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Letter to the Editor

The Sherwin-Williams Company Reports 2001 Year-End Financial Results

CLEVELAND -- The Sherwin-Williams Company reported its financial results for the fourth quarter and year ended December 31, 2001.

Consolidated net sales were down 1.3 percent to $1.13 billion in the fourth quarter and 2.8 percent to $5.07 billion for the year. The continuing poor domestic and South American economic conditions and continuing weakness in foreign currency exchange rates accounted for the remaining sales decline. Operating income in the fourth quarter increased 8.9 percent over last year to $100.4 million excluding last year's asset impairment charge of $352.0 million. For the year, operating income was lower than last year. Net income in the fourth quarter of 2001 decreased 1.6 percent to $45.4 million and diluted net income per common share was flat at $.29 per share excluding last year's asset impairment charge of $293.6 million after-tax ($1.80 per diluted share). During the fourth quarter, cost reduction programs and moderating raw material prices helped improve margins although lower sales and production volumes still adversely impacted profits. For the year, excluding the asset impairment charge in 2000, net income declined 15.0 percent to $263.2 million and diluted net income per common share decreased 11.6 percent to $1.68 per share. For the year, net income was impacted by the shortfall in sales and production volume and, in the first half of the year, high raw material costs.

The Automotive Finishes Segment's net sales decreased 6.6 percent to $108.5 million for the fourth quarter and 5.9 percent to $464.2 million for the year. Higher collision repair sales throughout the year were not enough to offset the soft domestic economy that continues to negatively impact car and truck production curtailing OEM sales. In addition, inventory corrections by several customers in the secondary distribution channels of this Segment continue to adversely impact sales. Operating profit of this Segment improved in the fourth quarter to $12.0 million compared to $8.8 million in last year's fourth quarter. Operating profits for the year decreased to $51.2 million from $61.3 million in 2000. The operating profit decline for the year was due primarily to lower sales volume and related manufacturing absorption.

Commenting on the results for the fourth quarter and year 2001, Christopher M. Connor, Chairman and Chief Executive Officer said, "We are encouraged by the strengthening of our operating income in the fourth quarter, the strong architectural paint sales in our Paint Stores Segment and the leveling off of our downward sales trend in the Consumer Segment. The improvement in operating income in the fourth quarter confirms that our cost reduction programs are working. Our management team's ability to reduce working capital substantially improved our free cash flow for the year...we will continue our objective of advantageous open market purchasing of our stock from time to time.

" We expect that 2002 will continue to be challenging due to the uncertain worldwide economic conditions and the slow, long-term recovery expected. We anticipate that sales during the first quarter of 2002 will be flat to down slightly from last year's level. Starting in the first quarter, we are making significant investments in our business, primarily in the Paint Stores Segment, to enhance our operations and introduce an expanded color program. Due to these investments, the existing poor economic conditions and weak foreign currency exchange rates, we anticipate our diluted net income per common share for the first quarter will be in the range of $.18 to $.23 per share compared to $.23 per share in the first quarter of 2001. After adding back goodwill amortization to first quarter 2001 net income to be comparable with the new accounting standard effective in 2002, diluted net income per common share would have been $.04 per share higher at $.27. We expect our annual sales results will be flat to up slightly over 2001."

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