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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
__X__Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended November 30, 1994 or
------------------------------------------------
_____Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________to_________.
Commission File No. 0-5132
------
RPM, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-6550857
- ----------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 777; 2628 Pearl Road; Medina, Ohio 44258
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (216) 273-5090
- --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days.
Yes __x__ No _____
As of January 3, 1995, 56,822,807 RPM, Inc. Common Shares were outstanding.
Exhibit Index on Page 11 of 12 pages.
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2
RPM, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Consolidated Balance Sheets
November 30, 1994 and May 31, 1994 3
Consolidated Statements of Income
Six Months and Three Months Ended
November 30, 1994 and 1993 4
Consolidated Statements of Cash Flows
Six Months Ended November 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
Exhibit XI - Consolidated Statements of Computations
of Earnings Per Common Share and Common Share
Equivalents
PART II. OTHER INFORMATION 9 - 11
</TABLE>
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3
RPM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
November 30, 1994 May 31, 1994
----------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash $ 29,612 $ 18,370
Marketable securities, at cost 9,673 7,029
Trade accounts receivable (less allowance for doubtful accounts $11,044 and $8,148) 187,947 162,256
Inventories 151,950 130,487
Prepaid expenses 14,149 16,388
-------- --------
Total current assets 393,331 334,530
-------- --------
Property, Plant and Equipment, At Cost 348,093 263,194
Less: accumulated depreciation and amortization 151,433 112,160
-------- --------
Property, plant and equipment, net 196,660 151,034
-------- --------
Other Assets
Costs of businesses over net assets acquired 174,959 111,598
Intangible Assets 162,601 25,328
Equity in unconsolidated affiliates 13,715 12,509
Other 24,856 25,839
-------- --------
Total other assets 376,131 175,274
-------- --------
Total Assets $966,122 $660,838
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 934 $ 1,196
Accounts payable 49,766 49,109
Accrued wages, commissions and other expenses 33,411 24,492
Accrued warranty and loss reserves 20,122 12,978
Other accrued liabilities 22,838 18,042
Income taxes payable 5,395 1,719
-------- --------
Total current liabilities 132,466 107,536
-------- --------
Long term and deferred liabilities
Long term debt, less current maturities 416,617 233,039
Deferred income taxes and other 82,401 5,787
-------- --------
Total long term and deferred liabilities 499,018 238,826
-------- --------
Shareholders' Equity
Common shares, stated value $.023 per share; authorized 100,000,000 shares;
issued and outstanding 56,816,000 and 56,751,000 shares, respectively 1,292 1,291
Paid-in capital 146,594 146,109
Retained earnings 187,696 169,366
Cumulative translation adjustment (944) (2,290)
-------- --------
Total shareholders' equity 334,638 314,476
-------- --------
Total Liabilities And Shareholders' Equity $966,122 $660,838
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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4
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
November 30, November 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $506,726 $411,590 $253,229 $202,243
Cost of Sales 292,640 237,299 146,116 117,466
-------- -------- -------- --------
Gross Profit 214,086 174,291 107,113 84,777
Selling, General and
Administrative Expenses 144,988 116,138 74,825 56,900
Interest Expense, Net 10,554 7,274 5,728 3,645
-------- -------- -------- --------
Income Before Income Taxes 58,544 50,879 26,560 24,232
Provision for Income Taxes 24,881 21,684 11,288 10,299
-------- -------- -------- --------
Net Income $ 33,663 $ 29,195 $ 15,272 $ 13,933
======== ======== ======== ========
Earnings per common share and
common share equivalent
(Exhibit XI) $0.59 $0.52 $0.27 $0.25
======== ======== ======== ========
Earnings per common share
assuming full dilution
(Exhibit XI) $0.55 $0.49 $0.25 $0.23
======== ======== ======== ========
Dividends per common share $0.27 $0.25 $0.14 $0.13
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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5
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1994 1993
--------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 33,663 $ 29,195
Items not affecting cash and other 9,046 11,689
Changes in operating working capital 6,610 (15,467)
--------- --------
49,319 25,417
--------- --------
Cash Flows From Investing Activities:
Additions to property and equipment (13,484) (12,335)
Acquisition of new business (173,061) (10,718)
--------- --------
(186,545) (23,053)
--------- --------
Cash Flows From Financing Activities:
Proceeds from stock option exercises 485 282
Increase (decrease) in long-term debt 163,316 7,469
Dividends (15,333) (13,196)
--------- --------
148,468 (5,445)
--------- --------
Net Increase (Decrease) in Cash 11,242 (3,081)
Cash at Beginning of Period 18,370 22,885
--------- --------
Cash at End of Period $ 29,612 $ 19,804
========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Debt to Equity $ 51,608
Interest Accreted to LYONs $ 4,061 3,855
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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6
RPM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(Unaudited)
(In thousands, except per share amounts)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal, recurring accruals)
considered necessary for a fair presentation have been included for
the six months ended November 30, 1994 and November 30, 1993. For
further information, refer to the consolidated financial statements
and notes included in the Company's Annual Report on Form 10-K for the
year ended May 31, 1994.
NOTE B - INVENTORIES
Inventories were composed of the following major classes:
<TABLE>
<CAPTION>
November 30, 1994 May 31, 1994
----------------- ------------
<S> <C> <C>
Raw materials and supplies $ 52,740 $ 45,286
Finished goods 99,210 85,201
-------- --------
$151,950 $130,487
======== ========
<FN>
(1) Estimated, based on components at May 31, 1994
</TABLE>
NOTE C - ACQUISITIONS
In June 1994, the Company acquired all the outstanding shares of
Rust-Oleum Corporation in a transaction accounted for by the purchase
method of accounting. The following data summarizes, on an unaudited
pro-forma basis, the combined results of operations of the company for
the six and three months ended November 30, 1994 and November 30,
1993. The pro-forma amounts give effect to appropriate adjustments
resulting from the combination, but are not necessarily indicative of
future results of operations or of what results would have been for
the combined companies.
<TABLE>
<CAPTION>
For The Six For The Three
Months Ended Months Ended
November 30, November 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $523,815 $484,243 $253,229 $233,088
======== ======== ======== ========
Net Income $ 34,901 $ 20,400 $ 15,272 $ 7,504
======== ======== ======== ========
Earnings per common
share and common
share equivalent $.61 $.36 $.27 $.13
==== ==== ==== ====
Earnings per common
share assuming full
dilution $.57 $.35 $.25 $.13
==== ==== ==== ====
</TABLE>
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RPM, INC. AND SUBSIDIARIES 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SIX MONTHS ENDED NOVEMBER 30, 1994
RESULTS OF OPERATIONS
The Company's sales increased 23.1% for the first six months of this year and
25.2% in the second quarter compared with last year. On June 28, 1994, the
Company acquired Rust-Oleum Corporation, the leading North American producer
of consumer rust-preventative coatings, accounting for nearly two-thirds of
these sales increases. The Company's core businesses generated the
remaining sales growth principally from higher unit volume and product line
additions as pricing adjustments have been relatively minor. Exchange rate
differences had an insignificant effect on sales from year to year.
The gross profit margin, while down slightly year-to-date compared to the
prior year, improved in the second quarter to 42.3% from 41.9% a year ago.
This recent improvement reflects the benefits of increased sales volume and
Rust-Oleum's higher gross profit margin. While there have been a number of
raw material and packaging cost increases the past six months, management is
confident these will be effectively negated through the leverage of combined
purchasing of significant materials, pricing adjustments and product
reformulations.
The Company's six month selling, general and administrative expenses were a
higher percentage of sales from a year ago as a result of Rust-Oleum's higher
percentage in this category and associated acquisition expenses. Higher
sales volume and increased joint venture income had slightly offsetting
favorable effects. Comparing second quarters, the higher percentage in this
category this year was attributable to Rust-Oleum seasonality and planned
expenditures for future growth.
Interest expense increased $4.4 million year to year as a result of increased
debt associated with the Rust-Oleum acquisition, offset $1.1 million
primarily from lower rate refinancing of debt assumed through the October
1993 Stonhard acquisition.
Net income margins during the first six months and second quarter were below
the same periods last year because of the acquisition related expenses and
seasonality of Rust-Oleum. While Rust-Oleum did contribute to six month
earnings, their strongest anticipated financial impact will come during the
Company's first and fourth quarters, with weaker periods during the middle of
the fiscal year.
<PAGE> 8
RPM, INC. AND SUBSIDIARIES 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SIX MONTHS ENDED NOVEMBER 30, 1994
CAPITAL RESOURCES AND LIQUIDITY
CASH PROVIDED FROM OPERATIONS
Cash flow from operations continues to be the primary source of financing the
Company's internal growth. The Company generated cash from operations of
$49.3 million for the first six months of this year, up $23.9 million from
the same period last year.
The additional cash generated from operations this year was primarily the
result of seasonal reductions in Rust-Oleum's receivables and inventory
($15.3 million) along with increased net income and the timing of payables
and accrued expenses among the core businesses.
INVESTING ACTIVITIES
The Company invested $173.1 million, net of cash acquired, in the purchase of
Rust-Oleum.
The Company's capital expenditures generally do not exceed depreciation and
amortization in a given year.
FINANCING ACTIVITIES
In connection with the acquisition of Rust-Oleum, the Company negotiated a
$300 million revolving credit agreement. At the time of acquisition, $178
million of this facility was used to finance the purchase, $8 million was
used to refinance a portion of Rust-Oleum's existing long term debt, and $47
million was used to refinance the outstanding balance of a $55 million
revolving credit agreement that was subsequently terminated. The Company has
since reduced long term debt by $19 million through cash provided from
operations. As a result of the above plus the LYONs accretion, the Company's
debt/capital ratio has increased to 55% at November 30, 1994 from 43% at
May 31, 1994.
Working capital increased to $260.9 million from $227.0 million at May 31,
1994, with $17.7 million of this increase attributable to Rust-Oleum. The
current ratio declined to 3.0:1 from 3.1:1 during the six month period.
The Company maintains excellent relations with its banks and other financial
institutions to further enable the financing of future growth opportunities.
<PAGE> 9
9
ITEM 3 -- LEGAL PROCEEDINGS
- --------------------------
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1994, and as updated in the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1994, Bondex
International, Inc., a wholly-owned subsidiary of the Company ("Bondex") was
named as one of numerous corporate defendants in 382 asbestos-related bodily
injury lawsuits filed on behalf of various individuals in various jurisdictions
in the United States. Subsequently, an additional 15 such cases have been
filed, and 67 such cases which had been filed in the Superior Court, Middlesex
County, New Jersey, were dismissed with prejudice with no payment. Bondex
continues to deny liability in all 330 cases that remain pending and continues
to vigorously defend them. Under a cost-sharing agreement among Bondex and its
insurers effected in February, 1994, the insurers are responsible for payment
of a substantial portion of defense costs and indemnity payments, if any, with
Bondex responsible for a minor portion of each.
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1994, Carboline Company, a wholly-owned subsidiary
of the Company ("Carboline"), has been named as one of 21 corporate defendants
in RUFINO O. CAVAZOS, ET AL., V CEILCOTE COMPANY, ET AL., District Court, 73rd
Judicial District, Bexar County, Texas; Cause No. 89-CI-12651, filed in March,
1990, and in similar suits subsequently filed on behalf of individuals (and,
where applicable, their spouses and children) employed at the Comanche Peak
Nuclear Plant and the South Texas Nuclear Plant. Several supplemental
petitions have been filed in Bexar County for the purpose of adding other
spouses and children of the worker plaintiffs, bringing the total number of
Bexar County plaintiffs to 10,556. Another suit with virtually identical
allegations was filed in Rusk County, Texas on December 29, 1993. That suit,
Cause No. 93-470; MARY GUNN, ET AL. V. SOUTHERN IMPERIAL COATINGS CORP., 4th
District Court, Rusk County, Texas, involves 201 worker plaintiffs and 128
spouses. All of the suits allege bodily injury as a result of exposure to
defendants' products. An automatic stay of proceedings, instituted as a result
of the receivership of Employers Casualty Insurance Company, was lifted
recently, and the litigation is continuing in the discovery stage. Carboline
has denied all liability and is conducting a vigorous defense. Several of
Carboline's insurance carriers, and Carboline, are defending the lawsuit under
a cost-sharing agreement.
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1994, Rust-Oleum Corporation, a wholly-owned
subsidiary of the Company ("Rust-Oleum") was named in March, 1989 by the U.S.
Environmental Protection Agency ("EPA") as a Potentially Responsible Party
("PRP") under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") in connection with the American Chemical Service
Superfund Site in Lake County, Griffith, Indiana (the "ACS Site"). Rust-Oleum
is alleged to be associated
<PAGE> 10
10
with the ACS Site as a consequence of disposal of waste originating at its
former Evanston, Illinois plant in the 1960's. The EPA offered DE MINIMIS
settlements to Rust-Oleum and other PRPs alleged to be responsible for small
percentages of the total waste sent to the ACS site. On December 22, 1994, the
EPA issued a Final Administrative Order of Consent ("AOC"), IN THE MATTER OF
AMERICAN CHEMICAL SERVICES SUPERFUND SITE, EPA Region 5, effecting settlement
of Rust-Oleum's DE MINIMIS share of cleanup costs for the sum of $240,000, which
Rust-Oleum will pay on or before January 23, 1995. Under the provisions of
the AOC, Rust-Oleum will be protected from future suits by the EPA, by the
State of Indiana or by other PRPs seeking contribution. Rust-Oleumm is pursuing
its liability insurance carrier for reimbursement of the settlement payment;
however, for purposes hereof, this matter is considered closed.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
The Annual Meeting of Shareholders of the Company was held on October
10, 1994. The following matters were voted on at the meeting.
1. Election of Lorrie Gustin, James A Karman, Donald K. Miller and
Kevin O'Donnell as Directors of the Company. The nominees were
elected as Directors with the following vote:
Lorrie Gustin
-------------
For 43,943,916.4
Withheld 491,663.9
Broker non-votes 0
James A. Karman
---------------
For 44,026,658.4
Withheld 408,921.9
Broker non-votes 0
Donald K. Miller
----------------
For 44,039,755.9
Withheld 395,824.2
Broker non-votes 0
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11
ITEM 4 -- Continued
- -------------------
Kevin O'Donnell
---------------
For 44,007,614.5
Withheld 427,965.8
Broker non-votes 0
2. Approval of proposal to fix the number of Directors at 12
(which created a vacancy which can be filled by the Board of
Directors);
For 43,732,124.6
Against 453,147.8
Abstain 250,307.9
Broker non-votes 0
For information on how the votes for the election of Directors have
been tabulated, see the Company's definitive Proxy Statement used in connection
with the Annual Meeting of Shareholders held on October 10, 1994.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
Official Exhibit Sequential
Number Description Page Number
---------------- ----------- -----------
XI Statement regarding 9
computation of per
share earnings
XXVII Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On September 9, 1994, the Company filed an amendment on
Form 8K/A to its Current Report on Form 8/K dated June
28, 1994 pursuant to Item 7 thereunder, in connection
with the Rust-Oleum Corporation acquisition.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RPM INC.
By THOMAS C. SULLIVAN
------------------
Thomas C. Sullivan,
Chairman & Chief
Executive Officer
By FRANK C. SULLIVAN
-----------------
Frank C. Sullivan,
Chief Financial Officer
Date: January 13, 1995
<PAGE> 1
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
(Unaudited)
Exhibit XI
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Shares Outstanding
For computation of primary earnings per
common share
Weighted average shares 56,781 56,020
Net issuable common share equivalents 318 350
------------- -------------
Total shares for primary earnings
per share 57,099 56,370
For computation of fully-diluted earnings
per common share
Additional shares issuable assuming
conversion of convertible securities 7,813 8,483
Additional common shares equivalents;
ending market value higher than _ _
average market value ------------- -------------
Total shares for fully-diluted
earnings per share 64,912 64,853
============= =============
Net Income
Net income applicable to common shares for
primary earnings per share $33,663 $29,195
Add back interest net of tax on convertible
securities assumed to be converted 2,335 2,393
------------- -------------
Net income applicable to common shares for
fully-diluted earnings $35,998 $31,588
============= =============
Earnings Per Common Share and Common Share
Equivalents $.59 $.52
---- ----
Earnings Per Common Share Assuming Full
Dilution $.55 $.49
---- ----
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> NOV-30-1994
<CASH> 29,612
<SECURITIES> 9,673
<RECEIVABLES> 198,991
<ALLOWANCES> (11,044)
<INVENTORY> 151,950
<CURRENT-ASSETS> 393,331
<PP&E> 348,093
<DEPRECIATION> (151,433)
<TOTAL-ASSETS> 966,122
<CURRENT-LIABILITIES> 132,466
<BONDS> 416,617
<COMMON> 1,292
0
0
<OTHER-SE> 333,346
<TOTAL-LIABILITY-AND-EQUITY> 966,122
<SALES> 506,726
<TOTAL-REVENUES> 506,726
<CGS> 292,640
<TOTAL-COSTS> 437,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,554
<INCOME-PRETAX> 58,544
<INCOME-TAX> 24,881
<INCOME-CONTINUING> 33,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,663
<EPS-PRIMARY> .59
<EPS-DILUTED> .55
</TABLE>
