2005 Annual Report - Investor Relations - Sherwin-Williams

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(thousands of dollars unless otherwise indicated)
Significant components of the provisions for income
taxes were as follows:
2005 2004 2003
Current:
Federal.................. $ 171,676 $ 126,199 $ 129,146
Foreign ................ 17,321 17,994 5,719
State and local ...... 19,860 24,242 16,131
Total current .... 208,857 168,435 150,996
Deferred:
Federal.................. (4,813) 18,001 32,299
Foreign ................ (7,455) (3,312) 3,554
State and local ...... (4,988) 2,538 4,019
Total deferred.... (17,256) 17,227 39,872
Total provisions
for income taxes .. $ 191,601 $ 185,662 $ 190,868
The provisions for income taxes included estimated
taxes payable on that portion of retained earnings of
foreign subsidiaries expected to be received by the Company.
The effect of the repatriation provisions of the
American Jobs Creation Act of 2004 and the provisions
of APBO No. 23, “Accounting for Income Taxes –
Special Areas,” was $1,234 in 2005 and $2,693 in
2004. A provision was not made with respect to
$13,771 of retained earnings at December 31, 2005 that
have been invested by foreign subsidiaries. It was not
practicable to estimate the amount of unrecognized
deferred tax liability for undistributed foreign earnings.
Significant components of income before income
taxes and minority interest as used for income tax
purposes, were as follows:
2005 2004 2003
Domestic ................ $ 583,993 $ 520,454 $ 492,592
Foreign .................... 72,222 59,741 30,334
$ 656,215 $ 580,195 $ 522,926
A reconciliation of the statutory federal income tax
rate to the effective tax rate follows:
2005 2004 2003
Statutory federal
income tax rate .................. 35.0% 35.0% 35.0%
Effect of:
State and local
income taxes .............. 1.5 3.0 2.5
Investment vehicles ........ (1.6) (1.6) (0.6)
ESOP dividends .............. (5.2) (4.2) (1.0)
Other - net...................... (0.5) (0.2) 0.6
Effective tax rate.................... 29.2% 32.0% 36.5%
The increase in the ESOP dividends deduction was
the result of increases to the annual dividend payable
for 2005 and 2004 versus 2003 and changes in plan
design which resulted in an increase in deductible dividends.
The decrease in the state and local income tax
component of the effective tax rate in 2005 versus 2004
was due to the favorable impact of state and local tax
settlements.
NOTE 14 – NET INCOME PER COMMON SHARE
2005 2004 2003
Basic
Average common shares outstanding ...................................................... 136,816,868 140,801,836 144,846,933
Net income............................................................................................... $ 463,258 $ 393,254 $ 332,058
Net income per common share................................................................. $ 3.39 $ 2.79 $ 2.29
Diluted
Average common shares outstanding ...................................................... 136,816,868 140,801,836 144,846,933
Non-vested restricted stock grants ........................................................... 950,182 870,313 614,458
Stock options and other contingently issuable shares .............................. 3,311,882 3,063,440 1,543,885
Average common shares assuming dilution .............................................. 141,078,932 144,735,589 147,005,276
Net income............................................................................................... $ 463,258 $ 393,254 $ 332,058
Net income per common share................................................................. $ 3.28 $ 2.72 $ 2.26
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