2005 Annual Report - Investor Relations - Sherwin-Williams

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of dollars unless otherwise indicated) foreign countries. A map on page 16 of this report shows the number of automotive branches and their geographical location. The International Coatings Segment develops, licenses, manufactures and distributes a variety of paint, coatings and related products worldwide. The majority of the sales from licensees and subsidiaries occurred in South America, the Segment’s most important international market. This Segment sold its products through 30 company-operated specialty paint stores in Chile, 36 in Brazil, 6 in Uruguay and 1 in Argentina and by outside selling functions to dealers and other distributors. At December 31, 2005, this Segment included consolidated operations in 7 foreign countries, 4 foreign joint ventures and income from licensing agreements in 12 foreign countries. The Administrative Segment included the administrative expenses of the Company’s corporate headquarters site. This Segment also included interest expense which was unrelated to retail real estate leasing activities, investment income, certain foreign currency transaction losses related to dollar-denominated debt and foreign currency option and forward contracts, certain expenses related to closed facilities and environmental-related matters, and other expenses which were not directly associated with any Operating Segment. Administrative expenses did not include any significant foreign operations. Also included in the Administrative Segment was a real estate management unit that is responsible for the ownership, management, leasing of non-retail properties held primarily for use by the Company, including the Company’s headquarters site, and disposal of idle facilities. Sales of the Administrative Segment represented external leasing revenue of excess headquarters space or leasing of facilities no longer used by the Company in its operations. Gains and losses from the sale of property were not a significant operating factor in determining the performance of this Segment. Net external sales of all consolidated foreign subsidiaries were $746,789, $637,137 and $546,472 for 2005, 2004 and 2003, respectively. Operating profits of all consolidated foreign subsidiaries were $44,886, $46,516 and $14,340 for 2005, 2004 and 2003, respectively. Domestic operations account for the remaining net sales and operating profits. Long-lived assets consist of net property, plant and equipment, goodwill, intangibles, deferred pension assets and other long-term assets. Long-lived assets of consolidated foreign subsidiaries totaled $145,689, $149,037 and $130,188 at December 31, 2005, 2004 and 2003, respectively. The consolidated total of long-lived assets for the Company was $2,474,810, $2,492,223 and $1,967,464 at December 31, 2005, 2004 and 2003, respectively. Total assets of consolidated foreign subsidiaries at December 31, 2005 were $440,570, which represented 10.1 percent of the Company’s total assets. No single geographic area outside the United States was significant relative to consolidated net sales or operating profits. Export sales and sales to any individual customer were each less than 10 percent of consolidated sales to unaffiliated customers during all years presented. In the reportable segment financial information that follows, operating profit was total revenue, including inter-segment transfers, less operating costs and expenses. Identifiable assets were those directly identified with each reportable segment. Administrative Segment assets consisted primarily of cash and cash equivalents, investments, deferred pension assets, and headquarters property, plant and equipment. The operating margin for each Operating Segment was based upon total net sales and inter-segment transfers. Domestic inter-segment transfers were accounted for at the approximate fully absorbed manufactured cost plus distribution costs. International inter-segment transfers were accounted for at values comparable to normal unaffiliated customer sales. 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (millions of dollars) 2005 2004 2003 2002 2001 Net External Sales Paint Stores............................................................ $ 4,848 $ 3,977 $ 3,469 $ 3,302 $ 3,185 Consumer .............................................................. 1,396 1,296 1,190 1,178 1,142 Automotive Finishes .............................................. 551 514 457 454 464 International Coatings ........................................... 388 319 285 244 268 Administrative ....................................................... 8 8 7 7 7 Consolidated totals ................................................ $ 7,191 $ 6,114 $ 5,408 $ 5,185 $ 5,066 Operating Profits Paint Stores............................................................ $ 593 $ 480 $ 403 $ 399 $ 388 Consumer .............................................................. 169 188 199 193 110* Automotive Finishes .............................................. 57 58 52 54 51 International Coatings ........................................... 24 18 8 (6) 5 Administrative: Interest expense.................................................. (50) (40) (38) (40) (54) Corporate expenses and other............................ (137) (124) (101) (103) (76) Income before income taxes, minority interest and cumulative effect of change in accounting principle........................................... $ 656 $ 580 $ 523 $ 497 $ 424* Identifiable Assets Paint Stores............................................................ $ 1,487 $ 1,400 $ 1,000 $ 967 $ 954 Consumer .............................................................. 1,619 1,597 1,218 1,162 1,272 Automotive Finishes .............................................. 303 321 278 274 329 International Coatings ........................................... 206 193 156 130 285 Administrative ....................................................... 754 763 1,031 899 788 Consolidated totals ............................................... $ 4,369 $ 4,274 $ 3,683 $ 3,432 $ 3,628 Capital Expenditures Paint Stores............................................................ $ 52 $ 55 $ 54 $ 56 $ 36 Consumer .............................................................. 63 35 36 37 18 Automotive Finishes .............................................. 6 4 8 3 11 International Coatings ........................................... 5 5 5 10 7 Administrative ....................................................... 17 8 14 21 11 Consolidated totals ............................................... $ 143 $ 107 $ 117 $ 127 $ 83 Depreciation Paint Stores............................................................ $ 56 $ 49 $ 44 $ 44 $ 47 Consumer .............................................................. 35 33 33 33 31 Automotive Finishes .............................................. 9 9 9 9 9 International Coatings ........................................... 6 5 5 4 6 Administrative ....................................................... 14 13 14 14 16 Consolidated totals ............................................... $ 120 $ 109 $ 105 $ 104 $ 109 Operating Segment Margins Paint Stores............................................................ 12.2% 12.1% 11.6% 12.1% 12.2% Consumer .............................................................. 5.8% 7.7% 9.0% 8.9% 5.3%* Automotive Finishes .............................................. 9.2% 10.2% 10.5% 11.1% 10.2% International Coatings ........................................... 6.2% 5.6% 2.8% (2.4%) 1.9% Operating segment totals ....................................... 9.6% 10.2% 10.2% 10.3% 9.2%* Intersegment Transfers Paint Stores............................................................ $ 1 $ 1 $ 1 $ 1 $ 1 Consumer .............................................................. 1,522 1,138 1,024 989 929 Automotive Finishes .............................................. 66 57 40 34 34 International Coatings ........................................... 1 1 1 1 Administrative ....................................................... 5 5 4 4 9 Segment totals........................................................ $ 1,595 $ 1,202 $ 1,070 $ 1,029 $ 973 * Includes amortization expense of $21 in the Consumer Segment and $29 in income before income taxes, minority interest and cumulative effect of change in accounting principle for goodwill and intangible assets that are no longer amortized as of January 1, 2002 in accordance with FAS No. 142. The effect on any other segment was not significant. 71
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The Sherwin-Williams Company 2005 A
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ON THE COVER: In 1890, the original
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LETTER TO SHAREHOLDERS portion of t
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This past year, we realigned our ma
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PAINT STORES SEGMENT to maximize co
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CONSUMER SEGMENT Williamsburg Color
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AUTOMOTIVE FINISHES SEGMENT The lau
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INTERNATIONAL COATINGS SEGMENT to t
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STRENGTH IN NUMBERS IN ADDITION TO
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COMMITTED TO FINANCIAL EXCELLENCE F
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Page 41 and 42: REPORT OF THE INDEPENDENT REGISTERE
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Page 45 and 46: STATEMENTS OF CONSOLIDATED INCOME (
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Page 77 and 78: 2005 BOARD OF DIRECTORS 1 SUSAN J.
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2005 Annual Report - Investor Relations - Sherwin-Williams

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