2005 Annual Report - Investor Relations - Sherwin-Williams

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(thousands of dollars unless otherwise indicated)
NOTE 7 – DEBT
Maturities of long-term debt are as follows for the
next five years: $10,493 in 2006; $197,405 in 2007;
$65 in 2008; $65 in 2009, and $65 in 2010. Interest
expense on long-term debt was $37,201, $37,315 and
$37,460 for 2005, 2004 and 2003, respectively.
Among other restrictions, the Company’s Notes,
Debentures and revolving credit agreement contain
certain covenants relating to liens, ratings changes,
merger and sale of assets, consolidated leverage and
change of control as defined in the agreements. In the
event of default under any one of these arrangements,
acceleration of the maturity of any one or more of these
borrowings may result. The Company was in compliance
with all covenants for all years presented.
During 2003, the Company entered into two separate
interest rate swap contracts. Both interest rate swap
contracts were with a bank to hedge against changes in
the fair value of a portion of the Company’s 6.85%
Notes. Each interest rate swap contract had a notional
amount of $25,000. The Company agreed to receive
interest at a fixed rate of 6.85% and pay interest at sixmonth
London Interbank Offered Rates plus points that
varied by contract. These contracts were designated as
perfect fair value hedges of the 6.85% Notes. Accordingly,
changes in the fair value of these contracts were
recorded as assets or liabilities and offset changes in the
carrying value of the 6.85% Notes. During 2004, the
Company unwound all of the interest rate swap contracts
and paid $1,084 to the bank for discontinuation
of the contracts. The net payment decreased the carrying
amount of the 6.85% Notes and is being amortized to
expense over the remaining maturity of the Notes. At
December 31, 2003, the fair value of the two separate
interest rate swap contracts represented unrealized losses
of $819, which was included in Other long-term liabilities.
The weighted average interest rate on these
contracts was 5.35 percent at December 31, 2003.
Prior to 2003, the Company entered into interest rate
swap contracts with a bank to hedge against changes in
the fair value of a portion of the Company’s 6.85%
Notes. Prior to 2003, the Company unwound the interest
rate swap contracts and received a net premium of
$4,762 for discontinuation of the contracts. The net
premium increased the carrying amount of the 6.85%
Notes and is being amortized to income over the
remaining maturity of the Notes. There were no interest
rate swap agreements outstanding at December 31,
2005 and 2004.
The Company has a five-year senior unsecured
revolving credit agreement. The agreement, aggregating
$910,000, was amended effective July 19, 2005 and
expires July 20, 2009. Effective December 8, 2005, a
$500,000 letter of credit subfacility amendment was
added to the agreement. There were no borrowings
outstanding under the revolving credit agreement
during all years presented.
At December 31, 2005 and 2004, borrowings outstanding
under the commercial paper program totaled
$74,678 and $231,203, respectively and were included
in Short-term borrowings on the balance sheet. The
weighted-average interest rate related to these borrowings
was 4.2% and 2.3% at December 31, 2005 and
2004, respectively. There were no borrowings outstanding
under the Company’s commercial paper program at
December 31, 2003. The Company uses the revolving
credit agreement primarily to satisfy its commercial
paper program’s dollar for dollar liquidity requirement.
Effective September 26, 2005, the Company’s commercial
paper program maximum borrowing capability was
increased to $910,000. Borrowings outstanding under
various foreign programs at December 31, 2005 of
$49,003 with a weighted-average interest rate of 5.4%
and at December 31, 2004 of $7,612 with a weightedaverage
interest rate of 5.0% were included in Shortterm
borrowings on the balance sheet. There were no
Due Date 2005 2004 2003
6.85% Notes ................................................................... 2007 $ 197,595 $ 198,143 $ 203,173
7.375% Debentures......................................................... 2027 139,932 139,929 149,921
7.45% Debentures........................................................... 2097 146,948 146,942 147,932
5% to 8.5% Promissory Notes........................................ Through 2007 1,021 1,725 1,285
9.875% Debentures......................................................... 2016 1,500 1,500 1,500
Long-term debt before FAS No. 133 adjustments........ 486,996 488,239 503,811
Fair value adjustments to 6.85% Notes in
accordance with FAS No. 133 ..................................... (819)
$ 486,996 $ 488,239 $ 502,992
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