%
Included as equity investments in the domestic
defined benefit pension plan at December 31, 2005 were
1,255,000 shares of the Company’s common stock with
a market value of $57,002, which was 9.3 percent of
total domestic defined benefit pension plan assets.
During 2005, no shares of the Company’s common
stock were sold and dividends received on the
Company’s common stock were $1,029.
At December 31, 2005, one of the Company’s
domestic defined benefit pension plans was underfunded
by $4,786 with a projected benefit obligation
and an accumulated benefit obligation of $98,999 and a
fair value of plan assets of $94,213. A foreign defined
benefit pension plan was also under-funded by $7,480
with a projected benefit obligation of $48,394, an accumulated
benefit obligation of $34,076, and a fair value
of plan assets of $26,596. In addition, the Company has
one unfunded foreign defined benefit pension plan with
an accumulated benefit obligation of $672. Contributions
to the foreign defined benefit pension plans are
expected to be $3,240 in 2006.
The Company expects to make the following benefit
payments for all domestic and foreign defined benefit
pension plans: $17,822 in 2006; $19,570 in 2007;
$22,031 in 2008; $24,557 in 2009; $25,360 in 2010;
and $140,016 in 2011 through 2015.
The following table summarizes the obligations and
assets of the defined benefit pension plans, which are all
measured as of December 31.
56