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Letter to the Editor

The Sherwin-Williams Company Reports Second Quarter 2002 Earnings Results

The Sherwin-Williams Company has announced its financial results for the second quarter and six months ended June 30, 2002.

Consolidated net sales increased 3.2 percent for the quarter to $1.45 billion from $1.41 billion in the same quarter last year and increased 1.4 percent for the first six months to $2.60 billion from $2.57 billion in 2001. Strong domestic architectural paint sales gains were partially offset by continued sluggishness in domestic industrial and automotive sales. Poor economic conditions in South America and weak currency exchange rates continued to curtail international sales.

Diluted net income per common share increased for the quarter to $.70 per share from $.58 per share in 2001 and, before the cumulative effect of change in accounting principle, increased for the first six months to $.93 per share from $.80 per share a year ago.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", the company recorded an after-tax cumulative effect of change in accounting principle charge of $183.1 million, or $1.21 per share, in the first quarter of 2002. The net loss after cumulative effect of change in accounting principle for the first six months of 2002 was $40.8 million, or $.27 per common share.

The Automotive Finishes Segment's net sales decreased 0.8 percent to $123.6 million in the quarter and 2.2 percent to $235.2 million in the six months. The slowly recovering domestic economy continued to adversely impact this Segment's OEM sales. Vehicle refinish sales were curtailed by lower accident rates resulting from the lingering effects of a mild winter. Operating profit in this Segment increased to $17.7 million from $14.3 million in the quarter and to $29.2 million from $25.8 million in the six months. This Segment's operating profit increase in the quarter was due primarily to stabilizing sales declines, expense control, moderating raw material costs and improved manufacturing absorption. Operating profit was negatively impacted during the first six months by the sales shortfall, lower first quarter production volumes which resulted in lower manufacturing absorption.

Net sales in the International Coatings Segment were down 4.8 percent to $65.4 million in the quarter and 8.2 percent to $126.8 million in the six months compared to a year ago. The sales decreases in U.S. dollars were due primarily to unfavorable currency exchange rates. For the first six months of 2002, the Segment realized an operating loss of $5.5 million compared to an operating profit of $5.3 million in the first six months of 2001. The operating profit for the Segment during the first six months was negatively impacted by currency rate fluctuations, dollar-denominated raw material cost increases, price competition and a shift in the sales mix to lower margin products.

The company purchased 1,479,400 shares of its common stock during the second quarter of 2002 bringing the total purchased to 3,242,200 shares for the first six months.

Commenting on the company's operating results for the second quarter and first six months of 2001, Christopher M. Connor, Chairman and Chief Executive Officer, said, "We are pleased with our operating results during the second quarter of this year given the slowly recovering domestic economic activity and foreign currency fluctuations. The strength of our architectural paint business in the Paint Stores Segment and stabilizing sales in our Consumer Segment continued to outweigh the impact of the sluggish industrial economy and automotive aftermarket on our sales and operating profits. We have continued to invest in our business by opening new stores, launching a new color palette, introducing new products and packaging, revitalizing our store appearance and improving productivity in our plants and distribution operations. The International Coatings Segment continued to improve its sales in local currencies and its operating profit in U.S. dollars during the second quarter in spite of economic and competitive pressures.

"We have continued to optimize our working capital in line with sales performance and reduced it significantly below last year's level. Our total debt on June 30, 2002 was $297.9 million below June 30, 2001. The debt reduction contributed to lower interest expense for the first six months of 2002 by nearly one-third over the first six months of last year.

"Although sales trends in our Consumer Segment are stabilizing, we expect that achievement of year-over-year sales and profit improvements for our company will continue to be challenging throughout the remainder of 2002 due to a slowly recovering domestic economy. We anticipate the recovery in our industrial and OEM markets will be sluggish due to customer uncertainty about committing to future maintenance and capital expenditures. During such times, we will continue to develop strong customer relationships, invest in our business as we have in the past, maintain high levels of service and strive to improve returns for our shareholders. We anticipate that third quarter sales increases will be in the low single-digits versus last year's third quarter... We expect annual sales for 2002 to finish slightly higher than last year and diluted net income per share for the year, before cumulative effect of change in accounting principle, in the range of $1.92 to $2.03 per share."

©2002 Collision Repair Industry INSIGHT
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