<PAGE> 1
Page 1 of 11
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 FEBRUARY 28, 1995 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 March 31, 1995, 56,943,627 RPM, Inc. Common Shares were
outstanding.
Exhibit Index on Page 9 of 11 pages.
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2
RPM, INC. AND SUBSIDIARIES
--------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION Page No.
------------------------------ --------
Consolidated Balance Sheets
February 28, 1995 and May 31, 1994 3
Consolidated Statements of Income
Nine Months and Three Months Ended
February 28, 1995 and 1994 4
Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II. OTHER INFORMATION 9
---------------------------
Exhibit XI - Consolidated Statements of Computations
of Earnings Per Common Share and Common Share
Equivalents 11
<PAGE> 3
RPM, INC. AND SUBSIDIARIES
-------------------------- 3
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
------ February 28, 1995 May 31, 1994
----------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash $24,347 $18,370
Marketable securities, at cost 8,854 7,029
Trade accounts receivable (less allowance for doubt-
ful accounts $11,959 and $8,148) 166,108 162,256
Inventories 168,095 130,487
Prepaid expenses 14,181 16,388
-------- --------
Total current assets 381,585 334,530
-------- --------
Property, Plant and Equipment, At Cost 355,171 263,194
Less: accumulated depreciation and amortization 157,875 112,160
-------- --------
Property, plant and equipment, net 197,296 151,034
-------- --------
Other Assets
Costs of businesses over net assets acquired 173,911 111,598
Intangible Assets 160,715 25,328
Equity in unconsolidated affiliates 14,195 12,509
Other 24,010 25,839
-------- --------
Total other assets 372,831 175,274
-------- --------
Total Assets $951,712 $660,838
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $608 $1,196
Notes and accounts payable 51,983 49,109
Accrued compensation and benefits 34,282 24,492
Accrued warranty and loss reserves 18,458 12,978
Other accrued liabilities 18,734 18,042
Income taxes payable 276 1,719
-------- --------
Total current liabilities 124,341 107,536
-------- --------
Long term and deferred liabilities
Long term debt, less current maturities 412,939 233,039
Deferred income taxes and other 80,946 5,787
-------- --------
Total long term and deferred liabilities 493,885 238,826
-------- --------
Shareholders' Equity
Common shares, stated value $.023 per share;
authorized 100,000,000 shares;
issued and outstanding 56,811,740
and 56,751,000 shares, respectively 1,292 1,291
Paid-in capital 146,379 146,109
Retained earnings 187,046 169,366
Cumulative translation adjustment (1,231) (2,290)
-------- --------
Total shareholders' equity 333,486 314,476
-------- --------
Total Liabilities And Shareholders' Equity $951,712 $660,838
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE> 4
RPM, INC. AND SUBSIDIARIES
-------------------------- 4
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
February 28, February 28,
----------------------- -----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $736,509 $598,152 $229,783 $186,562
Cost of Sales 427,114 348,424 134,474 111,125
-------- -------- -------- --------
Gross Profit 309,395 249,728 95,309 75,437
Selling, General and Administrative Expense 221,694 177,369 76,706 61,231
Interest Expense, Net 16,456 10,062 5,902 2,788
-------- -------- -------- --------
Income Before Income Taxes 71,245 62,297 12,701 11,418
Provision for Income Taxes 30,279 26,536 5,398 4,853
-------- -------- -------- --------
Net Income $40,966 $35,761 $7,303 $6,565
======== ======== ======== ========
Earnings per common share and common share
equivalent (Exhibit XI) $0.72 $0.63 $0.13 $0.12
======== ======== ======== ========
Earnings per common share assuming full
dilution (Exhibit XI) $0.69 $0.61 $0.13 $0.12
======== ======== ======== ========
Dividends per common share $0.41 $0.38 $0.14 $0.13
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE> 5
RPM, INC. AND SUBSIDIARIES
-------------------------- 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
------------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $40,966 $35,761
Items not affecting cash and other 16,797 21,301
Changes in operating working capital 5,292 (17,048)
-------- --------
63,055 40,014
-------- --------
Cash Flows From Investing Activities:
Additions to property and equipment (20,562) (16,883)
Acquisition of new businesses (173,061) (12,472)
-------- --------
(193,623) (29,355)
-------- --------
Cash Flows From Financing Activities:
Proceeds from stock option exercises 519 467
Increase (decrease) in long-term debt 159,312 4,953
Dividends (23,286) (20,572)
-------- --------
136,545 (15,152)
-------- --------
Net Increase (Decrease) in Cash 5,977 (4,493)
Cash at Beginning of Period 18,370 22,885
-------- --------
Cash at End of Period $24,347 $18,392
======== ========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
- ---------------------------------------------------------------------
Conversion of Debt to Equity $51,608
Interest Accreted on LYONs $6,126 5,816
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE> 6
6
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FEBRUARY 28, 1995
-----------------
(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 nine months ended February 28, 1995 and February 28, 1994. 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>
<S> <C> <C>
February 28, 1995(1) May 31, 1994
----------------- ------------
Raw materials and supplies $ 58,338 $ 45,286
Finished goods 109,757 85,201
-------- --------
$168,095 $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 nine and three months ended February 28, 1995 and February 28,
1994. 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 Nine For The Three
Months Ended Months Ended
February 28, February 28,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $753,598 $691,267 $229,783 $207,024
======== ======== ======== ========
Net Income $ 42,204 $ 23,133 $ 7,303 $ 2,733
======== ======== ======== ========
Earnings per common share
and common share
equivalent $.74 $.41 $.13 $.05
==== ==== ==== ====
Earnings per common share
assuming full dilution $.70 $.41 $.13 $.05
==== ==== ==== ====
</TABLE>
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RPM, INC. AND SUBSIDIARIES
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
NINE MONTHS ENDED FEBRUARY 28, 1995
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Compared with last year, the Company's sales increased 23.1% in the
first nine months of this year and 23.2% in the third quarter. On June
28, 1994, the Company acquired Rust-Oleum Corporation, the leading North
American producer of consumer rust-preventative coatings, accounting for
approximately two-thirds of these sales increases. The Company's core
businesses generated the balance of sales growth principally from higher
unit volume and product line additions. Pricing adjustments have been
more extensive this year than in the recent past to compensate for
nearly universal supplier cost increases. Exchange rate differences had
a slightly positive effect on sales from year to year.
The gross profit margin strengthened during the third quarter to 41.5%
from 40.4% a year ago pushing the nine months' margin of 42% ahead of
last year's 41.7%. The recent improvement reflects primarily the
benefit of increased sales volume among the core businesses and, to a
lesser extent, Rust-Oleum's higher gross profit margin. While there
have been a number of raw material and packaging cost increases
throughout the past nine months, management is confident these will
continue to be effectively negated through the leverage of combined
purchasing of significant materials, pricing adjustments as necessary,
and product reformulations.
The Company's nine month selling, general and administrative expenses
are 30.1% of sales versus 29.7% a year ago as a result of Rust- Oleum's
higher percentage in this category along with associated acquisition
expenses. Higher sales volume and increased joint venture income had
slightly offsetting favorable effects. Comparing third quarters, the
higher percentage this year (33.4%, up .6%) was attributable to
Rust-Oleum's seasonality, while core businesses actually enjoyed a
percentage reduction in this category from higher sales volume and
continued expense control.
Interest expense increased $7.8 million this year as a result of
increased debt associated with the Rust-Oleum acquisition. Nearly $1.0
million of the $1.4 million offset was accomplished through lower rate
refinancing of debt assumed through the October 1993 Stonhard
acquisition, with the balance from debt reductions. Interest rate
increases had a slight negative effect from year to year. The Rust-
Oleum acquisition debt accounted for the difference between third
quarters.
Net income margins during the first nine months and third quarter were
below the same periods last year because of the seasonality of
Rust-Oleum and its acquisition related expenses. While Rust-Oleum did
contribute slightly to nine month earnings, as previously announced
their strongest anticipated financial impact will come during the
Company's first and fourth quarters, with seasonally weaker periods
during the middle of the fiscal year.
<PAGE> 8
8
RPM, INC. AND SUBSIDIARIES
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
NINE MONTHS ENDED FEBRUARY 28, 1995
-----------------------------------
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 $63 million for the first nine months of this
year, up $23 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 working capital ($16.1
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 $29 million
through cash provided from operations, before exchange rate differences.
As a result of the above plus the LYONs interest accretion, the
Company's debt/capital ratio has increased to 55% at February 28, 1995
from 43% at May 31, 1994.
Working capital increased to $257 million from $227 million at May 31,
1994, with half of this increase attributable to Rust-Oleum. The
current ratio remains at 3.1:1 after nine months.
The Company maintains excellent relations with its banks and other
financial institutions to further enable the financing of future growth
opportunities.
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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 Reports on Form 10-Q for the quarters ended August 31, 1994 and
November 30, 1994, Bondex International, Inc., a wholly-owned subsidiary of the
Company ("Bondex") has been named as one of numerous corporate defendants in
330 asbestos-related bodily injury lawsuits filed on behalf of various
individuals in various jurisdictions in the United States. Subsequently, an
additional 17 such cases have been filed, and 8 such cases which had been filed
have been dismissed with prejudice as a result of the inability of plaintiffs
to prove exposure to any Bondex asbestos-containing product. In addition, 1
such case was settled by Bondex and its insurers for a nominal amount. Bondex
continues to deny liability in all 338 asbestos-related lawsuits 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, relating to asbestos-related litigation, and
Bondex is responsible for a minor portion of each.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
Official Exhibit Sequential
Number Description Page Number
---------------- ------------------- -----------
XI Statement regarding 11
computation of per
share earnings
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the quarter
ended February 28, 1995.
<PAGE> 10
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 JAMES A. KARMAN
---------------
James A. Karman,
President
By FRANK C. SULLIVAN
-----------------
Frank C. Sullivan,
Chief Financial Officer
Date: April 13, 1995
<PAGE> 1
RPM, INC. AND SUBSIDIARIES
-------------------------- 11
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
---------------------------------------------------
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
---------------------------------------------
(Unaudited)
Exhibit XI
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended February 28,
------------------------------
1995 1994
------- -------
<S> <C> <C>
Shares Outstanding
- ------------------
For computation of primary earnings per
common share
Weighted average shares 56,791 56,255
Net issuable common share equivalents 318 341
------- -------
Total shares for primary earnings
per share 57,109 56,596
For computation of fully-diluted earnings
per common share
Additional shares issuable assuming
conversion of convertible securities 7,813 8,262
Additional common shares equivalents;
ending market value higher than
average market value 14 67
------- -------
Total shares for fully-diluted
earnings per share 64,936 64,925
======= =======
Net Income
- ----------
Net income applicable to common shares for
primary earnings per share $40,966 $35,761
Add back interest net of tax on convertible
securities assumed to be converted 3,523 3,520
------- -------
Net income applicable to common shares for
fully-diluted earnings $44,489 $39,281
======= =======
Earnings Per Common Share and Common Share
Equivalents $.72 $.63
==== ====
Earnings Per Common Share Assuming Full
Dilution $.69 $.61
==== ====
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> FEB-28-1995
<EXCHANGE-RATE> 1
<CASH> 24,347
<SECURITIES> 8,854
<RECEIVABLES> 178,067
<ALLOWANCES> 11,959
<INVENTORY> 168,095
<CURRENT-ASSETS> 381,585
<PP&E> 355,171
<DEPRECIATION> 157,875
<TOTAL-ASSETS> 951,712
<CURRENT-LIABILITIES> 124,341
<BONDS> 412,939
<COMMON> 1,292
0
0
<OTHER-SE> 332,194
<TOTAL-LIABILITY-AND-EQUITY> 951,712
<SALES> 736,509
<TOTAL-REVENUES> 736,509
<CGS> 427,114
<TOTAL-COSTS> 648,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,456
<INCOME-PRETAX> 71,245
<INCOME-TAX> 30,279
<INCOME-CONTINUING> 40,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,966
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.69
</TABLE>
