2005 Annual Report - Investor Relations - Sherwin-Williams

throughout North America. It also provides manufacturing,
distribution and new product development support
to our Paint Stores Segment.
27 CONSECUTIVE
YEARS OF DIVIDEND
GROWTH.
There are roughly 56,000 retail outlets in the U.S.
that sell coatings or coatings related products. Today,
about 35,000 of these outlets offer one or more product
lines manufactured by our Consumer Segment and sold
under such brand names as Dutch Boy ® , Pratt & Lambert ® ,
Krylon ® , Minwax ® , Thompson’s ® WaterSeal ® , Purdy ®
and various private and associate labels.
Product and marketing innovation keeps our brands
strong and vital. In 2005, our revolutionary Ready To
Roll paint container was recognized as “The Most Innovative
Package of the Year” by the Institute of Packaging
Professionals and received special recognition from several
of our major customers. Krylon H2O , a latex paint in
aerosol form, is ideal for indoor use and cleans up with
soap and water. And the launch of our new Pratt &
Lambert Never Compromise Color Color Sample
Selector lets customers explore color palettes and preview
color combinations before they paint an entire room.
AUTOMOTIVE FINISHES SEGMENT
Net Sales for our Automotive Finishes Segment
increased 7.1 percent to $550.8 million for the year. The
majority of this increase came from strong international
sales, new product line introductions and favorable currency
fluctuations. Operating profit for the full year
declined $800,000, or 1.4 percent, to $57.2 million.
During the third quarter of 2005, the Automotive
Finishes Segment sold its majority interest in an automotive
coatings joint venture in China, resulting in a loss of
$7.9 million, which impacted operating profit. After just
18 months in the joint venture, disposition was the most
practical solution to the diverging strategic visions for
the business by the two owners. Our Automotive management
team realized that continuing the joint venture
would add significant risk to the venture without a commensurate
return for Sherwin-Williams shareholders and
decided to take the short term loss.
In 2005, the Automotive Finishes Segment opened
seven new branches, bringing the total to 203 in the
U.S., Canada, Jamaica, Chile and Peru. During the
year the Segment introduced a new automotive waterborne
basecoat/clearcoat system called AWX that is
formulated to comply with stringent European Union
VOC regulations scheduled to take effect in 2007. We
also launched Planet Color , a collection of optically
enhanced automotive coatings for the custom
finishing market.
INTERNATIONAL COATINGS SEGMENT
Net sales for the International Coatings Segment grew
21.8 percent to $388.0 million in 2005. Favorable currency
fluctuations increased sales for the Segment by 9.8
percent in the year.
Operating profit in this segment for the year grew to
$23.6 million from $18.0 million in 2004—an increase
of 30.6 percent. This was primarily the result of higher
sales volumes, operating efficiencies resulting from manufacturing
volume increases and tight expense control.
International Coatings Segment made great strides
during the year in strengthening our brand identity and
expanding distribution outside North America. In
Brazil, we completed an extensive overhaul of our
packaging to better align the images of our various
brands and strengthen their association with Sherwin-
Williams. In Argentina, we were listed among the top
60 companies to work for based on an annual survey
by Great Places to Work Institute published in the
Clarin Newspaper. And in Italy, we partnered with an
established distributor to re-launch our Ronseal
brand wood care coatings line.
MANAGEMENT CHANGES
In July, David F. Hodnik, retired President and
Chief Executive Officer of Ace Hardware Corporation,
was elected to our Board of Directors. Dave brings a
wealth of financial and management experience in a
retail environment to the Board, and we look forward
to receiving many years of his valuable insight and
counsel. This appointment brings the total number of
board members to 11 and the number of independent
directors to 10.
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