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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the fiscal year ended May 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
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
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 273-5090
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
--------------------------------
(Title of Class)
Liquid Yield Option Notes(TM) Due 2012
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of August 20, 1997, 78,472,777 Common Shares were
outstanding, and the aggregate market value of the Common Shares of the
Registrant held by non-affiliates (based upon the closing price of the Common
Shares as reported on the Nasdaq National Market on August 20, 1997) was
approximately $1,577,961,742. For purposes of this information, the 2,426,428
outstanding Common Shares which were owned beneficially as of August 20, 1997 by
executive officers and Directors of the Registrant were deemed to be the Common
Shares held by affiliates.
Documents Incorporated by Reference
Portions of the following documents are incorporated by
reference to Parts II, III and IV of this Annual Report on Form 10-K: (i)
definitive Proxy Statement to be used in connection with the Registrant's Annual
Meeting of Shareholders to be held on October 17, 1997 (the "1997 Proxy
Statement") and (ii) the Registrant's 1997 Annual Report to Shareholders for the
fiscal year ended May 31, 1997 (the "1997 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this
Annual Report on Form 10-K is as of June 30, 1997.
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(TM)Merrill Lynch & Co., Inc.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
RPM, Inc. ("RPM" or the "Company") was organized in 1947 as an
Ohio corporation under the name Republic Powdered Metals, Inc. On November 9,
1971, the Company's name was changed to RPM, Inc. As used herein, the terms
"RPM" and the "Company" refer to RPM, Inc. and its subsidiaries, unless the
context indicates otherwise. The Company has its principal executive offices at
2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, and its telephone number is
(330) 273-5090.
RECENT DEVELOPMENTS
Since RPM's offering of Common Shares to the public in
September 1969, the Company has made a number of significant acquisitions that
have been described in previous reports on file with the Securities and Exchange
Commission. RPM's acquisition strategy focuses on companies with high
performance and quality products which are leaders in their respective markets.
RPM expects to continue its acquisition program, although there is no assurance
that any acquisitions will be made.
ACQUISITIONS
As part of this acquisition program, in February 1997, the Company
acquired all of the issued and outstanding shares of Tremco Incorporated
("Tremco") from The BFGoodrich Company for approximately $236 million in cash.
Tremco manufactures and sells roofing systems, sealants and coatings. Tremco is
headquartered in Cleveland, Ohio and has manufacturing locations in the United
States, Canada, the United Kingdom, and The Netherlands, with offices and joint
ventures in several other countries. The roofing systems, sealants and coatings
manufactured under the Tremco brand name are sold to customers primarily in
building, construction, building maintenance and retail markets. Since the
acquisition and subsequent to May 31, 1997, the Company sold Tremco's Swiggle
Insulating Glass Sealant and Auto Replacement Glass Sealant businesses since
both of these businesses served OEM markets unrelated to the Company's core
business. The divestiture of these two businesses will result in a Tremco annual
revenue base of approximately $230 million and a net purchase price for the
Tremco acquisition of approximately $125 million.
In June 1996, the Company acquired all of the outstanding shares of
Composite Structures International (formerly Okura Holdings, Inc.), a
manufacturer of molded and pultruded fiberglass reinforced plastic grating
products, used for pedestrian walkways, platforms, staircases and similar types
of industrial structures.
In addition to the above acquisitions, in January 1997, the Company's
subsidiary, Bondo/Mar-Hyde, acquired substantially all of the assets of the
Automotive Division of Marson Corporation and Marson Canada Inc. ("Marson
Automotive") in exchange for RPM Common
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Shares. Marson Automotive supplies the automotive paint, body and repair, and
equipment market and manufactures auto body fillers, and distributes a diverse
group of other automotive products and tools.
DISPOSITIONS
Subsequent to the May 31 fiscal year-end, in addition to the sale of
the Tremco businesses discussed previously, the Company received the proceeds
from the sale of its craft and hobby products unit, Craft House. Craft House's
primary products include: paint-by-number-sets, licensed coloring and painting
activities, children's crafts, plastic model kits, chemistry sets, science
activities, and die cast collectibles. The Company's decision to divest Craft
House was driven by its commitment to its core product markets. Other
divestitures during the fiscal year include PCI Industries, Inc., Label Systems,
Inc., and the Hagerstown, Maryland resin facility of Rust-Oleum Corporation.
BUSINESS
RPM operates principally in one business segment, the
manufacture and marketing of protective coatings. These protective coatings
products are used for both industrial and consumer applications. For industrial
applications, RPM manufactures and markets coatings for waterproofing and
general maintenance, corrosion control, and other specialty chemical
applications. For consumer applications, RPM manufactures do-it-yourself
products for the home maintenance, automotive repair, hobby and leisure and
marine markets. RPM, through its operating companies, serves niche markets
within these broader categories, thus providing a foundation for its strategy of
growth through product line extensions.
The protective coating products manufactured by RPM are used
primarily on property which already exists. RPM is not involved to any great
degree in new construction and, therefore, is generally less affected by
cyclical movements in the economy. RPM markets its products in approximately 130
countries and operates manufacturing facilities in 59 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, England, Malaysia, The
Netherlands, Poland, Singapore and South Africa.
INDUSTRIAL PRODUCTS
RPM's industrial products represent approximately 60% of the
Company's sales. The numerous protective coatings manufactured by the Company
are used in a variety of industrial applications including waterproofing,
general maintenance, corrosion control and other specialty chemical
applications.
The Company manufactures a number of products designed for
waterproofing applications. These waterproofing products include sealants, deck
coatings, membranes and water-based coatings for commercial and industrial
maintenance produced by the Company's
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Mameco International, Martin Mathys, Consolidated Coatings, ESPAN, and newly
acquired Tremco businesses.
The Company also manufactures a variety of products used for
general commercial and industrial maintenance. These products include roofing
products, such as asphaltic aluminum roof deck coating produced by RPM's
original business unit, Republic Powdered Metals, Geoflex and Hy-Shield premium
single-ply roofing materials and Tremco roofing systems. Other products include
high-performance polymer floors, linings and wall systems produced by Stonhard,
molded and pultruded fiberglass reinforced plastic grating products manufactured
by Composite Structures International (formerly Okura Holdings, Inc.), under the
brand names of Chemgrate and Fibergrate, as well as Dryvit coatings and
adhesives for exterior wall insulating finishing systems and TCI powdered
coatings.
The Company's industrial product line also includes a
broad-line of high-performance corrosion control coatings. The Company's
Carboline subsidiary manufactures high-performance corrosion-resistant
protective coatings, fireproofing, tank linings and floor coatings, and markets
these products to industrial, architectural and applicator companies throughout
the world. The Company's various other corrosion-resistant coatings include the
Rust-Oleum, Plasite and Alox brands.
The Company also produces a variety of specialty chemical
products within selected niche markets. Products manufactured for specialty
chemical applications include: Day-Glo Color and Radiant Color fluorescent
colorants and pigments; Mohawk, Star Finishing and Chemical Coatings furniture
repair and restoration coatings; Chemspec commercial carpet cleaning solutions;
ValvTect diesel fuel additives; Wolman industrial lumber treatments; American
Emulsions dye additives for textile dying and finishing; and concrete admixtures
sold by Euclid Chemical, RPM's 50-50 joint venture with Holderbank Group.
CONSUMER PRODUCTS
RPM's consumer products represent approximately 40% of the
Company's sales. The Company's consumer products include products designed for
the household do-it-yourself, automotive repair, hobby and leisure and marine
markets.
RPM's primary consumer do-it-yourself businesses are
Rust-Oleum, Zinsser, Kop-Coat and Bondex International. Rust-Oleum manufactures
high quality corrosion-resistant, general purpose and decorative coatings for
the household maintenance and light industrial markets. Zinsser manufactures a
broad line of specialty primers and sealants and is the nation's leading
producer of shellac items used as pharmaceutical glazes, confectioner's glazes,
citrus fruit coatings and wood coatings. Kop-Coat manufactures pleasure marine
coatings and compounds and wood treatment products. Bondex International
produces a nationwide line of household patch and repair products, in addition
to basement waterproofing products. Other consumer do-it-yourself products
include: fabrics, window treatments and wall coverings sold by Design/Craft
Fabric and Richard E. Thibaut; and Wolman deck coatings, sealants and
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brighteners. RPM's consumer do-it-yourself products are marketed through
thousands of mass merchandise, home center and hardware stores throughout North
America.
The Company also manufactures products for the hobby and
leisure markets including: Testor's model kits and accessory products and
Floquil/Polly S Color hobby, art and craft coatings. RPM's consumer hobby and
leisure products are marketed through thousands of mass merchandise, toy and
hobby stores throughout North America.
Other consumer product lines include repair and auto body
paints and specialty products for the automotive aftermarket manufactured by the
Company's Bondo/Mar-Hyde business, which includes the recently acquired
Automotive Division of Marson Corporation. Products marketed by these units
include spray paints, body fillers, vinyl colors, bumper repair products and
other specialty repair products. The Company also manufactures a variety of
products for the marine aftermarket, including Pettit, Woolsey and Z-Spar brands
of coatings.
FOREIGN OPERATIONS
The Company's foreign operations for the fiscal year ended May
31, 1997 accounted for approximately 15% of its total sales, although it also
receives license fees and royalty income from numerous license agreements and
also has joint ventures in various foreign countries. The Company has
manufacturing facilities in Argentina, Belgium, Brazil, Canada, China, England,
Malaysia, The Netherlands, Poland, Singapore and South Africa, and sales offices
or public warehouse facilities in the Czech Republic, England, France, Iberia,
Mexico, the Philippines, Singapore and several other countries. Information
concerning the Company's foreign operations is set forth in Note I (Industry
Segment and Geographic Area Information) of Notes to Consolidated Financial
Statements, which appear elsewhere in this Annual Report on Form 10-K.
COMPETITION
The Company is engaged in a highly competitive industry and,
with respect to all of its major products, faces competition from local and
national firms. Several of the companies with which RPM competes have greater
financial resources and sales organizations than the Company. While no accurate
figures are available with respect to the size of or the Company's position in
the market for any particular product, management believes that the Company is a
major producer of aluminum coatings, cement-based paint, hobby paints, pleasure
marine coatings, furniture finishing repair products, automotive repair
products, industrial corrosion control products, consumer rust-preventative
coatings, polymer flooring, fluorescent coatings and pigments, exterior
insulation finish systems, molded and pultruded fiberglass reinforced plastic
grating and shellac-based coatings. The Company, however, does not believe that
it has a significant share of the total protective coatings market.
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INTELLECTUAL PROPERTY
The intellectual property portfolios of the subsidiaries of
the Company include numerous valuable patents, trade secrets and know-how,
trademarks and trade names. Significant research and technology development
continues to be conducted by the subsidiaries. However, no single patent,
trademark, name or license, or group of these rights, other than the marks
Day-Glo(R), Rust-Oleum(R), Carboline(R) and Tremco(R), are material to the
Company's business.
Day-Glo Color Corp., a subsidiary of the Company, is the owner
of over 50 trademark registrations of the mark and name "DAY-GLO(R)" in numerous
countries and the United States for a variety of fluorescent products. There are
also many other foreign and domestic registrations for other trademarks of the
Day-Glo Color Corp., for a total of over 100 registrations. These registrations
are valid for a variety of terms ranging from one year to 20 years, which terms
are renewable as long as the marks continue to be used. Renewal of these
registrations is done on a regular basis.
Rust-Oleum Corporation, a subsidiary of the Company, is the
owner of over 50 United States trademark registrations for the mark and name
"RUST-OLEUM(R)" and other trademarks covering a variety of rust-preventative
coatings sold by Rust-Oleum Corporation. There are also many foreign
registrations for "RUST-OLEUM(R)" and the other trademarks of Rust-Oleum
Corporation, for a total of nearly 400 registrations. These registrations are
valid for a variety of terms ranging from one year to 20 years, which terms are
renewable for as long as the marks continue to be used. Renewal of these
registrations is done on a regular basis.
Carboline Company, a subsidiary of the Company, is the owner
of a United States trademark registration for the mark "CARBOLINE(R)." Carboline
Company is also the owner of several other United States registrations for other
trademarks. Renewal of these registrations is done on a regular basis.
Tremco Incorporated, a subsidiary of the Company, which was
acquired in February 1997, is the owner of over 100 registrations for the mark
and name "TREMCO(R)" in numerous countries and the United States for a variety
of sealants and coating products. There are also many other foreign and domestic
registrations for other trademarks of Tremco Incorporated, for a total of over
600 registrations and applications. The registrations are valid for a variety of
terms ranging from one year to 20 years, which terms are renewable as long as
the marks continue to be used. Renewal of the registration is done on a regular
basis.
The Company's other valuable product trademarks also include:
ALOX(R), ALUMANATION(R), AVALON(R), B-I-N(R), BITUMASTIC(R), BONDO(R),
BONDEX(R), BULLS EYE(R), CHEMGRATE(R), DRYVIT(R), DYMERIC(R), DYNALITE(R),
DYNATRON(R), EASY FINISH(R), EPOXSTEEL(R), FIBERGRATE(R), FLOQUIL(R),
GEOFLEX(R), LUBRASPIN(TM), MAR-HYDE(R), MOHAWK and DESIGN(R), OUTSULATION(R),
PARASEAL(R), PERMAROOF(R), PETTIT(TM), PLASITE(R), SANITILE(R), STONCLAD(R),
STONHARD(R), STONLUX(R), TALSOL(R), TCI(TM), TESTORS(R), ULTRALITE(TM),
VULKEM(R), WOOLSEY(R), ZINSSER(R) and Z-SPAR(R); and, in Europe, RADGLO(R) and
MARTIN MATHYS(R).
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RAW MATERIALS
The Company believes that alternate sources of supply of raw
materials are available to the Company for most of its raw materials. Where
shortages of raw materials have occurred, the Company has been able to
reformulate products to use more readily available raw materials. Although the
Company has been able to reformulate products to use more readily available raw
materials in the past, there can be no assurance as to the Company's ability to
do so in the future.
SEASONAL FACTORS
The Company's business is seasonal due to outside weather
factors. The Company historically experiences strong sales and income in its
first, second and fourth fiscal quarters comprised of the three month periods
ending August 31, November 30 and May 31, respectively, with weaker performance
in its third fiscal quarter (December through February).
CUSTOMERS
No one customer accounted for 10% or more of the Company's
total sales. The Company's business is not dependent upon any one customer or
small group of customers and is dispersed over thousands of customers.
BACKLOG
The Company historically has not had a significant backlog of
orders, nor was there a significant backlog during the last fiscal year.
RESEARCH
The Company's research and development work is performed in
various laboratory locations throughout the United States. During fiscal years
1997, 1996 and 1995, the Company invested approximately $14.6 million, $13.7
million and $12.3 million, respectively, on research and development activities.
The customer sponsored portion of such expenditures was not significant.
ENVIRONMENTAL MATTERS
Several of the Company's subsidiaries are involved in various
environmental claims or proceedings relating to facilities currently or
previously owned, operated or used by such subsidiaries, or their predecessors.
In addition, the Company or its subsidiaries, together with other parties, have
been designated as potentially responsible parties ("PRPs") under federal and
state environmental laws for the remediation of hazardous waste at certain
disposal sites (see ITEM 3. LEGAL PROCEEDINGS). In connection with its
evaluation of these PRP sites, the Company's management takes into consideration
the input of outside legal counsel, the number of parties
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involved at the site, joint and several liability of other PRPs, and the level
of volumetric contribution which may be attributed to the Company relative to
that attributable to other parties at such sites. Based on the above analysis,
management estimates, to the extent possible, the restoration or other clean-up
costs and related claims for each site.
The Company's environmental-related accruals are established
and/or adjusted as information becomes available upon which more accurate costs
can be reasonably estimated. Actual costs may vary from these estimates due to
the inherent uncertainties involved. In management's opinion, based upon
information presently available, the outcome of these environmental matters will
not have a material adverse effect on the Company's financial position, results
of operations or liquidity. However, such costs could be material to results of
operations in a future period.
EMPLOYEES
As of June 30, 1997, the Company employed 6,651 persons, of
whom 772 were represented by unions under contracts which expire at varying
times in the future. The Company believes that its relations with its employees
are good.
ITEM 2. PROPERTIES.
The Company's corporate headquarters and a plant and offices
for one subsidiary are located on an 80-acre site in Medina, Ohio, which is
owned by the Company. The Company's operations occupy a total of approximately
6.1 million square feet, with the majority, approximately 5.1 million square
feet, devoted to manufacturing, assembly and storage. Of the approximately 6.1
million square feet occupied, 5.0 million square feet are owned and 1.1 million
square feet are occupied under operating leases. The Company's facilities of
200,000 square feet or larger, as of June 30, 1997, are set forth in the table
below.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
TYPE OF OF LEASED OR
LOCATION FACILITY FLOOR SPACE OWNED
-------- -------- ----------- -----
<S> <C> <C> <C>
Pleasant Prairie, Manufacturing and 298,000 Owned
Wisconsin Warehouse (Rust-Oleum
Corporation)
Toronto, Canada Manufacturing, 207,000 Owned
Warehouse and
Laboratory (Tremco
Incorporated)
</TABLE>
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For information concerning the Company's rental obligations,
see Note E (Leases) of Notes to Consolidated Financial Statements, which appear
elsewhere in this Annual Report on Form 10-K. Under all of its leases, the
Company is obligated to pay certain varying insurance costs, utilities, real
property taxes and other costs and expenses.
The Company believes that its manufacturing plants and office
facilities are well maintained and suitable for the operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
Bondex.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, and as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1996, November
30, 1996 and February 28, 1997, Bondex International, Inc., a wholly-owned
subsidiary of the Company ("Bondex"), was one of numerous corporate defendants
in 455 then pending asbestos-related bodily injury lawsuits filed on behalf of
various individuals in various jurisdictions of the United States. Subsequently,
an additional 26 such cases have been filed and 24 such cases which had been
filed were dismissed with prejudice without payment pursuant to summary judgment
or stipulation of the parties, leaving a total of 457 such cases pending. Bondex
continues to deny liability in all asbestos-related lawsuits and continues to
vigorously defend them. Under a cost-sharing agreement among Bondex and its
insurers effected in 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.
Carboline.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, 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., vs. Ceilcote Company, et al., Cause No.
89-CI-12651, in the 73rd Judicial District Court of Bexar County, Texas, 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 on December 29, 1993 in Rusk County, Texas. That suit,
Mary Gunn, et al. vs. Southern Imperial Coatings Corp., et al, Cause No. 93-470,
in the 4th Judicial District Court, Rusk County, Texas, involves 155 worker
plaintiffs and 82 spouses. All of the suits allege bodily injury as a result of
exposure to defendants' products. The litigation is continuing in the discovery
stage. With respect to the Bexar County cases, the court has indicated that
summary jury trials involving 10 plaintiffs each will be scheduled, although
specific trial dates have not been set. Carboline has denied all liability in
these cases and is conducting a vigorous defense. Several of Carboline's
insurance carriers, and Carboline, are defending the lawsuits under a
cost-sharing agreement.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, in September 1991, Our Lady of the
Lake Hospital, Inc. ("OLOL") filed suit captioned Our Lady of the Lake Hospital,
Inc. vs. Carboline Company, et al, Number 373,498, Division "J", Nineteenth
Judicial District Court, Parish of East Baton Rouge, State of Louisiana,
alleging that a fireproofing product manufactured by Carboline, known as
Pyrocrete 102, caused damage to the structural steel of the hospital which OLOL
owns and operates in Baton Rouge, Louisiana. Sun Company, Inc. ("Sun") and
Carboline Company, a Missouri corporation which was merged into Sun pursuant to
a statutory merger in 1980 ("Carboline Missouri") were also named as defendants
in the litigation. OLOL claimed it would cost in excess of $20 million to repair
the damage to the hospital building and also sought damages for lost revenues,
lost profits, punitive damages and attorney fees.
In August 1992, OLOL filed two related suits against Sun
captioned Our Lady of the Lake Hospital, Inc. vs. Sun Company, Inc., Numbers
384,867, and 395,932, Division "I", Nineteenth Judicial District Court, Parish
of East Baton Rouge, State of Louisiana, making allegations similar to the
allegations in Number 373,498, described above, and seeking to recover alleged
damages to the structural steel of the OLOL hospital.
Carboline denied the allegations of both OLOL's claims and
vigorously contested them. Carboline's defense was assumed by First Colonial
Insurance Company ("First Colonial"), a wholly-owned insurance subsidiary of the
Company. Pursuant to an agreement between Carboline and Sun, Carboline provided
a defense for Sun in this litigation.
In May 1995, Carboline filed a Supplemental and Amended Third
Party Demand in Case Number 373,498, against a number of its primary and excess
insurance carriers seeking, among other things, a judgment that the insurance
carriers were obligated to defend and/or indemnify Carboline against the claims
alleged by OLOL. In their Answers to Carboline's Supplemental and Amended Third
Party Complaint, the insurance carriers raised a number of exceptions and
defenses to Carboline's claims for defense and indemnity.
On July 10, 1996, OLOL, Carboline and Sun entered into a
confidential Settlement Agreement with respect to all claims and disputes
presented in, arising out of, or relating in any way to the claims filed by OLOL
in Case Numbers 373,498; 384,867; and 395,932. The confidential settlement
payment to OLOL was primarily funded with payments and commitments from several
Carboline insurers, along with a contribution by Carboline. Pursuant to the
settlement, OLOL's petitions, as supplemented and amended, in Case Numbers
373,498, 384,867 and 395,932, were dismissed with prejudice.
Carboline has entered into confidential settlements with a
number of its insurers who have been or will be dismissed from the litigation.
Carboline's third party claims against certain non-settling insurers and other
parties remain pending in Case Number 373,498. Carboline is currently engaged in
settlement negotiations with the remaining third party defendants. The trial of
Carboline's third party claims is not scheduled at this time.
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In April 1995, the Company and Carboline were joined as
defendants in La Gloria Oil & Gas Company vs. Carboline Company, et al., Cause
No. 95-959-C, in the 241st Judicial District Court of Smith County, Texas. Sun
is also named as a defendant based on its prior ownership of Carboline. In that
case, the plaintiff, an owner and operator of a petroleum refinery in Tyler,
Texas, contends that a fireproofing product previously designed and manufactured
by Carboline, Pyrocrete 102, is defective and not fit for its intended purpose.
More specifically, the plaintiff contends that the product resulted in
deterioration and corrosion of various steel components at the refinery.
Additionally, the plaintiff contends that Carboline has been engaged in fraud
and a civil conspiracy in connection with the alleged failure to disseminate
information concerning Pyrocrete 102. The plaintiff has alleged similar claims
against Sun. In its Fourth Amended Original Petition, plaintiff seek $25 million
in actual damages and up to four times the amount of actual damages in exemplary
damages. The Company was joined in the litigation as a defendant based upon the
contention that it was also involved in fraud and a conspiracy with respect to
the subject product. The Company filed a special appearance, contending that the
Texas court did not have personal jurisdiction over the Company. On July 1,
1996, the court sustained the special appearance and dismissed all claims and
causes of action against the Company. The time period for an appeal has now
expired, and the dismissal in favor of the Company is final. The case continues
against Carboline and Sun, as well as co-defendant Brown & Root, Inc. The case
is in the discovery phase, and is set for trial on November 3, 1997. Pursuant to
an agreement between Carboline and Sun, Carboline is providing a defense for Sun
in this litigation.
Carboline has denied the allegations in the litigation and
intends to vigorously defend the case. Although there has been diminishment of
insurance policy limits available to Carboline as a result of the settlement of
the Our Lady of the Lake Hospital, Inc. v. Carboline Company, et al. litigation,
the Company believes that the ultimate resolution of this matter will not have a
material adverse effect on the Company's financial position or results of
operations.
Mac-O-Lac.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, the Company has been identified as
a PRP under CERCLA in connection with the Rose Township Dump Site, Rose
Township, Michigan (the "Rose Township Site") and the Springfield Township Dump
Site, Springfield Township, Michigan (the "Springfield Site") as a consequence
of the disposal of waste originating at Mac-O-Lac Paints, Inc., a former
subsidiary of the Company whose assets were sold in February 1982.
With respect to the Rose Township Site, the Company and eleven
other PRPs signed a Consent Decree which, on July 18, 1989, was entered by the
Court in United States of America vs. AKZO Coatings of America, Inc. et al.,
U.S. District Court, Eastern District of Michigan, Southern Division; Civil
Action No. 88-CV-73784-DT. Pursuant to the agreement, the PRPs established a $9
million fund to cover costs of remediation, of which the Company's share,
$300,000, has been paid.
With respect to the Springfield Site, the Company and other
PRPs engaged in negotiations with the EPA and the Michigan Department of Natural
Resources in an effort to reach
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agreement on mutually acceptable remediation parameters and have negotiated
Administrative Orders on Consent Regarding Selected Response Activities and for
Cost Recovery Settlement.
Based upon a July 14, 1995 decision of the United States Court
of Appeals for the Sixth Circuit in United States of America vs. Cordova
Chemical Company et al.; Case No. 92-2288, the Company believes it has no
liability under CERCLA with respect to either the Rose Township Site or the
Springfield Township Site, and therefore has declined to participate in any
further PRP efforts at either site. The Cordova Chemical case was reheard by the
Court of Appeals en banc and affirmed May 19, 1997. Accordingly, the Company
maintains the position that it has no liability with respect to either site and
therefore considers these matters closed.
Dryvit.
-------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, and as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1996, November
30, 1996 and February 28, 1997, Dryvit Systems, Inc., a wholly-owned subsidiary
of the Company ("Dryvit"), is a defendant or co-defendant in numerous separate
but related lawsuits, some of which have sought to certify classes comprised of
owners of structures clad with exterior insulation finish systems ("EIFS")
products manufactured by Dryvit and other EIFS manufacturers. On September 18,
1996, the North Carolina court presiding over one of the state court cases,
Ruff, et al. v. Parex, Inc., et al., Case No. 96-CVS-0059, entered an order
certifying a class of North Carolina owners of single family or multi-family
residential dwellings which had an EIFS system installed during the period 1969
to the present. On October 4, 1996, the Judicial Panel on Multi-District
Litigation ordered that the nine pending federal court actions be transferred to
Judge Earl Britt of the Eastern District Court of North Carolina for coordinated
or consolidated pre-trial proceedings. Subsequent to that order, one additional
federal court case, Hillman v. Dryvit Systems, Inc., et al., Case No. 3-96-1096,
was filed in U.S. District Court for the District of Minnesota. Pursuant to the
Multi-District Litigation Rules, that case has been consolidated with the other
nine cases under the designation In re Stucco Litigation. Dryvit is also a
co-defendant in an attempted Georgia class action proceeding Hardy, et al. v.
Dryvit Systems, Inc., et al., Case No. 97-CA-E55319.
On August 11, 1997, Judge Britt issued an Order which denied
Plaintiffs' motion for class certification of a national class in the In re
Stucco Litigation. Judge Britt's opinion cited, inter alia, the role of various
third parties (including builders, contractors, architects, EIFS applicators and
window manufacturers) as it relates to liability, causation, and comparative
fault determinations as well as contribution and indemnity considerations.
Dryvit has also been named in approximately 75 additional lawsuits filed against
Dryvit and other parties (including builders, contractors, architects, EIFS
applicators and window manufacturers) by individual homeowners, claiming
moisture intrusion damages on single family residences. Dryvit is vigorously
defending these individual cases and believes it has meritorious defenses,
counter-claims and claims against third parties.
Dryvit's insurers, excluding the Company's wholly-owned
insurance subsidiary First Colonial Insurance Company ("First Colonial"), are
currently paying Dryvit's defense costs,
13
<PAGE> 14
including attorneys' fees and expenses as well as expert witness fees, subject
to a reservation of rights. Dryvit and its insurers (including First Colonial),
are parties to three declaratory judgment actions now pending in California,
Rhode Island and New York, each of which is seeking declaratory judgment as to
the parties' respective defense and indemnity rights and obligations under
various policies issued to Dryvit. Dryvit firmly believes that the damages
sought in these EIFS cases, including Ruff and In re Stucco Litigation, are
covered losses under these policies. The Company believes that the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Mohawk and Westfield.
---------------------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, Mohawk Finishing Products, Inc.
("Mohawk") and Westfield Coatings Corporation ("Westfield"), both wholly-owned
subsidiaries of the Company, were notified by the EPA of their status as PRPs
under CERCLA with respect to environmental contamination at the Solvents
Recovery of New England Site (the "SRS Site") located in Southington,
Connecticut. Since June 1992, the EPA has named in excess of 1,700 entities as
PRPs in connection with the SRS Site. In 1995, the EPA issued a volumetric list
in which Mohawk was assigned a reduced volumetric share of 0.11118% of the waste
sent to the SRS Site and Westfield was assigned a reduced volumetric share of
0.89440%. The PRPs have not as yet agreed to any final allocation formula,
whether based on volume or otherwise. The EPA has completed an early de minimis
settlement with almost 1,000 PRPs who had sent less than 10,000 gallons to the
SRS Site. Neither Mohawk nor Westfield qualified for that settlement. To date,
the EPA and the State of Connecticut have expended in excess of $5 million in
connection with the SRS Site but the EPA has not yet selected the final remedial
action. Several hundred PRPs, including Mohawk and Westfield, have consented to
administrative orders to perform non-time critical removal actions to contain
contaminated water in the aquifer at the SRS Site and to perform both the
Remedial Investigation and Feasibility Study.
In January 1994, the EPA notified Westfield of its status as
one of approximately 300 PRPs at the Old Southington Landfill Superfund Site
(the "Landfill") on the basis that process wastes from the SRS Site were sent to
the Landfill prior to October 1967. The EPA has not issued a volumetric list for
the Landfill, although it has issued a volumetric list of PRPs who sent
materials to the SRS Site prior to October 1967. Westfield's share on that list
is 0.90247%. In September 1994, the EPA issued a Record of Decision which
selected a source control remedy that consisted of installation of a cap on the
Landfill together with a gas collection system. The estimated cost of the source
control remedy is $16.1 million. The EPA has deferred to a second operable unit
the issue of whether to actively remediate groundwater at the Landfill, but is
insisting that certain groundwater studies be performed which will likely cost
several million dollars. The EPA and the PRPs are currently engaged in mediation
in an attempt to reach a settlement with respect to response costs at the
Landfill.
The Company believes that the ultimate resolution of the SRS
Site and the Landfill matters will not have a material adverse effect on the
Company's financial position or results of operations.
14
<PAGE> 15
Rust-Oleum.
-----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, the EPA, in November 1979,
commenced an action captioned United States of America vs. Midwest Solvent
Recovery, Inc., et al.; United States District Court for the Northern District
of Indiana, Eastern Division; Civil No. H-79-556, pertaining to pollution
allegedly occurring at and around real property located at 7400 West Fifteenth
Street, Gary, Indiana ("MIDCO I") and 5900 Industrial Highway, Gary, Indiana
("MIDCO II") (collectively, the "MIDCO Sites"). The Complaint was subsequently
amended in January 1984 to join Rust-Oleum Corporation, a wholly-owned
subsidiary of the Company ("Rust-Oleum"), and other entities as additional
defendants. Rust-Oleum, one of approximately 130 identified PRPs, is alleged to
be associated with the MIDCO Sites as a consequence of disposal of waste
originating at its former Evanston, Illinois plant in the mid-1970's. The Court
approved a Consent Decree in June 1992 under which Rust-Oleum entered into a
Settlement Agreement with the other settling PRPs for the voluntary cleanup of
the MIDCO Sites consistent with the EPA Record of Decision. All surface
hazardous wastes have been removed from the MIDCO Sites and cleanup is now in
the groundwater remediation stage. Remediation should be complete by the year
2002, with monitoring continuing for an undetermined period. Total remediation
and monitoring costs are currently estimated to be $35 million. Included in the
Consent Decree is an Agreement between the Settling PRPs, including Rust-Oleum,
and third parties who had been sued for contribution by the generator PRPs,
providing for payment by the third parties of their fair share of the MIDCO
Sites remedial and response costs. Third party funds have been placed into the
MIDCO Trust Fund, which has been created to fund the MIDCO Site remedial
actions. Rust-Oleum, as a settling PRP, has provided financial assurance for its
share of the cleanup costs in the form of a Letter of Credit.
In March 1988, the EPA named Rust-Oleum and 240 other entities
as PRPs under CERCLA in connection with the Ninth Avenue Site at 7537 Ninth
Avenue, Gary, Indiana (the "Ninth Avenue Site"). Rust-Oleum is alleged to be
associated with the Ninth Avenue Site as a consequence of disposal of waste
originating at its former Evanston, Illinois plant in the 1970's. Rust-Oleum has
cooperated with over twenty other PRPs in a voluntary cleanup under Phase I and
Phase II Participation Agreements and Implementation Trust Agreements. Total
Ninth Avenue Site remediation and monitoring costs are estimated to be
approximately $36 million, including past costs and the Final Site Remedy, which
includes groundwater remediation planned for completion by 1997 and ongoing
monitoring for an undetermined period. The EPA issued an Amended Record of
Decision on September 13, 1994 regarding the Final Site Remedy and an Amended
Unilateral Administrative Order to Rust-Oleum and the other participating PRPs
on December 27, 1994 to undertake the Final Site Remedy. Rust-Oleum and eighteen
other PRPs have entered into a Final Participation Agreement for Final Remedial
Action at the Ninth Avenue Site. Rust-Oleum's allocation of cost is currently
6.048%, with approximately $170,000 remaining to be paid subject, however, to
reduction to the extent settlements are made with non-participating PRPs and
funds are made available from a Trust Fund established by the EPA for de minimis
settlors. Rust-Oleum has provided financial assurance for its share of the Final
Site Remedy in the form of a Letter of Credit.
15
<PAGE> 16
Based upon prior settlement agreements with insurance carriers
for potential costs and remediation liabilities in connection with the MIDCO
Sites and the Ninth Avenue Site, Rust-Oleum has established appropriate reserves
to cover such costs and liabilities. Accordingly, the Company believes that
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 15, 1997 are as follows:
<TABLE>
<CAPTION>
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
<S> <C> <C>
Thomas C. Sullivan 60 Chairman of the Board and Chief Executive Officer
James A. Karman 60 President and Chief Operating Officer
John H. Morris, Jr. 55 Executive Vice President
Frank C. Sullivan 36 Executive Vice President and Chief Financial Officer
Richard E. Klar 64 Vice President
Paul A. Granzier 70 Vice President, General Counsel and Secretary
Glenn R. Hasman 43 Vice President - Financial Operations and Principal Accounting
Officer
Charles R. Brush 61 Vice President - Environmental Affairs
Keith R. Smiley 35 Treasurer
- -----------------------
<FN>
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
</TABLE>
Thomas C. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since October 1971. From June 1971 through
September 1978, Mr. Sullivan served as President and, prior thereto, as
Executive Vice President of the Company. Mr. Sullivan's employment with the
Company commenced in 1961, and he has been a Director since 1963. Mr. Sullivan
is employed as Chairman and Chief Executive Officer under an employment
agreement for a five-year period ending May 31, 2002. Mr. Sullivan is the father
of Frank C. Sullivan, Executive Vice President and Chief Financial Officer of
the Company.
James A. Karman has been President and Chief Operating Officer
since September 1978. From October 1982 to October 1993, Mr. Karman also was the
Chief Financial Officer of
16
<PAGE> 17
the Company. From October 1973 through September 1978, Mr. Karman served as
Executive Vice President, Secretary and Treasurer, and, prior thereto, as Vice
President-Finance and Treasurer of the Company. Mr. Karman's employment with the
Company commenced in 1963, and he has been a Director since 1963. Mr. Karman is
employed as President and Chief Operating Officer under an employment agreement
for a five-year period ending May 31, 2002.
John H. Morris, Jr. has been Executive Vice President since
January 1981. Prior to that time, he was Corporate Vice President of the
Company, having been elected to that position in September 1977. Mr. Morris was
elected a Director of the Company in 1981. Mr. Morris is employed as Executive
Vice President under an employment agreement for a period ending July 31, 1998.
Frank C. Sullivan was elected Executive Vice President in
October 1995 and has been the Chief Financial Officer of the Company since
October 1993. Mr. Sullivan served as a Vice President from October 1991 to
October 1995. Prior thereto, he served as Director of Corporate Development of
the Company from February 1989 to October 1991. Mr. Sullivan served as Regional
Sales Manager, from February 1988 to February 1989, and as a Technical Service
Representative, from February 1987 to February 1988, of AGR Company, an Ohio
General Partnership owned by the Company. Prior thereto, Mr. Sullivan was
employed by First Union National Bank from 1985 to 1986 and Harris Bank from
1983 to 1985. Mr. Sullivan is employed as Executive Vice President and Chief
Financial Officer under an employment agreement for a period ending July 31,
1998. Mr. Sullivan is the son of Thomas C. Sullivan, Chairman of the Board and
Chief Executive Officer of the Company.
Richard E. Klar was elected Vice President in October 1981 and
was Treasurer from July 1980 to February 1997. In February 1997, Mr. Klar was
also named Chief Financial Officer of Tremco Incorporated, a wholly-owned
subsidiary which was acquired by the Company in February 1997. He served as
Chief Accounting Officer from July 1980 to October 1990. Mr. Klar was Treasurer
of Mameco International, Inc., a wholly-owned subsidiary which was acquired by
the Company in February 1979, from 1979 to 1980 and was Mameco's Controller
prior thereto. Mr. Klar is employed as Vice President under an employment
agreement for a period ending July 31, 1998.
Paul A. Granzier has served as Secretary since July 1988, and
as Vice President and General Counsel since October 1987. Prior thereto, he
served as General Counsel since he joined the Company in May 1985. Mr. Granzier
was engaged in the private practice of law from 1981 until he joined the
Company. Prior thereto, he served as Assistant Corporate Counsel and Assistant
Secretary of Midland-Ross Corporation. Mr. Granzier is employed as Vice
President, General Counsel and Secretary under an employment agreement for a
period ending May 31, 1998.
Glenn R. Hasman has served as Vice President-Financial
Operations since October 1993. From July 1990 to October 1993, Mr. Hasman served
as Controller. From September 1982 through July 1990, Mr. Hasman served in a
variety of management capacities, most recently Vice President-Operations and
Finance, Chief Financial Officer and Treasurer, of Proko Industries, Inc., a
former wholly-owned subsidiary of the Company. From 1979 to 1982, Mr. Hasman
served as
17
<PAGE> 18
RPM's Director of Internal Audit and from 1976 to 1979 he was associated with
Ciulla, Smith & Dale, LLP, independent accountants. Mr. Hasman is employed as
Vice President-Financial Operations under an employment agreement for a period
ending July 31, 1998.
Charles R. Brush has served as Vice President-Environmental
Affairs of the Company since October 1993. From June 1991 to October 1993, he
served as the Company's Director of Environmental & Regulatory Affairs. Prior
thereto, from 1988 to June 1991, he served as Vice President-Environmental &
Risk Management of Kop-Coat, Inc., a wholly-owned subsidiary of the Company.
Prior thereto, he served as Vice President and Manager of Koppers Company,
Inc.'s international environmental consulting business.
Keith R. Smiley has served as Treasurer of the Company since
February 1997. From October 1993 to February 1997, he served as Controller of
the Company. From January 1992 until February 1997, Mr. Smiley also served as
the Company's Internal Auditor. Prior thereto, he was associated with Ciulla,
Smith & Dale, LLP.
18
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RPM Common Shares, without par value, are traded on the Nasdaq
National Market. Common Share prices are quoted daily under the symbol RPOW. The
high and low sales prices for the Common Shares, and the cash dividends paid on
the Common Shares, for each quarter of the two most recent fiscal years is set
forth in the table below.
RANGE OF SALES PRICES
<TABLE>
<CAPTION>
Dividends Paid
Fiscal 1997 High Low Per Share
----------- ---- --- ---------
<S> <C> <C> <C>
1st Quarter $ 16-5/8 $ 14-3/8 $0.120
2nd Quarter 18-1/4 15-3/4 0.130
3rd Quarter 18-7/8 16-3/4 0.130
4th Quarter 19-1/4 15-5/8 0.130
Dividends Paid
Fiscal 1996 High Low Per Share
------------- ---- --- ---------
1st Quarter $ 16-11/16 $ 15-1/2 $0.112
2nd Quarter 17-3/16 15-5/16 0.120
3rd Quarter 17-1/4 14-3/4 0.120
4th Quarter 16-5/8 14-1/2 0.120
</TABLE>
- --------------------
Source: The Wall Street Journal
Cash dividends are payable quarterly, upon authorization of
the Board of Directors. Regular payment dates are approximately the 30th day of
July, October, January and April. RPM maintains a Dividend Reinvestment Plan
whereby cash dividends, and a maximum of an additional $5,000 per month, may be
invested in RPM Common Shares purchased in the open market at no commission cost
to the participant.
The number of holders of record of RPM Common Shares as of
August 20, 1997 was approximately 42,785.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
data of the Company for each of the five years during the period ended May 31,
1997. The data was derived from the annual Consolidated Financial Statements of
the Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
19
<PAGE> 20
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
--------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands, except per share
and percentage data)
<S> <C> <C> <C> <C> <C>
Net sales $1,350,537 $1,136,396 $1,030,736 $825,292 $768,372
Income before income taxes 135,728 119,886 108,492 89,207 66,136
Net income 78,315 68,929 62,616 53,753 39,498
Return on sales % 5.8 6.1 6.1 6.5 5.1
Primary earnings per share 1.00 0.90 0.85 0.74 0.59
Fully diluted earnings per share 0.95 0.86 0.81 0.70 0.57
Shareholders' equity 493,296 445,833 350,469 316,444 243,899
Shareholders' equity per share 6.30 5.82 4.76 4.33 3.66
Return on shareholders' equity % 16.7 17.3 18.8 19.2 16.6
Average shares outstanding 78,315 76,548 73,660 73,003 66,584
Cash dividends paid 39,746 35,597 31,259 27,949 22,370
Cash dividends per share 0.51 0.47 0.44 0.41 0.38
Retained earnings 270,465 231,896 199,527 169,687 146,852
Working capital 478,535 275,722 271,635 231,684 191,872
Total assets 1,633,228 1,155,076 965,523 665,966 648,524
Long-term debt 784,439 447,654 407,041 233,969 258,712
Depreciation and amortization 51,145 42,562 37,123 26,050 22,283
</TABLE>
- ---------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is set forth at pages 24
through 26 of the 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 26
through 36 of the 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
20
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as to the Directors of the
Company appearing under the caption "Election of Directors" in the Company's
1997 Proxy Statement is incorporated herein by reference. Information required
by this item as to the Executive Officers of the Company is included as Item 4A
of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to
Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation
S-K is set forth in the 1997 Proxy Statement under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 1997
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is set forth in the 1997
Proxy Statement under the heading "Share Ownership of Principal Holders and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth in the 1997
Proxy Statement under the heading "Election of Directors," which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of this 1997 Annual Report on
Form 10-K:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the 1997 Annual Report to Shareholders on pages 26
through 36, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets - May 31, 1997 and 1996
Consolidated Statements of Income -
years ended May 31, 1997, 1996 and 1995
21
<PAGE> 22
Consolidated Statements of Shareholders'
Equity - years ended May 31, 1997, 1996
and 1995
Consolidated Statements of Cash Flows -
years ended May 31, 1997, 1996 and 1995
Notes to Consolidated Financial
Statements (including Unaudited Quarterly
Financial Information)
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of the Company and its subsidiaries and the report of
independent auditors thereon are filed as part of this Annual Report on Form
10-K and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the 1997 Annual
Report to Shareholders:
Schedule Page No.
-------- --------
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying S-2
Accounts and Reserves
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits.
---------
See the Index to Exhibits at page E-1 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K.
--------------------
The Company filed a Current Report on Form 8-K/A, dated February 1,
1997, during the fourth fiscal quarter, to provide pro forma financial
information required under Item 2, relating to the Company's acquisition of
Tremco Incorporated. The following financials statements were filed therewith:
22
<PAGE> 23
Pro Forma Condensed Combined Financial Statements (Unaudited)
RPM, Inc. and Subsidiaries and Tremco Incorporated
Pro Forma Condensed Combined Statement of Income (Unaudited) for the
Year Ended May 31, 1996
Pro Forma Condensed Combined Statement of Income (Unaudited) for the
Nine Months Ended February 28, 1997
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 28, 1997 By: /s/ Thomas C. Sullivan
------------------------
Thomas C. Sullivan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature and Title
- -------------------
Chairman of the Board of
/s/ Thomas C. Sullivan Directors and Chief Execu-
- ------------------------- tive Officer (Principal
Thomas C. Sullivan Executive Officer)
/s/ James A. Karman President and Chief Operating
- ------------------------- Officer and a Director
James A. Karman
/s/ Frank C. Sullivan Executive Vice President and Chief
- ------------------------- Financial Officer (Principal
Frank C. Sullivan Financial Officer) and a Director
/s/ Glenn R. Hasman Vice President-Financial Operations
- ------------------------- (Principal Accounting Officer)
Glenn R. Hasman
/s/ Max D. Amstutz Director
- -------------------------
Max D. Amstutz
/s/ Edward B. Brandon Director
- -------------------------
Edward B. Brandon
24
<PAGE> 25
/s/ Lorrie Gustin Director
- -------------------------
Lorrie Gustin
/s/ E. Bradley Jones Director
- -------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- -------------------------
Donald K. Miller
/s/ John H. Morris, Jr. Executive Vice President
- ------------------------- and a Director
John H. Morris, Jr.
/s/ Kevin O'Donnell Director
- -------------------------
Kevin O'Donnell
/s/ William A. Papenbrock Director
- -------------------------
William A. Papenbrock
/s/ Albert B. Ratner Director
- -------------------------
Albert B. Ratner
Date: August 28, 1997
25
<PAGE> 26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and
Shareholders
RPM, Inc. and Subsidiaries
Medina, Ohio
The audits referred to in our report to the Board of Directors and Shareholders
of RPM, Inc. and Subsidiaries dated July 10, 1997, relating to the consolidated
financial statements of RPM, Inc. and Subsidiaries included the audit of the
schedule listed under Item 14 of Form 10-K for each of the three years in the
period ended May 31, 1997. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ Ciulla, Smith & Dale, LLP
Ciulla, Smith & Dale, LLP
S-1
<PAGE> 27
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Schedule II
----------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Additions
Charged To
Balance at Selling and Balance at
Beginning General and End
Of Period Administrative Acquisitions Deductions Of Period
--------- -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year Ended May 31, 1997
- -----------------------
Allowance for doubtful accounts $ 9,993 $ 4,701 $ 1,620 $ 4,308 (1) $12,006
======= ======= ========= ======= =======
Accrued loss reserves - Current $33,731 $14,353 $ 4,908 $15,293 (2) $37,699
======= ======= ========= ======= =======
Accrued warranty reserves - Long-term $ 768 $ 1,755 $ 16,040 $ 801 (2) $17,762
======= ======= ========= ======= =======
Year Ended May 31, 1996
- -----------------------
Allowance for doubtful accounts $ 9,813 $ 3,448 $ 721 $ 3,989 (1) $ 9,993
======= ======= ========= ======= =======
Accrued loss reserves - Current $23,897 $12,771 $ 9,096 $12,033 (2) $33,731
======= ======= ========= ======= =======
Accrued warranty reserves - Long-term $ 755 $ 915 $ $ 902 (2) $ 768
======= ======= ========= ======= =======
Year Ended May 31, 1995
- -----------------------
Allowance for doubtful accounts $ 8,198 $ 3,247 $ 1,248 $ 2,880 (1) $ 9,813
======= ======= ========= ======= =======
Accrued loss reserves - Current $12,978 $12,767 $ 5,420 $ 7,268 (2) $23,897
======= ======= ========= ======= =======
Accrued warranty reserves - Long-term $ 738 $ 674 $ $ 657 (2) $ 755
======= ======= ========= ======= =======
<FN>
(1) Uncollectible accounts written off, net of recoveries
(2) Primarily claims paid during the year
</TABLE>
S-2
<PAGE> 28
RPM, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended Articles of Incorporation, as amended, which is
incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
3.2 Amended Code of Regulations, which is incorporated herein
by reference to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1996.
4.1 Specimen Certificate of Common Shares, without par value,
of RPM, Inc., which is incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-3 (Reg. No. 33-39849).
4.2 Specimen LYONs(TM)Certificate, which is incorporated
herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3 (Reg. No. 33-50868).
4.3 Specimen Note Certificate for 7.0% Senior Notes Due 2005,
which is incorporated herein by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-4 as
filed with the Commission on August 3, 1995.
4.4 Indenture, dated as of June 1, 1995, between RPM, Inc. and
The First National Bank of Chicago, as trustee, with
respect to the 7.0% Senior Notes Due 2005, which is
incorporated herein by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-4 as filed with
the Commission on August 3, 1995.
4.5 Indenture, dated as of September 15, 1992, between RPM,
Inc. and The First National Bank of Chicago, as trustee,
with respect to the LYONs, which is incorporated herein by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3 (Reg. No. 33-50868).
*10.1 Amended Employment Agreement, dated as of July 22, 1981,
by and between RPM, Inc. and Thomas C. Sullivan, Chairman
of the Board and Chief Executive Officer, which is
incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
*10.1.1 Amendment to Amended Employment Agreement, dated as of
July 16, 1997, by and between RPM, Inc. and Thomas C.
Sullivan, Chairman of the Board and Chief Executive
Officer.
*10.2 Amended Employment Agreement, dated as of July 22, 1981,
by and between RPM, Inc. and James A. Karman, President
and Chief Operating Officer, which is incorporated herein
by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1996.
E-1
<PAGE> 29
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.2.1 Amendment to Amended Employment Agreement, dated as of
July 16, 1997, by and between RPM, Inc. and James A.
Karman, President and Chief Operating Officer.
*10.3 Employment Agreement, dated as of July 15, 1992, by and
between RPM, Inc. and Frank C. Sullivan, Executive Vice
President and Chief Financial Officer.
*10.4 Form of Employment Agreement entered into by and between
RPM, Inc. and each of John H. Morris, Jr., Executive Vice
President, Richard E. Klar, Vice President, Paul A.
Granzier, Vice President, General Counsel and Secretary,
and Glenn R. Hasman, Vice President - Financial
Operations, which is incorporated herein by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996.
*10.4.1 Form of Amendments to Employment Agreements, dated as of
July 16, 1997, by and between RPM, Inc. and each of John
H. Morris, Jr., Executive Vice President, Glenn R. Hasman,
Vice President -Financial Operations, and Frank C.
Sullivan, Executive Vice President and Chief Financial
Officer.
*10.4.2 Amendment to Amended Employment Agreement, dated as of
July 16, 1997, by and between RPM, Inc. and Paul A.
Granzier, Vice President, General Counsel and Secretary.
*10.4.3 Amendment to Amended Employment Agreement, dated as of
July 16, 1997, by and between RPM, Inc. and Richard E.
Klar, Vice President.
*10.5 RPM, Inc. 1979 Stock Option Plan, as amended, and form of
Stock Option Agreements used in connection therewith,
which is incorporated herein by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1996.
*10.6 RPM, Inc. 1989 Stock Option Plan, as amended, and form of
Stock Option Agreements to be used in connection
therewith, which is incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996.
*10.7 RPM, Inc. 1996 Stock Option Plan, and form of Stock Option
Agreement to be used in connection therewith.
*10.8 RPM, Inc. Retirement Savings Trust and Plan, as amended,
which is incorporated herein by reference to Exhibit 10.7
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1996.
*10.9 RPM, Inc. Benefit Restoration Plan, which is incorporated
herein by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
*10.10 RPM, Inc. Board of Directors' Deferred Compensation
Agreement, as amended and restated, which is incorporated
herein by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1994.
E-2
<PAGE> 30
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.11 RPM, Inc. Deferred Compensation Plan for Key Employees,
which is incorporated herein by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1994.
*10.12 RPM, Inc. Incentive Compensation Plan, which is
incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
*10.13 Form of Indemnification Agreement entered into by and
between the Company and each of its Directors and
Executive Officers, which is incorporated herein by
reference to Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1996.
10.14 Credit Agreement, dated as of December 14, 1993, by and
between RPM, Inc., RPOW (France) S.A., RPM Europe B.V.,
Radiant Color, N.V., Credit Lyonnais Chicago Branch,
Credit Lyonnais Cayman Island Branch and Credit Lyonnais
Belgium, which is incorporated herein by reference to
Exhibit 4.3 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1994.
10.15 Credit Agreement, dated as of February 3, 1997, between
the Company, the Banks identified on the Signature Pages
thereto, National City Bank as Documentation Agent, and
the Chase Manhattan Bank as Administrative Agent, which is
incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended February 28, 1997.
10.16 Stock Purchase Agreement, dated as of October 21, 1996,
between B.F. Goodrich and the Company, which is
incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated February 1,
1997.
10.17 Amendment No. 1 to the Stock Purchase Agreement, dated as
of February 1, 1997, between B.F. Goodrich and the
Company, which is incorporated herein by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K
dated February 1, 1997.
11.1 Computation of Net Income per Common Share.
13.1 Financial Statements contained in 1997 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
- ------------------------------
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
E-3
<PAGE> 1
Exhibit 10.1.1
AMENDMENT TO AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDMENT is made and entered into on this 16th day of
July, 1997 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and THOMAS C. SULLIVAN (hereinafter referred to as "Sullivan"):
W I T N E S S E T H:
--------------------
WHEREAS, Sullivan is considered a key employee of the Company;
and
WHEREAS, Sullivan and the Company entered into a certain
Amended Employment Agreement, dated as of July 22, 1981 and last amended as of
July 17, 1996 (the "Employment Agreement"), to insure Sullivan's continued
employment with the Company; and
WHEREAS, it is the desire of the Company and Sullivan to
further amend the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 12 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
<PAGE> 2
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ Sullivan, and Sullivan hereby agrees to
continue to serve the Company, on the terms and conditions set
forth herein for the period commencing retroactive to June 1,
1997 (the "Effective Date"), and expiring on May 31,
2002(unless sooner terminated as hereinafter set forth).
2. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. Sullivan shall receive a base salary at
the rate of not less than Seven Hundred Forty-Five Thousand
Dollars ($785,000) per annum ("Base Salary"), payable in
substantially equal monthly installments at the end of each
month during the period of Sullivan's employment hereunder. It
is contemplated that annually in July of each year the
Compensation Committee of the Board of Directors will review
Sullivan's Base Salary and other compensation during the
period of his employment hereunder and, at the discretion of
the Compensation Committee, it may increase his Base Salary
and other compensation based upon his performance, then
generally prevailing industry salary scales, the Company's
results of operation, and other relevant factors. Any increase
in Base Salary or other compensation shall in no way limit or
reduce any other obligation of the Company hereunder and, once
established at an increased specified rate, Sullivan's Base
Salary hereunder shall not be reduced without his written
consent.
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1997, and as such, the increase in compensation set forth in
Paragraph 2 shall be retroactively applied.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
/s/ James A. Karman
- ------------------------ -------------------------------------
James A. Karman, President
And: /s/ Paul A. Granzier
--------------------------------
Paul A. Granzier, Secretary
The "Company"
/s/ Thomas C. Sullivan
- ------------------------ -------------------------------------
"Sullivan"
-3-
<PAGE> 1
Exhibit 10.2.1
AMENDMENT TO AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDMENT is made and entered into on this 16th day of
July, 1997 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and JAMES A. KARMAN (hereinafter referred to as "Karman"):
W I T N E S S E T H:
--------------------
WHEREAS, Karman is considered a key employee of the Company;
and
WHEREAS, Karman and the Company entered into a certain Amended
Employment Agreement, dated as of July 22, 1981 and last amended as of July 17,
1996 (the "Employment Agreement"), to insure Karman's continued employment with
the Company; and
WHEREAS, it is the desire of the Company and Karman to amend
the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 12 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
<PAGE> 2
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ Karman, and Karman hereby agrees to
continue to serve the Company, on the terms and conditions set
forth herein for the period commencing retroactive to June 1,
1997 (the "Effective Date"), and expiring on May 31, 2002
(unless sooner terminated as hereinafter set forth).
2. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. Karman shall receive a base salary at
the rate of not less than Five Hundred Ninety Thousand Dollars
($620,000) per annum ("Base Salary"), payable in substantially
equal monthly installments at the end of each month during the
period of Karman's employment hereunder. It is contemplated
that annually in July of each year the Compensation Committee
of the Board of Directors will review Karman's Base Salary and
other compensation during the period of his employment
hereunder and, at the discretion of the Compensation
Committee, it may increase his Base Salary and other
compensation based upon his performance, then generally
prevailing industry salary scales, the Company's results of
operations, and other relevant factors. Any increase in Base
Salary or other compensation shall in no way limit or reduce
any other obligation of the Company hereunder and, once
established at an increased specified rate, Karman's Base
Salary hereunder shall not be reduced without his written
consent.
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1997, and as such, the increase in compensation set forth in
Paragraph 2 shall be retroactively applied.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
/s/ Thomas C. Sullivan
- ---------------------------- --------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And: /s/ Paul A. Granzier
----------------------------
Paul A. Granzier, Secretary
The "Company"
/s/ James A. Karman
- ---------------------------- --------------------------------
"Karman"
-3-
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT made as of the 15th day of July, 1992, between
RPM, INC., an Ohio corporation (the "Company"), and FRANK C. SULLIVAN
("Sullivan").
WHEREAS, Sullivan has been employed by the Company since 1989
and is currently Vice President - Corporate Development of the Company; and
WHEREAS, Sullivan possesses valuable knowledge of the
corporate growth strategy of the Company; and
WHEREAS, the Board of Directors of the Company recognizes the
importance of Sullivan's continuing contribution as Vice President - Corporate
Development to the future growth and success of the Company and desires to
assure the Company and its shareholders of Sullivan's continued employment in an
executive capacity and to compensate him therefor; and
WHEREAS, Sullivan is desirous of committing himself to
continue to serve the Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to continue
to employ Sullivan, and Sullivan hereby agrees to continue to serve the Company,
on the terms and conditions set forth herein for the period commencing
retroactive to June 1, 1992 (the "Effective Date"), and expiring on July 31,
1993 (unless
<PAGE> 2
sooner terminated as hereinafter set forth).
2. POSITION AND DUTIES. Sullivan shall serve as Vice President
- - Corporate Development reporting to the Chairman of the Company and shall have
responsibility for projects relating to the Company's growth and development,
including corporate acquisitions and financings, and shall have such other
powers and duties as may from time to time be assigned by the President,
Chairman of the Board, or the Board of Directors of the Company; provided,
however, that such duties are consistent with his present duties and his
position as Vice President - Corporate Development of the Company. Sullivan
shall devote substantially all his working time and efforts to the continued
success of the business and affairs of the Company.
3. PLACE OF EMPLOYMENT. In connection with his employment by
the Company, Sullivan shall not be required to relocate or move from his
existing principal residence in Bay Village, Ohio, and shall not be required to
perform services which would make the continuance of his principal residence in
Bay Village, Ohio, unreasonably difficult or inconvenient for him. The Company
will give Sullivan at least six (6) months' advance notice of any proposed
relocation of its Medina, Ohio offices to a location more than twenty-five miles
from Medina, Ohio and, if Sullivan in his sole discretion chooses to relocate
his principal residence, the Company will promptly pay (or reimburse him for)
all reasonable relocation expenses incurred by him relating to a
-2-
<PAGE> 3
change of his principal residence in connection with any such relocation of the
Company's offices in Medina, Ohio.
4. Compensation.
-------------
(a) BASE SALARY. Sullivan shall receive a base salary at the
rate of not less than One Hundred Ten Thousand Dollars ($110,000) per annum
("Base Salary"), payable in substantially equal monthly installments at the end
of each month during the period of Sullivan's employment hereunder. It is
contemplated that annually in July of each year, the Compensation Committee of
the Board of Directors will review Sullivan's Base Salary and other compensation
during the period of his employment hereunder and, at the discretion of the
Compensation Committee, it may increase his Base Salary and other compensation
based upon his performance, then generally prevailing industry salary scales,
the Company's results of operation, and other relevant factors. Any increase in
Base Salary or other compensation shall in no way limit or reduce any other
obligation of the Company hereunder and, once established at an increased
specified rate, Sullivan's Base Salary hereunder shall not be reduced without
his written consent.
(b) INCENTIVE COMPENSATION/BONUS. In addition to his Base
Salary, Sullivan shall be entitled to receive such annual incentive compensation
payment or bonus as the Compensation Committee of the Board of Directors of the
Company may determine in their sole discretion based upon the Company's results
of operation and other relevant factors. At the election of
-3-
<PAGE> 4
Sullivan, such annual incentive compensation payment or bonus may be received by
Sullivan as soon as possible, but no later than ninety (90) days after the close
of the Company's fiscal year for which such payment or bonus is granted, or the
payment may be deferred provided Sullivan gives written notice to the Chairman
of the Compensation Committee of the Board of Directors that he elects to defer
payment, which notice shall also state the date(s) on which he desires to be
paid, but in no event later than May 31 of the current fiscal year.
(c) EXPENSES. During the term of his employment hereunder,
Sullivan shall be entitled to receive prompt reimbursement for all reasonable
business expenses incurred by him (in accordance with his past practice) in
performing services hereunder, provided that Sullivan properly accounts therefor
in accordance with either Company policies or guidelines established by the
Internal Revenue Service if such are less burdensome.
(d) PARTICIPATION IN BENEFIT PLANS. Sullivan shall be entitled
to continue to participate in or receive benefits under all the Company's
employee benefit plans and arrangements in effect on the date hereof or made
available in the future to the executives and key management employees of the
Company (including, but not limited to, stock option plans, pension or profit
sharing plans, group insurance plans, and medical and health insurance plans),
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and
-4-
<PAGE> 5
arrangements. Nothing paid or awarded to Sullivan under any plan or arrangement
presently in effect or made available in the future shall reduce or be deemed to
be in lieu of compensation to Sullivan pursuant to any other provision of this
Section 4.
(e) VACATIONS. Sullivan shall be entitled to the same number
of paid vacation days in each fiscal year determined by the Company from time to
time for its other senior executive officers, but not less than four (4) weeks
in any fiscal year, to be taken at such time or times as is desired by Sullivan
after consultation with the President or Chairman of the Board to avoid
scheduling conflicts (prorated in any fiscal year during which Sullivan is
employed hereunder for less than the entire such year in accordance with the
number of days in such fiscal year during which he is so employed). Sullivan
shall also be entitled to all paid holidays given by the Company to its other
salaried employees.
(f) OTHER BENEFITS. Sullivan shall be entitled to continue to
receive the fringe benefits appertaining to the position of Vice President -
Corporate Development of the Company in accordance with present practice,
including the use of the most recent model of a full-sized U.S. made automobile.
In the event of Sullivan's death during the period of his employment hereunder,
the Company hereby agrees to pay Sullivan's spouse, or if he has no spouse
surviving him, to his estate, the sum of Five Thousand Dollars ($5,000) in
addition to any other compensation provided
-5-
<PAGE> 6
Sullivan or his spouse by the Company. Said payment shall be a death benefit
under Section 101(b) of the Internal Revenue Code. At all times during the term
of this Agreement, Sullivan shall be entitled to the full-time use of his
present office and furniture at the Company's offices in Medina, Ohio, and shall
be entitled to the full-time use of a secretary paid by the Company.
5. Termination.
------------
(a) DISABILITY. If, as a result of his incapacity due to
physical or mental illness, Sullivan shall have been absent from his duties
hereunder on a full-time basis for one hundred and eighty (180) consecutive
days, and within thirty (30) days after written notice of termination is given
shall not have returned to the performance of his duties hereunder on a
full-time basis, the Company may terminate Sullivan's employment hereunder.
(b) CAUSE. The Company may terminate Sullivan's employment
hereunder for Cause. For the purposes of this Agreement, the Company shall have
"Cause" to terminate Sullivan's employment hereunder only (A) for willful and
intentional acts of dishonesty or gross neglect of duty by Sullivan, or (B) if
Sullivan shall have participated in a Competitive Operation (as defined in
Section 8).
(c) TERMINATION BY SULLIVAN. Sullivan may terminate his
employment hereunder in the event of a Change in Control of the Company (as
hereinafter defined).
-6-
<PAGE> 7
For purposes of this Agreement, "Change in Control" shall
include any of the following events: (A) a filing under any federal or state law
in connection with any offer to purchase a controlling block of Common Shares of
the Company (which shall be defined as a block of shares sufficient in amount to
elect a majority of the Company's then existing Board of Directors pursuant to
the cumulative voting procedure under Ohio corporation law as if all Directors
were to be elected without classification at a single meeting of shareholders)
pursuant to a tender offer or otherwise (other than an offer by the Company or
any of its subsidiaries to purchase such Common Shares) which has not been
approved by the Company's Board of Directors; (B) unless approved by the
Company's Board of Directors, the execution of any agreement for the
reorganization, merger or consolidation of the Company into or with another
corporation or for the sale of substantially all the assets of the Company to
another corporation, or an agreement which provides that the Company will become
a subsidiary of another corporation, any of which agreements, if consummated,
would result in a change in control of the Company; or (C) the consummation of
any of the transactions or events described in (A) and (B) above. Sullivan shall
have sixty (60) days after the latest of the events of Change in Control to
elect to terminate his employment.
(d) Any termination by the Company pursuant to subsection (a)
or (b) above or by Sullivan pursuant to subsection
-7-
<PAGE> 8
(c) above shall be communicated by written notice of termination to the other
party hereto, which shall state in reasonable detail the facts upon which the
termination has occurred.
6. Compensation During Disability or Upon Termination.
--------------------------------------------------
(a) DISABILITY. During any period that Sullivan fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness, Sullivan shall continue to receive his full Base Salary until his
employment is terminated pursuant to Section 5(a) hereof.
(b) CAUSE. If Sullivan's employment shall be terminated for
Cause pursuant to Section 5(b) hereof, the Company shall pay Sullivan his full
Base Salary through the date on which his employment is terminated at the rate
in effect at the time notice of termination is given. The Company shall then
have no further obligations to Sullivan under this Agreement except such as may
be required by law.
(c) TERMINATION WITHOUT CAUSE. If the Company shall terminate
Sullivan's employment other than pursuant to Section 5(a) or 5(b) hereof, then
in lieu of any further salary payments to Sullivan for periods subsequent to the
date on which Sullivan's employment is terminated, the Company shall pay as
liquidated damages and/or severance pay to Sullivan no later than the tenth
(10th) day following such date, a lump sum amount equal to 100% of Sullivan's
Base Salary in effect as of such date.
-8-
<PAGE> 9
(d) CHANGE IN CONTROL. If Sullivan shall terminate his
employment in the event of a Change in Control of the Company which has not been
approved by the Board of Directors, then in lieu of any further salary payments
to Sullivan for periods subsequent to the date on which his employment is
terminated, the Company shall pay to Sullivan as liquidated damages and/or
severance pay (i) no later than the tenth (10th) day following such date, a lump
sum amount equal to the product of Sullivan's Base Salary in effect as of such
date multiplied by three (3), or (ii) if Sullivan shall so elect, the Company
shall continue to pay him his Base Salary in the manner specified in Section
4(a) hereof until the third anniversary of the date on which his employment is
terminated. If Sullivan elects to receive payments pursuant to (ii) above, such
period of time as he continues to receive payments shall be considered services
with the Company, and he shall be considered an employee for purposes of
continued credits under any of the Company's employee benefit plans he
participates in as of the date on which his employment is terminated.
7. BINDING AGREEMENT. This Agreement and all obligations of
the Company hereunder shall be binding upon the successors and assigns of the
Company. This Agreement and all rights of Sullivan hereunder shall inure to the
benefit of and be enforceable by Sullivan's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Sullivan should die while any amounts
-9-
<PAGE> 10
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Sullivan's devisee, legatee, or other designee or, if
there be no such designee, to Sullivan's estate.
8. NON-COMPETITION. During the term of employment provided for
in Section 1 hereof and during any further period provided for in Section 6
hereof while the Company is making payments to Sullivan, Sullivan will not,
directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control of, or be connected as an officer,
employee, partner or director with, or have any financial interest in, any
business which is in substantial competition with any business conducted by the
Company or by any group, division or subsidiary of the Company, in any area
where such business is being conducted at the time of such termination (a
"Competitive Operation"). Ownership of five percent (5%) or less of the voting
stock of any corporation which is required to file periodic reports with the
Securities and Exchange Commission under the Securities Exchange Act of 1934
shall not constitute a violation hereof.
9. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been fully given when delivered or mailed by United States
certified or registered
-10-
<PAGE> 11
mail, return receipt requested, postage prepaid addressed as follows:
If to Sullivan:
Frank C. Sullivan
31177 Huntington Woods Parkway
Bay Village, Ohio 44140
If to the Company:
RPM, Inc.
P.O. Box 777
2628 Pearl Road
Medina, Ohio 44256
Attn: Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
10. WITHHOLDING. All payments required to be made by the
Company hereunder to Sullivan or his estate or beneficiaries, shall be subject
to the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
11. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing, and is signed by Sullivan and by another executive officer
of the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this
-11-
<PAGE> 12
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Ohio.
12. VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
13. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
14. HEADINGS. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
15. NO ASSIGNMENT. This Agreement may not be assigned by
either party without the prior written consent of the other party.
16. ENFORCEMENT COSTS. The Company is aware that upon the
occurrence of a change in control the Board of Directors or a shareholder of the
Company may then cause or attempt to cause the
-12-
<PAGE> 13
Company to refuse to comply with its obligations under this Agreement, or may
cause or attempt to cause the Company to institute, or may institute,
litigation seeking to have this Agreement declared unenforceable, or may take,
or attempt to take, other action to deny Sullivan the benefits intended under
this Agreement. In these circumstances, the purpose of this Agreement could be
frustrated. It is the intent of the Company that Sullivan not be required to
incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended
to Sullivan hereunder, nor be bound to negotiate any settlement of his rights
hereunder under threat of incurring such expenses. Accordingly, if following a
change in control it should appear to Sullivan that the Company has failed to
comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement void
or unenforceable, or institutes any litigation or other legal action designed
to deny, diminish or to recover from, Sullivan the benefits intended to be
provided to Sullivan hereunder, and that Sullivan has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes Sullivan
from time to time to retain counsel of his choice at the expense of the Company
as provided in this Section 16, to represent Sullivan in connection with the
initiation or defense of any litigation or
-13-
<PAGE> 14
other legal action, whether by or against the Company or any Director, officer,
shareholder or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to Sullivan entering
into an attorney-client relationship with such counsel, and in that connection
the Company and Sullivan agree that a confidential relationship shall exist
between Sullivan and such counsel. The reasonable fees and expenses of counsel
selected from time to time by Sullivan as hereinabove provided shall be paid or
reimbursed to Sullivan by the Company on a regular, periodic basis upon
presentation by Sullivan of a statement or statements prepared by such counsel
in accordance with its customary practices, up to a maximum aggregate amount of
$500,000.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
IN THE PRESENCE OF: RPM, INC.
By: /s/ James A. Karman
- ---------------------------- -----------------------------
James A. Karman, President
And: /s/ Paul A. Granzier
- ---------------------------- -----------------------------
Paul A. Granzier, Secretary
The "Company"
/s/ Frank C. Sullivan
- ----------------------------- --------------------------------
Frank C. Sullivan
"Sullivan"
-15-
<PAGE> 1
Exhibit 10.4.1
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT is made and entered into on this 16th day of
July, 1997 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and _________________ (hereinafter referred to as
"_____________"):
W I T N E S S E T H:
--------------------
WHEREAS, _________________ is considered a key employee of the
Company; and
WHEREAS, ________ and the Company entered into a certain
Employment Agreement, originally dated as of _____________ and last amended as
of July 17, 1996 (the "Employment Agreement"), to insure ___________________'s
continued employment with the Company; and
WHEREAS, it is the desire of the Company and __________ to
amend the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 11 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and
<PAGE> 2
restated to provide in its entirety as follows:
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ __________, and ________ hereby agrees to
continue to serve the Company, on the terms and conditions set
forth herein for the period commencing retroactive to June 1,
1997 (the "Effective Date"), and expiring on July 31, 1998
(unless sooner terminated as hereinafter set forth).
2. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. __________ shall receive a base salary
at the rate of not less than __________________ Dollars
($___________) per annum ("Base Salary"), payable in
substantially equal monthly installments at the end of each
month during the period of ___________'s employment hereunder.
It is contemplated that annually in July of each year the
Compensation Committee of the Board of Directors will review
______________'s Base Salary and other compensation during the
period of his employment hereunder and, at the discretion of
the Compensation Committee, it may increase his Base Salary
and other compensation based upon his performance, then
generally prevailing industry salary scales, the Company's
results of operations, and other relevant factors. Any
increase in Base Salary or other compensation shall in no way
limit or reduce any other obligation of the Company hereunder
and, once established at an increased specified rate,
______________'s Base Salary hereunder shall not be reduced
without his written consent.
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1997, and as such, the increase in compensation set forth in
Paragraph 2 shall be retroactively applied.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
By:
- ---------------------------- ---------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And:
--------------------------------
Paul A. Granzier, Secretary
The "Company"
- ---------------------------- ------------------------------------
"-----------"
-3-
<PAGE> 1
Exhibit 10.4.2
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT is made and entered into on this 16th day of
July, 1997 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and PAUL A. GRANZIER (hereinafter referred to as "Granzier"):
W I T N E S S E T H:
--------------------
WHEREAS, Granzier is considered a key employee of the Company;
and
WHEREAS, Granzier and the Company entered into a certain
Employment Agreement, originally dated as of July 16, 1991 and last amended as
of July 17, 1996 (the "Employment Agreement"), to insure Granzier's continued
employment with the Company; and
WHEREAS, it is the desire of the Company and Granzier to amend
the Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 11 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
-4-
<PAGE> 2
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ Granzier, and Granzier hereby agrees to
continue to serve the Company, on the terms and conditions set
forth herein for the period commencing retroactive to June 1,
1997 (the "Effective Date"), and expiring on May 31, 1998
(unless sooner terminated as hereinafter set forth).
2. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. Granzier shall receive a base salary at
the rate of not less than Two Hundred Thousand Dollars
($200,000) per annum ("Base Salary"), payable in
substantially equal monthly installments at the end of each
month during the period of Granzier's employment hereunder.
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1997, and as such, the increase in compensation set forth in
Paragraph 2 shall be retroactively applied.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
By: /s/ Thomas C. Sullivan
- ---------------------------- ---------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And: /s/ James A. Karman
--------------------------------
James A. Karman, President
The "Company"
/s/ Paul A. Granzier
- ---------------------------- ------------------------------------
Paul A. Granzier
"Granzier"
-3-
<PAGE> 1
Exhibit 10.4.3
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT is made and entered into on this 16th day of
July, 1997 at Medina, Ohio, by and between RPM, INC. (hereinafter referred to as
the "Company") and RICHARD E. KLAR (hereinafter referred to as "Klar"):
W I T N E S S E T H:
--------------------
WHEREAS, Klar is considered a key employee of the Company; and
WHEREAS, Klar and the Company entered into a certain
Employment Agreement, originally dated as of July 16, 1991 and last amended as
of July 17, 1996 (the "Employment Agreement"), to insure Klar's continued
employment with the Company; and
WHEREAS, it is the desire of the Company and Klar to amend the
Employment Agreement in accordance with the terms hereof; and
WHEREAS, Paragraph 11 of the Employment Agreement requires
that any such Amendment be in writing and properly executed;
NOW, THEREFORE, in consideration of the premises and the
mutual understandings of the parties, IT IS AGREED, as follows:
1. EMPLOYMENT TERM. Paragraph 1 of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
<PAGE> 2
TERM OF EMPLOYMENT. The Company hereby agrees to
continue to employ Klar, and Klar hereby agrees to continue to
serve the Company, on the terms and conditions set forth
herein for the period commencing retroactive to June 1, 1997
(the "Effective Date"), and expiring on July 31, 1998 (unless
sooner terminated as hereinafter set forth).
2. COMPENSATION. Paragraph 4(a) of the Employment Agreement
shall be deleted in its entirety and amended and restated to provide in its
entirety as follows:
BASE SALARY. Klar shall receive a base salary at the
rate of not less than Two Hundred Fifty Thousand Dollars
($250,000) per annum ("Base Salary"), payable in substantially
equal monthly installments at the end of each month during the
period of Klar's employment hereunder.
3. EFFECTIVE DATE. The effective date of this Amendment shall
be June 1, 1997, and as such, the increase in compensation set forth in
Paragraph 2 shall be retroactively applied.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
to the Employment Agreement on the date and at the place first above written.
IN THE PRESENCE OF: RPM, INC.
By: /s/ Thomas C. Sullivan
- ---------------------------- ---------------------------------
Thomas C. Sullivan, Chairman
and Chief Executive Officer
And: /s/ Paul A. Granzier
--------------------------------
Paul A. Granzier, Secretary
The "Company"
/s/ Richard E. Klar
- ---------------------------- ------------------------------------
"Klar"
-3-
<PAGE> 1
Exhibit 10.7
STOCK OPTION AGREEMENT*
-----------------------
THIS STOCK OPTION AGREEMENT, entered into as of this ___ day of
________, 19___, by and between RPM, Inc., an Ohio corporation (the "Company"),
and _________________ (the "Optionee").
WITNESSETH:
-----------
WHEREAS, the Board of Directors of the Company has designated the
Compensation Committee of the Board of Directors (the "Committee") to serve as
the Committee to administer the RPM, Inc. 1996 Key Employees Stock Option Plan
(the "Plan"); and
WHEREAS, the Committee has determined that the Optionee, as a Key
Employee, should be granted a stock option under the Plan upon the terms and
conditions set forth in this Agreement, and for the number of Common Shares,
without par value (the "Shares"), of the Company set forth hereinafter;
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. DEFINITIONS. Capitalized terms shall have the meanings set forth in
the Plan (as defined below) unless otherwise specifically set forth below or
elsewhere herein:
(a) The word "Agreement" shall mean this instrument.
(b) The word "Code" shall mean the United States Internal
Revenue Code of 1986, as amended, or successor
provisions of future United States revenue laws
(Title 26 of the United States Code).
(c) The words "Incentive Stock Option" shall mean any
Option which qualifies as an Incentive Stock Option
under terms of Section 422 of the Code.
- -------------
* PARAGRAPH 5 OF THIS AGREEMENT CONTAINS INFORMATION REGARDING THE EXERCISE
PERIOD FOR INCENTIVE STOCK OPTION GRANTS UPON CESSATION OF EMPLOYMENT WITH THE
COMPANY BY REASON OF NORMAL RETIREMENT (AS DEFINED HEREIN). FAILURE TO COMPLY
WITH THE EXERCISE PERIOD LIMITATION DESCRIBED THEREIN WILL HAVE THE EFFECT OF
DISQUALIFYING ANY SUCH OPTION AS AN INCENTIVE STOCK OPTION.
1
<PAGE> 2
(d) The word "Option" shall mean the right and option of
the Optionee to purchase Shares pursuant to the terms
of this Agreement.
(e) The words "Option Price" shall mean the price at
which Shares may be acquired upon the exercise of any
Option.
(f) The words "Personal Representative" shall mean,
following the Optionee's death, such person or
persons who shall have acquired, by Will or by the
laws of descent and distribution, the right to
exercise any Option.
(g) The word "Plan" shall mean the RPM, Inc. 1996 Key
Employees Stock Option Plan, as amended from time to
time, and in effect on the date of this Agreement (a
copy of which is attached as Exhibit A).
2. GRANT OF OPTION. Effective as of the date of this Agreement, the
Company grants to the Optionee, upon the terms and conditions set forth
hereinafter, the right and option to purchase all or any number of an aggregate
of _____________ (______) Shares. The number of Shares subject to an Incentive
Stock Option, the number of Shares subject to a non-qualified stock option, and
the respective Option Prices are as set forth below:
(a) _____________ (_____) Shares shall be subject to an
Incentive Stock Option at an Option Price of $_____
per share; and
(b) _____________ (_____) Shares shall be subject to a
non-qualified stock option at an Option Price of
$____ per Share.
3. TERM OF OPTION. The term of the Option shall be for a period of ten
(10) years from the date hereof, and the Option shall expire at the close of
regular business hours at the Company's principal office in Medina, Ohio, on the
last day of the term of the Option, or, if earlier, on the applicable expiration
date provided for in Sections 5 and 6 hereof.
4. EXERCISE DATES. Except as provided in Sections 5, 6 and 8 hereof,
the Option shall not be exercisable to any extent until one (1) year from the
date hereof. The Optionee shall be entitled to exercise the Option with respect
to the number of Shares indicated below on or after the date indicated opposite
such number below:
2
<PAGE> 3
(a)
Number of Shares
as to
Which Incentive Date as of
Stock Option May Which Option
Be Exercised May Be Exercised
------------ ----------------
(b) Number of Shares
as to Which
Non-Qualified Date as of
Stock Option May Which Option
Be Exercised May Be Exercised
------------ ----------------
To the extent that the Option becomes exercisable with respect to any Shares, as
provided above, the Option may thereafter be exercised by the Optionee either as
to all or any number of such Shares at any time or from time to time prior to
the expiration of the Option pursuant to Section 3 hereof. Except as provided in
Sections 5 and 6 hereof, the Option may not be exercised at any time unless the
Optionee shall be an employee at such time.
5. TERMINATION OF EMPLOYMENT, ETC. So long as the Optionee shall
continue to be an employee of the Company or one of its subsidiaries, the Option
shall not be affected by (a) any temporary leave of absence approved in writing
by the Company or one of its subsidiaries, or (b) any change of duties or
position (including transfer to or from a subsidiary). If the Optionee ceases to
be an employee of the Company or one of its subsidiaries for any reason other
than death or Normal Retirement (as defined below), the Option may be exercised
only to the extent of the purchase rights, if any, which had accrued as of the
date of such cessation pursuant to Section 4 hereof and which have not
theretofore been exercised; provided, however, that upon written request to the
Committee it may in its absolute discretion determine (but shall not be under
any obligation to determine) that such accrued purchase rights shall be deemed
to include additional Shares covered by the Option. Upon any such cessation of
employment by reason of discharge, such accrued purchase rights shall in any
event terminate upon the earlier of the date thirty (30) days from the date of
such cessation of employment or the last day of the term of the Option. Upon any
such cessation of employment by reason of a voluntary quit, such accrued
purchase rights shall terminate on the date of such cessation of
3
<PAGE> 4
employment. Upon any such cessation of employment by reason of the voluntary
retirement of an employee who is at least 55 years of age and who has completed
at least five consecutive years of service with the Company and/or its
subsidiaries ("Normal Retirement"), the Optionee shall have the immediate right
and option (notwithstanding the provisions of Section 4 hereof) to exercise the
Option with respect to all of the Shares covered by the Option. Upon any such
"Normal Retirement," the purchase rights shall terminate upon the earlier of
three (3) years from the date of such cessation of employment or the last day of
the term of the Option; provided, however, that, IN THE CASE OF AN INCENTIVE
STOCK OPTION, THE OPTION MUST BE EXERCISED IN FULL WITHIN THREE (3) MONTHS AFTER
CESSATION OF EMPLOYMENT OR SUCH OPTION WILL NO LONGER QUALIFY AS AN INCENTIVE
STOCK OPTION AND SHALL THEREAFTER BE, AND RECEIVE THE TAX TREATMENT APPLICABLE
TO, A NON-QUALIFIED STOCK OPTION. In no event shall any employee who is
terminated by the Company, with or without cause, qualify for the "Normal
Retirement" provisions described in this Section 5. Nothing contained in this
Agreement shall confer upon the Optionee any right to continue in the employ of
the Company or any of its subsidiaries, or to limit or interfere in any way with
the right of the Company or any such subsidiary to terminate his or her
employment at any time, with or without cause.
6. DEATH OF OPTIONEE. If the Optionee dies while an employee or within
thirty (30) days of the Optionee's having ceased to be an employee by reason of
discharge, the Optionee's Personal Representative shall have the immediate right
and option (notwithstanding the provisions of Section 4 hereof) to exercise the
Option with respect to all Shares covered by the Option. Such purchase rights
shall in any event terminate upon the earlier of the date one (1) year from the
date of the Optionee's cessation of employment by reason of discharge or death
or the last day of the term of the Option
7. LIMITATIONS ON EXERCISE OF INCENTIVE STOCK OPTION Notwithstanding
the foregoing, any Incentive Stock Option granted pursuant to this Agreement is
exercisable only to the extent that the aggregate fair market value (determined
at the time such Incentive Stock Option is granted) of the shares with respect
to which such Incentive Stock Options first become exercisable during any
calendar year does not exceed $100,000 (the "$100,000 Exercise Limitation");
provided, however, that (a) if the aggregate fair market value of the shares
with respect to which such Incentive Stock Options first became exercisable
exceeds the $100,000 Exercise Limitation as a result of the accelerated vesting
of the Option pursuant to Sections 5 or 6 hereof, the maximum number of whole
shares with an aggregate fair market value not in excess of $100,000 shall be
treated as shares issued pursuant to an Incentive Stock Option and the remaining
aggregate fair market value in excess of such amount shall be treated as shares
issued pursuant to a non-qualified stock option and (b) the $100,000 Exercise
Limitation shall not
4
<PAGE> 5
apply if the Option no longer qualified as an Incentive Stock Option as a result
of the failure of the Optionee to exercise the Option within the three (3) month
period contained in Section 5 hereof.
8. CHANGE OF CONTROL. In the event of a "change in control" as defined
in the Plan and as determined by the Committee, the Optionee shall have the
immediate right and option (notwithstanding the provisions of Section 4 hereof)
to exercise the Option with respect to all Shares covered by the Option.
9. EXERCISE OF OPTION. The Option may be exercised by delivery to the
Secretary of the Company at its principal office, 2628 Pearl Road, P.O. Box 777,
Medina, Ohio 44258, of a completed Notice of Exercise of Option (obtainable from
the Secretary of the Company) setting forth the number of Shares with respect to
which the Option is being exercised, together with either a certified or
cashier's check payable to the Company or certificates for RPM, Inc. Common
Shares, without par value, properly endorsed for transfer, or a combination
thereof, in the amount of the total purchase price of such Shares.
10. ISSUANCE OF SHARE CERTIFICATES. Upon receipt by the Company prior
to expiration of the Option of a duly completed Notice of Exercise of Option
accompanied by a certified or cashier's check, or properly endorsed certificates
for RPM, Inc. Common Shares, without par value, as provided in Section 9 hereof,
in full payment for the Shares being purchased pursuant to such Notice (and,
with respect to any Option exercised pursuant to Section 6 hereof by the
Personal Representative, accompanied in addition by proof satisfactory to the
Committee of the right of the Personal Representative to exercise the Option),
the Company shall cause to be mailed or otherwise delivered to the Optionee or
the Personal Representative, as the case may be, within thirty (30) days of such
receipt, a certificate or certificates for the number of Shares so purchased.
The Optionee or the Personal Representative shall not have any of the rights of
a shareholder with respect to the Shares covered by the Option unless and until
one or more certificates representing such Shares shall be issued to the
Optionee or the Personal Representative.
11. SUCCESSORS IN INTEREST, ETC. This Agreement shall be binding upon
and inure to the benefit of any successor or successors of the Company and the
heirs, estate, and Personal Representatives of the Optionee. The Option shall
not be transferable other than by Will or the laws of descent and distribution,
and the Option may be exercised during the lifetime of the Optionee only by the
Optionee or his guardian or legal representative. A deceased Optionee's Personal
Representative shall act in the place and stead of the deceased Optionee with
respect to exercising an Option or taking any other action pursuant to this
Agreement.
12. PROVISIONS OF PLAN CONTROL. This Agreement is subject to all of the
terms, conditions, and provisions of the Plan, as amended from time to time, and
to such rules, regulations, and interpretations relating to the Plan as may be
adopted by
5
<PAGE> 6
the Committee and in effect from time to time. A copy of the Plan is attached
hereto as Exhibit "A" and is incorporated herein by reference. In the event and
to the extent that this Agreement conflicts or is inconsistent with the terms,
conditions, and provisions of the Plan, the Plan shall control, and this
Agreement shall be deemed to be modified accordingly.
13. NO LIABILITY UPON DISTRIBUTION OF SHARES. The liability of the
Company under this Agreement and any distribution of Shares made hereunder is
limited to the obligations set forth herein with respect to such distribution
and no term or provision of this Agreement shall be construed to impose any
liability on the Company or the Committee in favor of any person with respect to
any loss, cost or expense which the person may incur in connection with or
arising out of any transaction in connection with this Agreement.
14. WITHHOLDING. The Optionee agrees that the Company may make
appropriate provision for tax withholding with respect to the transactions
contemplated by this Agreement including such withholding as may be appropriate
with respect to any disqualifying disposition of an Incentive Stock Option.
15. NOTICE OF DISQUALIFYING DISPOSITION. Optionee agrees that if he
should dispose of any Shares acquired upon the exercise of an Incentive Stock
Option, including a disposition by sale, exchange, gift or transfer of legal
title within two (2) years after the date such Option was granted to the
Optionee or within one (1) year after the transfer of such Shares to the
Optionee upon the exercise of such Option, the Optionee shall notify the Company
within three (3) days after such disposition.
16. CAPTIONS. The captions and section numbers appearing in this
Agreement are inserted only as a matter of convenience. They do not define,
limit, construe or describe the scope or intent of the provisions of this
Agreement.
17. NUMBER. The use of the singular or plural herein shall not be
restrictive as to number and shall be interpreted in all cases as the context
shall require.
18. GENDER. The use of the feminine, masculine or neuter pronoun shall
not be restrictive as to gender and shall be interpreted in all cases as the
context may require.
19. INVESTMENT REPRESENTATION. Optionee hereby represents and warrants
that any Shares which he may acquire by virtue of the exercise of the Option
shall be acquired for investment purposes only and not with a view to
distribution or resale; provided, however, that this restriction shall become
inoperative in the event the Shares which are subject to the Option shall be
registered under the Securities Act of 1933, as amended, or in the event there
is presented to the Company an opinion of counsel satisfactory to the Company to
the effect that the offer or sale of the Shares
6
<PAGE> 7
which are subject to the Option may lawfully be made without registration under
the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer, and the Optionee has
hereunto set his hand, all as of the day and year first above written.
RPM, INC.
("Company")
By
--------------------------------
Its
-----------------------------------
-----------------------------------
("Optionee")
7
<PAGE> 8
RPM, INC.
1996 KEY EMPLOYEES STOCK OPTION PLAN
RPM, Inc. hereby adopts a stock option plan for the benefit of certain
persons and subject to the terms and provisions set forth below.
1. DEFINITIONS. The following terms shall have the meanings set forth below
whenever used in this instrument:
<TABLE>
<S> <C>
(a) The word "Board" shall mean the Board of Directors of the Company.
(b) The word "Code" shall mean the United States Internal Revenue Code of 1986, as
amended, or successor provisions of future United States revenue laws (Title 26 of
the United States Code).
(c) The word "Committee" shall mean the Compensation Committee appointed by the Board.
(d) The words "Common Shares" shall mean the Common Shares, without par value, of the
Company.
(e) The word "Company" shall mean RPM, Inc., an Ohio corporation, and any successor
thereto which shall maintain this Plan.
(f) The word "Disability" shall mean the Optionee's inability to engage in substantial
gainful activity for the Company by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months, as
determined by the Committee pursuant to written certification of such Disability
from a physician acceptable to the Committee.
(g) The words "Incentive Stock Option" shall mean any option which qualifies as an
Incentive Stock Option under terms of Section 422 of the Code.
(h) The words "Key Employee" shall mean any person who is an executive officer or other
valuable managerial or other employee of either the Company or any Subsidiary.
(i) The word "Optionee" shall mean any Key Employee to whom a stock option has been
granted pursuant to this Plan.
(j) The word "Plan" shall mean this instrument, the RPM, Inc. 1996 Key Employees Stock
Option Plan, as it is originally adopted and as it may be amended hereafter.
(k) The word "Subsidiary" shall mean any domestic or foreign corporation at least 50%
of the common stock of which is owned directly or indirectly by the Company.
(l) The words "Substantial Shareholder" shall mean any employee who owns directly and
through attribution more than 10% of the total combined voting power of all classes
of stock of either the Company or any Subsidiary. Ownership shall be determined in
accordance with Section 424(d) of the Code and lawful applicable regulations.
</TABLE>
A-1
<PAGE> 9
2. PURPOSE OF THE PLAN. The purpose of the Plan is to provide Key Employees
of the Company and its Subsidiaries with greater incentive to serve and promote
the interests of the Company and its shareholders. The premise of the Plan is
that, if such persons acquire a proprietary interest in the business of the
Company or increase such proprietary interest as they may already hold, then the
incentive of such persons to work toward the Company's continued success will be
commensurately increased. Accordingly, the Company will, from time to time
during the effective period of the Plan, grant to such Key Employees as may be
selected to participate in the Plan options to purchase Common Shares on the
terms and subject to the conditions set forth in the Plan. Key Employees may be
granted either Incentive Stock Options or nonqualified stock options.
3. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective on August
15, 1996 subject to approval by holders of a majority of the outstanding shares
of voting capital stock of the Company entitled to vote thereon represented in
person or by proxy at a meeting of shareholders. In the event that such
shareholder approval has not occurred on or before August 15, 1997, the Plan and
any options granted hereunder shall be null and void. If, however, the Plan is
so approved, subject to the provisions of Section 8, no further shareholder
approval shall be required with respect to the granting of any options pursuant
to the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall consist of no fewer than three (3) members, who
shall be designated by and be members of the Board. Each member of the Committee
shall be a "disinterested person" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 or any amendment of or successor to
such Rule as may be in effect from time to time and an "outside director" within
the meaning of Section 162(m) of the Code or any amendment of or successor to
such provision as may be in effect from time to time. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all of the members, shall be acts of the Committee. Subject to the terms and
conditions of the Plan, the Committee shall have full and final authority in its
absolute discretion:
<TABLE>
<S> <C>
(a) To select the Key Employees to whom options will be granted;
(b) To determine the number of Common Shares subject to any option;
(c) To determine the time or times when options will be granted;
(d) To determine the option price of Common Shares subject to an option;
(e) To determine the time or times when each option may be exercised and the duration
of the exercise period;
(f) To determine at the time of grant of an option whether and to what extent such
option is an Incentive Stock Option under Section 422 of the Code and regulations
thereunder as the same or any successor statute or regulations may at the time be
in effect;
(g) To determine whether stock appreciation rights shall be made part of any option
grant pursuant to Section 9 hereof, the method of valuing the stock appreciation
rights and whether the stock appreciation rights may be exercised in lieu of or in
addition to the related option;
</TABLE>
A-2
<PAGE> 10
<TABLE>
<S> <C>
(h) To prescribe the form of the option agreements governing the options which are
granted under the Plan and to set the provisions of such option agreements as the
Committee may deem necessary or desirable provided such provisions are not contrary
to the terms and conditions of either the Plan or, where the option is an Incentive
Stock Option, Section 422 of the Code and regulations thereunder as the same or any
successor statute or regulations may at the time be in effect;
(i) To adopt, amend and rescind such rules and regulations as, in the Committee's
opinion, may be advisable in the administration of the Plan; and
(j) To construe and interpret the Plan, the rules and regulations and the instruments
evidencing options granted under the Plan and to make all other determinations
deemed necessary or advisable for the administration of the Plan.
</TABLE>
Any decision made or action taken by the Committee in connection with the
administration, interpretation, and implementation of the Plan and of its rules
and regulations, shall, to the extent permitted by law, be conclusive and
binding upon all Optionees under the Plan and upon any person claiming under or
through such an Optionee. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
5. PERSONS ELIGIBLE FOR OPTIONS. Subject to the restrictions herein
contained, options may be granted from time to time in the discretion of the
Committee only to such Key Employees, as designated by the Committee, whose
initiative and efforts contribute or may be expected to contribute to the
continued growth and future success of the Company and/or its Subsidiaries.
Notwithstanding the preceding sentence, a Key Employee who renounces in writing
any right he or she may have to receive stock options under the Plan shall not
be eligible to receive any stock options under the Plan. No option shall be
granted to any Key Employee during any period of time when he or she is on leave
of absence. The Committee may grant more than one option, with or without stock
appreciation rights, to the same Key Employee.
6. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 9
concerning payment for stock appreciation rights in Common Shares and subject to
the provisions of the next succeeding paragraph of this Section 6, the aggregate
number of Common Shares for which options may be granted under the Plan shall be
Three Million Six Hundred Thousand (3,600,000) Common Shares. The maximum number
of Common Shares for which options may be granted under the Plan to any one
person shall be Five Hundred Thousand (500,000) Common Shares. Either treasury
or authorized and unissued Common Shares, or both, in such amounts, within the
maximum limits of the Plan, as the Committee shall from time to time determine,
may be so issued. All Common Shares which are the subject of any lapsed, expired
or terminated options shall not thereafter be available for reoffering under the
Plan. If an option granted under this Plan is exercised pursuant to the terms
and conditions determined by the Committee under Subsection 7(d), any Common
Shares which are the subject thereof shall not thereafter be available for
reoffering under the Plan to any Key Employee. If a stock appreciation right is
granted in conjunction with an option pursuant to Section 9, and if the option
agreement with the Optionee provides that exercise of the stock appreciation
right shall be in lieu of exercise of the options, and the stock appreciation
right is thereafter exercised in whole or in part, then the option or the
portion thereof with respect to which the stock
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<PAGE> 11
appreciation right was exercised shall be deemed to have been exercised and
shall not thereafter be available for reoffering under the Plan.
In the event that subsequent to the date of effectiveness of the Plan, the
outstanding Common Shares are, as a result of a stock split, stock dividend,
combination or exchange of shares, exchange for other securities,
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization, spin-off, split-off, split-up or other such change (including,
without limitation, any transaction described in Section 424(a) of the Code) or
a special dividend or other distribution to the Company's shareholders,
increased or decreased or changed into or exchanged for a different number or
kind of shares of stock or other securities of the Company, then (i) there shall
automatically be substituted for each Common Share subject to an unexercised
option granted under the Plan and each Common Share available for additional
grants of options under the Plan the number and kind of shares of stock or other
securities into which each outstanding Common Share shall be exchanged, (ii) the
option price per Common Share or unit of securities shall be increased or
decreased proportionately so that the aggregate purchase price for the
securities subject to the option shall remain the same as immediately prior to
such event, and (iii) the Committee shall make such other adjustments to the
securities subject to options, the provisions of the Plan, and option agreements
as may be appropriate or equitable, in order to prevent dilution or enlargement
of option rights and in compliance with the provisions of Section 424(a) of the
Code to the extent applicable and any such adjustment shall be final, binding
and conclusive as to each Optionee. Any such adjustment may, in the discretion
of the Committee, provide for the elimination of fractional shares.
7. OPTION PROVISIONS.
(a) Option Price. The option price per Common Share which is the subject of
an Incentive Stock Option under the Plan shall be determined by the Committee at
the time of grant but shall not be less than one hundred percent (100%) of the
fair market value of a Common Share at the close of business on the date the
Incentive Stock Option is granted; provided, however, that if a Key Employee to
whom an Incentive Stock Option is granted is at the time of the grant a
Substantial Shareholder, the option price per Common Share shall be determined
by the Committee but shall never be less than one hundred ten percent (110%) of
the fair market value of a Common Share on the date the option is granted. The
option price per Common Share under each option granted pursuant to the Plan
which is not an Incentive Stock Option shall be determined by the Committee at
the time of grant, and may be above or below the fair market value of a Common
Share on the date the option is granted. Such fair market value shall be
determined in accordance with procedures to be established by the Committee. The
date on which the Committee approves the granting of an option shall be deemed
for all purposes hereunder the date on which the option is granted.
(b) Period of Option. The Committee shall determine when each option is to
expire but no option shall be exercisable after ten (10) years have elapsed from
the date upon which the option is granted. Each option shall be subject to
earlier termination as provided in Subsection 7(e) hereunder.
(c) Limitation on Exercise and Transfer of Option. Except as otherwise
provided in the event of an Optionee's death, only the Optionee may exercise an
option, provided that a guardian or other legal representative who has been duly
appointed for such Optionee may exercise an option on behalf of the Optionee. No
option granted hereunder shall be transferable other than (i) by the Last
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<PAGE> 12
Will and Testament of the Optionee or, if the Optionee dies intestate, by the
applicable laws of descent and distribution, or (ii) to the extent approved by
the Committee, pursuant to a qualified domestic relations order as defined by
the Code or the rules thereunder. No option granted hereunder may be pledged or
hypothecated, nor shall any such option be subject to execution, attachment or
similar process.
(d) Conditions Governing Exercise of Option. The Committee may, in its
absolute discretion, either require that, prior to the exercise of any option
granted hereunder, the Optionee shall have been an employee for a specified
period of time after the date such option was granted, or make any option
granted hereunder immediately exercisable. Each option shall be subject to such
additional restrictions or conditions with respect to the right to exercise and
the time and method of exercise as shall be prescribed by the Committee. Upon
satisfaction of any such conditions, the option may be exercised in whole or in
part at any time during the option period, but this right of exercise shall be
limited to whole shares, unless the Committee shall otherwise provide. Options
shall be exercised by the Optionee (i) giving written notice to the Secretary of
the Company at its principal office of the Optionee's exercise of the option and
the number of shares with respect to which the option is being exercised,
accompanied by full payment of the purchase price either in cash or, with the
consent of the Committee, in whole or in part in Common Shares having a fair
market value on the date the option is exercised equal to that portion of the
purchase price for which payment in cash is not made, and (ii) making
appropriate arrangements with the Company with respect to income tax
withholding, as required, which arrangements may include, in lieu of other
withholding arrangements, (a) the Company withholding from issuance to the
Optionee such number of Common Shares otherwise issuable upon exercise of the
option as the Company and the Optionee may agree; provided that such Optionee,
if subject to Section 16 of the Securities Exchange Act of 1934 or any successor
provision, has had on file with the Committee, for at least six (6) months prior
thereto, an effective standing election to satisfy said Optionee's tax
withholding obligations in such a fashion, which election form by its terms
shall not be revocable or amendable for at least six (6) months, or (b) with the
consent of the Committee, the Optionee's delivery to the Company of Common
Shares having a fair market value on the date the option is exercised equal to
that portion of the withholding obligation for which payment in cash is not
made. Such notice shall be deemed delivered when deposited in the mails.
Notwithstanding anything in the foregoing to the contrary, in the event of a
"change in control" the Committee shall have the authority and power: (i) to
cause all outstanding options to be immediately exercisable notwithstanding any
vesting limitation otherwise previously imposed on such options; and (ii) to
accelerate the termination date of all such options. Thereafter, upon such
determination, an Optionee may exercise any and all outstanding options (in
whole or in part), whether or not such options are by their terms fully
exercisable at such time, and the Committee may authorize the acceptance of the
surrender of the right to exercise such option or any portion thereof, but in no
event after the expiration of the term of the option. The term "change in
control" shall include, but not be limited to: (i) the first purchase of shares
pursuant to a tender offer or exchange (other than a tender offer or exchange by
the Company) for all or part of the Company's Common Shares or of any class or
any securities convertible into such Common Shares; (ii) the receipt by the
Company of a Schedule 13D or other advice indicating that a person is the
"beneficial owner" (as that term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of twenty percent (20%) or more of the Company's Common
Shares calculated as provided in paragraph (d) of said Rule 13d-3; (iii) the
date of approval by shareholders of the Company of an agreement providing for
any consolidation or merger of the Company in which the Company will
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<PAGE> 13
not be the continuing or surviving corporation or pursuant to which capital
stock, or any class or any securities convertible into such capital stock, of
the Company would be converted into cash, securities, or other property, other
than a merger of the Company in which the holders of common stock of all classes
of the Company immediately prior to the merger would have the same proportion of
ownership of common stock of the surviving corporation immediately after the
merger; (iv) the date of the approval by shareholders of the Company of any
sale, lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company; (v)
the adoption of any plan or proposal for the liquidation (but not a partial
liquidation) or dissolution of the Company; or (vi) such other event as the
Committee shall, in its sole and absolute discretion, deem to be a "change in
control." The manner of application and interpretation of the foregoing
provisions shall be determined by the Committee in its sole and absolute
discretion.
(e) Termination of Employment, Etc. If an Optionee ceases to be an employee
of the Company or its Subsidiaries, his or her option shall, unless otherwise
provided for by an action of the Committee or in the option agreement between
the Optionee and the Company, terminate on the date he or she ceases to be an
employee and neither he nor she nor any other person shall have any rights after
the date he or she ceases to be an employee to exercise all or any part of the
option. An Optionee's employment shall not be deemed to have terminated while he
or she is on a temporary military, sick or other bona fide leave of absence from
the Company or a Subsidiary approved in writing by the Company, such as a leave
of absence as is described in Section 1.421-7(h) of the Federal Income Tax
Regulations or any lawful successor regulations thereto; provided, however, that
the Committee may impose such terms and conditions with respect to such leaves
as it deems proper as are consistent with such regulations. If the stock option
is an Incentive Stock Option, no option agreement shall:
(i) permit any Optionee to exercise any Incentive Stock Option more
than three (3) months after the date the Optionee ceased to be an
employee of the Company and all Subsidiaries (but not beyond the
original term of the option) if the reason for the Optionee's
cessation as an employee was other than his or her death or his
or her Disability; or
(ii) permit any Optionee to exercise any Incentive Stock Option more
than one (1) year after the date the Optionee ceased to be an
employee of the Company and all Subsidiaries (but not beyond the
original term of the option) if the reason for the Optionee's
cessation as an employee was the Optionee's Disability; or
(iii) permit any person to exercise any Incentive Stock Option more
than one (1) year after the date the Optionee ceased to be an
employee of the Company and all Subsidiaries (but not beyond the
original term of the option) if either (A) the reason for the
Optionee's cessation as an employee was his or her death or (B)
the Optionee died within three (3) months after ceasing to be an
employee of the Company and all Subsidiaries.
If any option is by the terms of the option agreement exercisable following the
Optionee's death, then such option shall be exercisable by the Optionee's
estate, or the person designated in the Optionee's Last Will and Testament, or
the person to whom the option was transferred by the applicable laws of descent
and distribution.
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<PAGE> 14
(f) Limitations on Grant of Incentive Stock Options. During the calendar
year in which any Incentive Stock Options granted by the Company or any
Subsidiary first become exercisable by any Optionee, the aggregate fair market
value of the Common Shares which are subject to such Incentive Stock Options
(determined as of the date the Incentive Stock Options were granted) shall not
exceed the sum of One Hundred Thousand Dollars ($100,000.00). Options which are
not designated as Incentive Stock Options shall not be subject to the limitation
described in the preceding sentence and shall not be counted when applying such
limitation.
(g) Prohibition of Alternative Options. It is intended that Key Employees
may be granted, simultaneously or from time to time, Incentive Stock Options or
other stock options, but no Key Employees shall be granted alternative rights in
Incentive Stock Options and other stock options so as to prevent options granted
as Incentive Stock Options under the Plan from qualifying as such within the
meaning of Section 422 of the Code.
(h) Waiver by Committee of Conditions Governing Exercise of Option. The
Committee may, in its sole discretion, waive any restrictions or conditions set
forth in an option agreement concerning an Optionee's right to exercise any
option and/or the time and method of exercise.
8. AMENDMENTS TO THE PLAN. The Committee is authorized to interpret the
Plan and from time to time adopt any rules and regulations for carrying out the
Plan that it may deem advisable. Subject to the approval of the Board, the
Committee may at any time amend, modify, suspend or terminate the Plan. In no
event, however, without the approval of the Company's shareholders, shall any
action of the Committee or the Board result in:
<TABLE>
<C> <S>
(a) Amending, modifying or altering the eligibility requirements provided in Section 5
hereof;
(b) Increasing or decreasing, except as provided in Section 6 hereof, the maximum
number of shares for which options may be granted;
(c) Decreasing the minimum option price per share at which certain options may be
granted under the Plan, as provided in Section 7(a) hereof;
(d) Extending either the maximum period during which an option is exercisable as
provided in Section 7(b) hereof or the date on which the Plan shall terminate as
provided in Section 12 hereof;
(e) Changing the requirements relating to the Committee; or
(f) Making any other change, without the Optionee's consent, which would cause any
option granted under the Plan as an Incentive Stock Option not to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code;
</TABLE>
except as necessary to conform the Plan and the option agreements to changes in
the Code or other governing law. No option may be granted during any suspension
of this Plan or after this Plan has terminated and no amendment, suspension or
termination shall, without the Optionee's consent, alter or impair any of the
rights or obligations under an option theretofore granted to such Optionee under
this Plan.
9. STOCK APPRECIATION RIGHTS. The Committee may provide, at the time of the
grant of a stock option and upon such terms and conditions as it deems
appropriate, that an Optionee shall have the
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<PAGE> 15
right with respect to all or a portion of the options granted to him or her to
elect to surrender such options in exchange for the consideration set forth in
this Section 9 in lieu of exercising such options. Alternatively, the Committee
may provide, at the time of the grant of a stock option and upon such terms and
conditions as it deems appropriate, that an Optionee shall have the right with
respect to all or a portion of the options granted to him or her to receive the
consideration set forth in this Section 9 upon exercising such options in
addition to any Common Shares purchased upon exercise thereof. Stock
appreciation rights must be specifically granted by the Committee; provided,
however, the Committee shall have no authority to grant stock appreciation
rights except in connection with the grant of a stock option pursuant to the
Plan, and no Optionee shall be entitled to such rights solely as a result of the
grant of an option to him or her. Stock appreciation rights, if granted, may be
exercised either with respect to all or a portion of the option to which they
relate. Stock appreciation rights shall not be transferable separate from the
option with respect to which they were granted and shall be subject to all of
the restrictions on transfer applicable to the said options. Stock appreciation
rights shall be exercisable only at such times and by such persons as are
specified in the option agreement governing the stock option with respect to
which the stock appreciation rights were granted. A stock appreciation right
shall provide that an Optionee shall have the right to receive a percentage, not
greater than One Hundred Percent (100%), of the excess over the option price, if
any, of the fair market value of the Common Shares covered by the option, as
determined by the Committee as of the date of exercise of the stock appreciation
right, in the manner provided for herein. Such amount shall be payable in one or
more of the following manners, as shall be determined by the Committee:
(a) in cash;
(b) in Common Shares having a fair market value equal to such amount;
or
(c) in a combination of cash and Common Shares.
Any payment made pursuant to this Section 9, whether in cash or in Common
Shares, shall thereby reduce the number of shares available for the grant of
options under this Plan.
In no event may any Optionee exercise any stock appreciation rights granted
hereunder unless such Optionee is then permitted to exercise the option or the
portion thereof with respect to which such stock appreciation rights relate. If
the option agreement with the Optionee provides that exercise of the stock
appreciation right shall be in lieu of exercise of the option, then (i) upon the
exercise of any stock appreciation rights, the option or that portion thereof to
which the stock appreciation rights relate shall be cancelled, and (ii) upon the
exercise of the option or that portion thereof to which the stock appreciation
rights relate, the stock appreciation rights shall be cancelled, and the option
agreement governing such option shall be deemed amended as appropriate without
any further action by the Committee or the Optionee. If the option agreement
with the Optionee provides that exercise of the stock appreciation right shall
be in addition to exercise of the option, then (i) upon the exercise of any
stock appreciation rights, the option or that portion thereof to which the stock
appreciation rights relate shall be deemed exercised, and (ii) upon the exercise
of the option, the stock appreciation rights corresponding thereto shall be
deemed exercised to the extent the option is exercised. The terms of any stock
appreciation rights granted hereunder shall be incorporated into the option
agreement which governs the option with respect to which the stock appreciation
rights are granted, and shall be on such terms as the Committee shall prescribe
which are not inconsistent with this Plan. The granting of an option or stock
appreciation right shall impose
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<PAGE> 16
no obligation upon the Optionee to exercise such option or right. The Company's
obligation to satisfy stock appreciation rights shall not be funded or secured
in any manner.
10. INVESTMENT REPRESENTATION, APPROVALS AND LISTING. The Committee may
condition its grant of any option hereunder upon receipt of an investment
representation from the Optionee which shall be substantially similar to the
following:
"Optionee agrees that any Common Shares of RPM, Inc. which
Optionee may acquire by virtue of the exercise of this option shall
be acquired for investment purposes only and not with a view to
distribution or resale; provided, however, that this restriction shall
become inoperative in the event the Common Shares of RPM, Inc. which
are subject to this option shall be registered under the Securities Act
of 1933, as amended, or in the event RPM, Inc. is otherwise satisfied
that the offer or sale of the Common Shares of RPM, Inc. which are
subject to this option may lawfully be made without registration under
the Securities Act of 1933, as amended."
The Company shall not be required to issue any certificates for Common Shares
upon the exercise of an option or a stock appreciation right granted under the
Plan prior to (i) obtaining any approval from any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or advisable,
(ii) the admission of such Common Shares to listing on any national securities
exchange on which the Common Shares may be listed, (iii) completion of any
registration or other qualification of the Common Shares under any state or
federal law or ruling or regulations of any governmental body which the
Committee shall, in its sole discretion, determine to be necessary or advisable,
or the determination by the Committee, in its sole discretion, that any
registration or other qualification of the Common Shares is not necessary or
advisable and (iv) obtaining an investment representation from the Optionee in
the form set forth above or in such other form as the Committee, in its sole
discretion, shall determine to be adequate.
11. GENERAL PROVISIONS.
(a) Option Agreements Need Not Be Identical. The form and substance of
option agreements and grants of stock appreciation rights, whether granted at
the same or different times, need not be identical.
(b) No Right To Be Employed, Etc. Nothing in the Plan or in any option
agreement shall confer upon any Optionee any right to continue as an employee of
the Company or a Subsidiary, or to serve as a member of the Board, or to be
entitled to receive any remuneration or benefits not set forth in the Plan or
such option agreement, or to interfere with or limit either the right of the
Company or a Subsidiary to terminate the Optionee's employment at any time or
the right of the shareholders of the Company to remove him or her as a member of
the Board, with or without cause.
(c) Optionee Does Not Have Rights Of Shareholder. Nothing contained in the
Plan or in any option agreement shall be construed as entitling any Optionee to
any rights of a shareholder as a result of the grant of an option until such
time as Common Shares are actually issued to such Optionee pursuant to the
exercise of an option or stock appreciation right.
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<PAGE> 17
(d) Successors In Interest. The Plan shall be binding upon the successors
and assigns of the Company.
(e) No Liability Upon Distribution Of Shares. The liability of the Company
under the Plan and any distribution of Common Shares made hereunder is limited
to the obligations set forth herein with respect to such distribution and no
term or provision of the Plan shall be construed to impose any liability on the
Company or the Committee in favor of any person with respect to any loss, cost
or expense which the person may incur in connection with or arising out of any
transaction in connection with the Plan, including, but not limited to, any
liability to any Federal, state, or local tax authority and/or any securities
regulatory authority.
(f) Taxes. Appropriate provisions shall be made for all taxes required to
be withheld and/or paid in connection with the options or the exercise thereof,
and the transfer of Common Shares pursuant thereto, under the applicable laws or
other regulations of any governmental authority, whether Federal, state or local
and whether domestic or foreign.
(g) Use Of Proceeds. The cash proceeds received by the Company from the
issuance of Common Shares pursuant to the Plan will be used for general
corporate purposes, or in such other manner as the Board deems appropriate.
(h) Expenses. The expenses of administering the Plan shall be borne by the
Company.
(i) Captions. The captions and section numbers appearing in the Plan are
inserted only as a matter of convenience. They do not define, limit, construe or
describe the scope or intent of the provisions of the Plan.
(j) Number. The use of the singular or plural herein shall not be
restrictive as to number and shall be interpreted in all cases as the context
may require.
(k) Gender. The use of the feminine, masculine or neuter pronoun shall not
be restrictive as to gender and shall be interpreted in all cases as the context
may require.
12. TERMINATION OF THE PLAN. The Plan shall terminate on August 15, 2006,
and thereafter no options shall be granted under the Plan. All options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms of the option agreements governing such
options and the terms and conditions of the Plan.
13. GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Ohio and any applicable federal law.
14. VENUE. The venue of any claim brought hereunder by a Key Employee shall
be Cleveland, Ohio.
15. CHANGES IN GOVERNING RULES AND REGULATIONS. All references herein to
the Code or sections thereof, or to rules and regulations of the Department of
Treasury or of the Securities and Exchange Commission, shall mean and include
the Code sections thereof and such rules and regulations as are now in effect or
as they may be subsequently amended, modified, substituted or superseded.
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EXHIBIT 11.1
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended May 31
----------------------------------------
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
NET INCOME
Net income applicable to common shares
for primary earnings per share $78,315 $68,929 $62,616
Add back interest net of tax on
convertible securities assumed
to be converted 5,266 4,982 4,731
------- ------- -------
Net income applicable to common shares
for fully-diluted earnings per share $83,581 $73,911 $67,347
======= ======= =======
SHARES OUTSTANDING
For computation of primary earnings per
common share
Weighted average shares 77,828 76,166 73,257
Net issuable common share
equivalents 487 382 403
-------- ------- -------
Total shares for primary
earnings per share 78,315 76,548 73,660
For computation of fully-diluted
earnings per common share
Additional shares of issuable
common share equivalents
assuming conversion of
convertible securities 9,767 9,767 9,767
Additional common share
equivalents ending market
value higher than average
market value 222 112 156
------ ------ -------
Total shares for fully-
diluted earnings per share 88,304 86,427 83,583
====== ====== ======
EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS $1.00 $.90 $.85
====== ====== ======
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION $.95 $.86 $.81
====== ====== ======
</TABLE>
<PAGE> 1
Exhibit 13.1
Management's Discussion and Analysis of Results of Operations and Financial
Condition
RPM, Inc. and Subsidiaries
Results of Operations
FISCAL 1997 COMPARED TO FISCAL 1996
The Company reported its 50th consecutive record year of sales and earnings in
the 1997 fiscal year. Sales reached $1.35 billion, a 19% increase over 1996,
while earnings grew 14%, to $78.3 million.
Composite Structures International, Inc. (CSI) formerly known as Okura Holdings,
Inc. was acquired on June 13, 1996. With annual sales of approximately $40
million, CSI is a leading global manufacturer of molded and pultruded fiberglass
reinforced plastic grating products used for pedestrian walkways, platforms,
staircases and similar types of industrial structures. CSI has posted a strong
growth record under the leading brand names Fibergrate and Chemgrate. CSI offers
the Company an attractive opportunity to capitalize on market, product and
customer synergies with its sister companies, particularly Stonhard in flooring
systems.
On February 1, 1997, the Company completed the acquisition of Tremco, Inc.,
Cleveland, Ohio. Tremco manufactures roofing systems, sealants and coatings
under the Tremco brand name selling primarily to the building maintenance
market. Tremco's product lines and distribution network will complement many of
the Company's operations. Since its acquisition, Tremco has undergone major
restructuring and, subsequent to year end, the Company completed the sale of
Tremco's $70 million insulating glass unit (Swiggle) and $10 million Autoglass
division, both of which serve OEM markets unrelated to RPM's core business. In
accordance with purchase accounting regulations, the Company's results of
operations do not include the results of Swiggle or Autoglass or the associated
interest expense related to the respective borrowings being repaid with the sale
proceeds [Refer to Note A]. Tremco's restructured annual revenue base of
approximately $230 million is expected to have an accretive effect on 1998
results with increasing contributions to sales and earnings in future fiscal
years.
The CSI and Tremco acquisitions and that of Dryvit Systems, Inc. (Dryvit) on
September 21, 1995, along with several smaller acquisitions and joint ventures,
net of several small divestitures, accounted for approximately 60% of the 1997
sales increase. The Company's existing core operations generated the balance of
the sales increase, approximately 8%, net of divestitures, slightly favoring the
industrial lines, and almost entirely from higher unit volume as pricing
adjustments have been negligible year-to-year. Exchange rate differences have
had a slight negative effect on sales this year versus last and, with the dollar
continuing to strengthen, this trend will probably continue.
The Company's gross profit margin has been strengthening the last several years,
with this year improving to 44.3% from 42.8% a year ago. Nearly half of this
year's improvement comes from the efforts of existing operations, where
leveraged purchasing of significant materials has resulted in a number of lower
raw material costs, primarily among consumer lines, and where conversion costs
continue to be appropriately controlled. Other raw material prices appear
stabilized and the Company is confident that changes in the foreseeable future
will continue to be effectively managed. The balance of the gross profit margin
improvement is the result of stronger average margins among the acquired
companies, particularly CSI and Tremco, coupled with weaker margins among the
companies recently divested.
Selling, general and administrative expenses increased to 31.8% of sales
compared with 30.0% last year. A $2 million insurance recovery plus several
other non-recurring expense reductions during 1996, coupled with planned
increases in promotional spending to further the Company's growth, and the
timing of certain expenses in 1997, caused the majority of the percentage change
in this expense category this year. The recent acquisitions, especially Tremco,
and divestitures account for the remainder of this percentage difference.
During this past year, certain businesses and assets were divested in pursuit of
management's commitment to its core markets and the reduction of debt created by
the Tremco acquisition. The net gains that resulted from these divestitures were
not material to the Company's results.
Interest expense increased $6.8 million in 1997, driven primarily by additional
indebtedness associated with Tremco, CSI, Dryvit and other acquisitions. The
reduction of debt throughout the year, and fractionally lower interest rates
between years reduced net interest expense, comparatively.
The tax rate improved in 1997, primarily through the establishment of a foreign
sales corporation, resulting in more favorable tax treatment of the Company's
exports from the U.S. This benefit was somewhat reduced, however, by tax
disadvantaged losses of Tremco in several foreign countries.
The decline in the Company's net income margin to 5.8% from 6.1% is the result
of the Tremco acquisition which added approximately $74 million to fiscal 1997
sales and, as expected, did not contribute to earnings due to the seasonality of
their product lines and related acquisition costs. The Company's 1997 net income
margin would have been 6.1% were it not for this effect.
Environmental obligations continue to be appropriately addressed and, based upon
the latest available information, it is not anticipated that the outcome of such
matters will materially affect the Company's results of operations or financial
position. However, such costs could be material to results of operations in a
future period [Refer to Note H].
The Company's European and other foreign sales and results of operations are
subject to the impact of foreign currency fluctuations. Since the majority of
the Company's foreign operations are in Belgium, and since the Belgian franc has
been a fairly stable currency in relation to majority of other currencies with
which those operations transact business, this effect has been minimal. In
addition, foreign debt is denominated in the respective foreign currency thereby
eliminating any related translation impact on earnings. Should the recent
strengthening of the dollar continue, the Company's foreign results of
operations will be subject to negative impact. The Company does not currently
hedge against the risk of exchange rate fluctuations (Refer to Note I).
The Company's earnings per share this year were affected by the averaging of
Company shares issued in connection with the September 1995 Dryvit acquisition,
and the 14% increase in earnings equated to an 11% increase in earnings per
share.
24
<PAGE> 2
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
The Company acquired TCI, Inc. on January 12, 1996 on a pooling of interests
basis. TCI is a leading manufacturer of powdered coatings, the fastest growing
segment of the paint and coatings industry, with annual sales in excess of $20
million.
Dryvit Systems, Inc. was acquired on September 21, 1995. Dryvit, with annual
sales in excess of $80 million, is the leading North American manufacturer of
exterior insulating and finishing systems ["EIFS"], used in the construction and
renovation of commercial buildings and increasingly on homes. This acquisition,
and that of Rust-Oleum Corporation on June 28, 1994, accounted for approximately
two-thirds of the 1996 sales increase. The Company's existing operations
generated the balance of sales growth from a combination of pricing adjustments
that averaged approximately 2% year-to-year, and higher unit volume. Exchange
rate differences and several small product line additions had a slight, yet
positive effect on sales.
The Company's gross profit margin improved to 42.8% from 42.7% in 1995. Strength
in certain industrial lines, most notably floorings, coupled with leveraged
purchasing of significant materials, resulted in improved overall margins among
the industrial businesses. In addition, the recent acquisitions combined have
comparatively higher gross profit margins. These positive effects on margin were
partly offset by certain higher material costs among primarily the consumer
lines.
Selling, general and administrative expenses remained at 30% of sales in 1996.
The Company had initiated an expense reduction campaign during the second
quarter of 1996 in consideration of the slower than planned sales growth.
During fiscal 1996, the Company disposed of certain assets and businesses that
no longer conformed to management's long-term objectives. The net gains that
resulted were offset by costs associated with several product line
discontinuations.
Interest expense increased $5.6 million in 1996, reflecting primarily the
indebtedness associated with Rust-Oleum, Dryvit and other acquisitions with the
balance attributable to comparatively higher interest rates. Debt repayment of
approximately $30 million during 1996 and slightly higher interest income
reduced net interest expense by $2.6 million comparatively.
TCI, prior to acquisition, had historically passed through tax liabilities to
its respective shareholders as a Subchapter S Corporation. Consequently, on a
restatement basis, the provision for income taxes in 1995 appears as a lower
percentage of pre-tax income than in 1996 from the effects of this pooling.
Upward pressures on the tax rate from revised tax laws, continual upward trends
in state and local taxes, and unfavorable tax treatment of certain acquisition
related expenses were effectively reduced through generally improved operations
throughout Europe where previous tax disadvantaged losses were significantly
reduced or eliminated [Refer to Note I].
The Company's earnings per share in 1996 were affected by the averaging of
Company shares issued in connection with the Dryvit acquisition, and the 10%
increase in earnings equated to a 6% increase in earnings per share.
CAPITAL RESOURCES AND LIQUIDITY
CASH PROVIDED FROM OPERATIONS
The Company generated cash from operations of $69 million in 1997, or $9 million
less than net income for the year. This is primarily attributable to the
seasonality of Tremco's business between the date of acquisition and year end,
but also the result of growth-related increases in working capital, timing
differences, and temporary accumulations of certain inventories to take
advantage of pricing opportunities (the benefits of which are reflected in the
improved gross profit margin discussed above) and to accommodate several new
product introductions. This was an unusual result, and cash flow from operations
continues to be the primary source of financing the Company's internal growth.
INVESTING ACTIVITIES
The Company is not capital intensive, but continually invests in capital
expenditures primarily to accommodate the Company's continued growth through
improved production and distribution efficiency and capacity, and enhanced
administration. Such expenditures generally do not exceed depreciation and
amortization in a given year. Capital expenditures amounted to $36 million in
1997 compared with depreciation and amortization of $51 million.
The investment of $316 million in new businesses this year reflects the
acquisitions of CSI, Tremco and several smaller businesses, assets and joint
ventures this year, net of cash acquired. The Company historically has acquired
complementary businesses and this trend is expected to continue.
The Company's captive insurance company invests in marketable securities in the
ordinary course of conducting its operations and this activity will continue.
The Company divested several small businesses and certain assets during 1997, as
previously discussed under Results of Operations.
FINANCING ACTIVITIES
To finance the acquisition of CSI, the Company renegotiated its revolving credit
facility on July 19, 1996 to $250 million and extended its final maturity to
2001. On February 3, 1997, in conjunction with the acquisition of Tremco, the
Company entered into a new $500 million revolving credit agreement maturing in
2002. At the time of the acquisition, $257 million of this facility was used to
finance the purchase, including fees and other cash requirements, and $160
million was used to retire the outstanding balance of the previous $250 million
revolving credit facility. The new instrument had an outstanding balance of $417
million at May 31, 1997.
25
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (continued)
Interest accretion on the LYONs issue added $9.1 million to long-term debt
during 1997 and LYONs interest to be accreted during 1998 will amount to $9.6
million.
As a result of these transactions, the Company had a debt to capital ratio of
62% at May 31, 1997 compared to 50% at May 31, 1996, while interest coverage was
nearly 5 times on a reported basis and nearly 7 times on a cash basis.
The substantial completion of Tremco's restructuring (see Results of Operations)
that resulted in several of their lines of business being sold, along with the
other recent divestitures, have reduced the Company's long-term debt by nearly
$140 million, and the debt to capital ratio now stands at 57% from the year end
level of 62%. On a fully diluted basis, which assumes conversion of the LYONs,
the Company's debt to capital ratio would be further reduced to 41%.
The stronger dollar effect on the Company's foreign net assets has tended to
reduce shareholders' equity and this trend could continue as the dollar
continues to strengthen and these net assets continue to grow.
The Company maintains excellent relations with its banks and other financial
institutions to further enable the financing of future growth opportunities.
FORWARD LOOKING STATEMENTS
The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
The foregoing discussion includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in other
statements made by the Company are made based on management's expectations and
beliefs concerning future events impacting the Company and are subject to
uncertainties and factors relating to the Company's operations and business
environment, all of which are difficult to predict and many of which are beyond
the control of the Company, that could cause actual results of the Company to
differ materially from those matters expressed in or implied by forward-looking
statements. The Company believes that the following factors, among others, could
affect its future performance and cause actual results of the Company to differ
materially from those expressed in or implied by forward-looking statements made
by or on behalf of the Company: (a) the price and supply of raw materials,
particularly titanium dioxide, certain resins, aerosols and solvents; (b)
continued growth in demand for the Company's products; (c) risks associated with
environmental liability inherent in the nature of a chemical coatings business;
(d) the effect of changes in interest rates; (e) the effect of fluctuations in
currency exchange rates upon the Company's foreign operations; and (f) the
effect of non-currency risks of investing in and conducting operations in
foreign countries, including those relating to political, social, economic and
regulatory factors.
CONSOLIDATED STATEMENTS OF INCOME
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,350,537 $1,136,396 $1,030,736
Cost of sales 752,391 649,819 590,394
- --------------------------------------------------------------------------------
Gross profit 598,146 486,577 440,342
Selling, general and administrative
expenses 429,838 340,851 309,069
Interest expense, net 32,580 25,840 22,781
- --------------------------------------------------------------------------------
Income before income taxes 135,728 119,886 108,492
Provision for income taxes (Note C) 57,413 50,957 45,876
- --------------------------------------------------------------------------------
NET INCOME $ 78,315 $ 68,929 $ 62,616
- --------------------------------------------------------------------------------
Average shares outstanding (Note D) 78,315 76,548 73,660
- --------------------------------------------------------------------------------
Earnings per common share and
common share equivalents (Note D) $ 1.00 $ .90 $ .85
- --------------------------------------------------------------------------------
Earnings per common share assuming
full dilution (Note D) $ .95 $ .86 $ .81
- --------------------------------------------------------------------------------
Cash dividends per common share $ .51 $ .47 $ .44
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
MAY 31 1997 1996
- -------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments (Note A) $ 37,442 $ 19,855
Trade accounts receivable (less allowances of
$12,006 in 1997 and $9,993 in 1996) 291,923 231,560
Inventories (Note A) 215,306 178,929
Prepaid expenses and other current assets 68,156 34,782
Businesses held for sale (Note A) 107,494
- -------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 720,321 465,126
- -------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE A)
Land 23,903 20,969
Buildings and leasehold improvements 168,132 143,478
Machinery and equipment 268,061 235,133
- -------------------------------------------------------------------------------------
460,096 399,580
Less allowance for depreciation and amortization 189,812 174,920
- -------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 270,284 224,660
- -------------------------------------------------------------------------------------
OTHER ASSETS
Cost of businesses over net assets acquired,
net of amortization (Note A) 375,606 268,492
Other intangible assets, net of amortization (Note A) 219,098 159,798
Equity in unconsolidated affiliates 18,758 16,623
Other 29,161 20,377
- -------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 642,623 465,290
- -------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,633,228 $ 1,155,076
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 109,400 $ 85,874
Current portion of long-term debt (Note B) 3,967 1,747
Accrued compensation and benefits 40,641 29,678
Accrued loss reserves (Note H) 37,699 33,731
Other accrued liabilities 40,141 26,910
Income taxes payable (Notes A and C) 9,938 11,464
- -------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 241,786 189,404
- -------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt, less current maturities (Note B) 784,439 447,654
Other long-term liabilities 43,497 14,375
Deferred income taxes (Notes A and C) 70,210 57,810
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,139,932 709,243
- -------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares, stated value $.018 per share;
authorized 200,000,000 shares, issued and
outstanding 78,423,000; 77,449,000 in 1996 (Note D) 1,428 1,410
Paid-in capital 229,619 215,019
Cumulative translation adjustment (Note A) (8,216) (2,492)
Retained earnings 270,465 231,896
- -------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 493,296 445,833
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,633,228 $ 1,155,076
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
COMMON SHARES
-----------------------
NUMBER CUMULATIVE
OF SHARES STATED PAID-IN TRANSLATION RETAINED
(NOTE D) VALUE CAPITAL ADJUSTMENT EARNINGS TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1994 73,045 $ 1,329 $ 147,718 $ (2,290) $ 169,687 $ 316,444
Net income 62,616 62,616
Dividends paid (31,259) (31,259)
Sub S Corp. income 1,517 (1,517)
Sub S Corp. distributions (607) (607)
Business combinations 135 3 (252) (249)
Stock option exercises 122 2 652 654
Translation adjustments 2,870 2,870
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1995 73,302 1,334 149,028 580 199,527 350,469
Net income 68,929 68,929
Dividends paid (4) (78) (35,598) (35,676)
Sub S Corp. income 962 (962)
Sub S Corp. distributions (1,067) (1,067)
Business combinations 4,000 73 65,127 65,200
Stock option exercises 151 3 1,047 1,050
Translation adjustments (3,072) (3,072)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1996 77,449 1,410 215,019 (2,492) 231,896 445,833
Net income 78,315 78,315
Dividends paid (39,746) (39,746)
Amendment of articles (250) (250)
Business combinations 772 14 13,586 13,600
Stock option exercises 202 4 1,264 1,268
Translation adjustments (5,724) (5,724)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1997 78,423 $ 1,428 $ 229,619 $ (8,216) $ 270,465 $ 493,296
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
RPM, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
YEAR ENDED MAY 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 78,315 $ 68,929 $ 62,616
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 51,145 42,562 37,123
(Decrease) in deferred liabilities (7,400) (5,696) (578)
(Earnings) of unconsolidated affiliates (2,275) (2,120) (2,638)
Non-cash interest expense 9,127 8,666 8,228
Changes in assets and liabilities, net of effect
from purchases and sales of
businesses:
(Increase) in accounts receivable (34,934) (17,249) (10,852)
(Increase) in inventory (11,722) (4,441) (20,566)
(Increase) in prepaid and other assets (9,520) (3,319) (627)
Increase in accounts payable 3,489 9,808 11,238
Increase (decrease) in accrued liabilities (4,568) (728) 8,132
Other (2,706) (723) (242)
- ----------------------------------------------------------------------------------------------
Cash From Operating Activities 68,951 95,689 91,834
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (35,825) (33,196) (28,796)
Acquisition of new businesses, net of cash acquired (315,960) (45,375) (173,483)
Payments for the purchase of marketable securities (13,428) (17,453) (7,330)
Proceeds from maturities or redemptions of
marketable securities 14,992 10,951 6,235
Distribution from joint ventures 261 1,571 1,000
Investments in joint ventures (200) (1,663) (368)
Proceeds from sale of assets and businesses 8,930 11,666
- ----------------------------------------------------------------------------------------------
Cash Used For Investing Activities (341,230) (73,499) (202,742)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt 508,528 219,119 243,578
Reductions of long-term and short-term debt (179,934) (205,595) (99,615)
Cash dividends/distributions paid (39,746) (36,743) (31,866)
Exercise of stock options 1,268 1,050 654
Other (250) (249)
- ----------------------------------------------------------------------------------------------
Cash From (Used For) Financing Activities 289,866 (22,169) 112,502
- ----------------------------------------------------------------------------------------------
NET INCREASE IN CASH 17,587 21 1,594
CASH AT BEGINNING OF YEAR 19,855 19,834 18,240
- ----------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 37,442 $ 19,855 $ 19,834
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 23,454 $ 14,369 $ 15,734
Income taxes $ 67,842 $ 59,277 $ 42,086
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Interest accreted on LYONs $ 9,127 $ 8,666 $ 8,228
Common shares issued for acquisitions $ 13,600 $ 65,200 $
Receivables acquired from disposition of businesses $ 26,728 $ $
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
29
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MAY 31, 1997, 1996 AND 1995
RPM, INC. AND SUBSIDIARIES
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RPM, Inc. and its
majority owned domestic and foreign subsidiaries. The Company accounts for its
investment in less than majority owned joint ventures under the equity method.
Income and distributions recognized from Subchapter S corporations are solely a
result of the Company's acquisitions of these subsidiaries on a pooling of
interests basis. Intercompany accounts, transactions and unrealized profits and
losses are eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
2. BUSINESS COMBINATIONS
During the two-year period ended May 31, 1997, the Company completed several
acquisitions.
As reported last year, the Company acquired all the outstanding shares of Star
Finishing Products and Dryvit Systems, Inc.
On June 13, 1996, the Company acquired all the outstanding shares of Composite
Structures International (formerly Okura Holdings, Inc.) for $73,000,000 in
cash. CSI, based in Texas, manufactures and markets fiberglass reinforced
plastic grating products.
On February 1, 1997, the Company acquired all the outstanding shares of Tremco,
Inc., a BFGoodrich Company subsidiary, for approximately $236,000,000 in cash.
Tremco manufactures and sells roofing systems, sealants and coatings to
customers primarily in the building, construction, building maintenance and
retail markets.
These acquisitions, as well as several small product line acquisitions, have
been accounted for by the purchase method of accounting and the difference of
approximately $190,000,000 between the fair value of net assets acquired and
the purchase consideration of $455,000,000 ($377,000,000 in cash and 4,772,000
of the Company's shares) has been allocated to goodwill. The purchase price
allocations have been based on preliminary estimates, which may be revised at a
later date. The assets, liabilities and operating results of these companies
are reflected in the Company's financial statements from their respective dates
of acquisition forward.
The Company also completed several divestitures and product line restructurings
during the past two years resulting in an immaterial gain with net proceeds to
the Company of approximately $47,000,000 consisting of cash and receivables.
Subsequent to May 31, 1997, the Company completed the sale of Tremco's Windows
and Autoglass businesses for $111,000,000. The Company's results of operations
do not include the results of these businesses or the interest expense incurred
during the holding period related to the incremental borrowings being repaid
with the sale proceeds. The carrying value of the businesses as of May 31, 1997,
which are reflected in the accompanying balance sheet as Businesses held for
sale, have been adjusted to equal the approximate net sales proceeds, with a
corresponding adjustment to goodwill.
The following data summarizes, on an unaudited pro forma basis, the combined
results of operations of the Company and the businesses acquired for the two
years ended May 31, 1997. 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>
YEAR ENDED MAY 31 1997 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
- --------------------------------------------------------------------
<S> <C> <C>
Net Sales $1,543,329 $1,445,118
- --------------------------------------------------------------------
Net Income $ 80,874 $ 63,142
- --------------------------------------------------------------------
Earnings per common share and
common share equivalent $1.03 $ .82
- --------------------------------------------------------------------
Earnings per common share
assuming full dilution $ .98 $ .79
- --------------------------------------------------------------------
</TABLE>
3. FOREIGN CURRENCY
For the periods presented, assets and liabilities have been translated using
exchange rates prevailing at year end. Income and expense for the periods have
been translated using an average exchange rate. The resulting translation
adjustments have been recorded in shareholders' equity and will be included in
net earnings only upon the sale or liquidation of the underlying foreign
investment, which is not contemplated at this time. Transaction gains and losses
have been immaterial during the past three fiscal years.
4. CASH AND SHORT-TERM INVESTMENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The Company does not believe it is exposed to any significant
credit risk on cash and short-term investments.
5. MARKETABLE SECURITIES
Marketable securities of $11,300,000 and $14,400,000 at May 31, 1997 and 1996,
respectively, are included in other current assets and are stated at cost which
approximates their fair market value.
6. FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include cash
and short-term investments, accounts receivable, accounts payable and debt. The
carrying amount of cash and short-term investments, accounts receivable and
accounts payable approximates fair value because of their short term maturity.
The carrying amount of the Company's debt instruments approximates fair value
based on quoted market prices, variable interest rates, or borrowing rates for
similar types of debt arrangements.
30
<PAGE> 8
7. INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
substantially on a first-in, first-out (FIFO) basis and market being determined
on the basis of replacement cost or net realizable value. Inventory costs
include raw material, labor and manufacturing overhead. Inventories were
composed of the following major classes:
<TABLE>
<CAPTION>
MAY 31 1997 1996
(IN THOUSANDS)
<S> <C> <C>
Raw material and supplies $ 80,333 $ 64,995
Finished goods 134,973 113,934
- --------------------------------------------------------------------
Total Inventory $215,306 $178,929
</TABLE>
8. DEPRECIATION
Depreciation is computed over the estimated useful lives of the assets primarily
using the straight-line method. The annual depreciation rates are based on the
following ranges of useful lives:
==================================================================
Land improvements 5 to 35 years
Buildings and improvements 5 to 50 years
Machinery and equipment 3 to 20 years
==================================================================
9. INTANGIBLES
The excess of cost over the underlying value of the net assets of companies
acquired is being amortized on the straight-line basis, primarily over 40 years.
Amortization expense charged to operations for the three years ended May 31,
1997 was $9,916,000, $7,562,000 and $5,888,000, respectively. Cost of businesses
over net assets acquired is shown net of accumulated amortization of $42,311,000
at May 31, 1997 ($33,079,000 at May 31, 1996).
Intangible assets also represent costs allocated to formulae, trademarks, trade
names and other specifically identifiable assets arising from business
acquisitions. These assets are being amortized using the straight-line method
over periods of five to 40 years. The Company assesses the recoverability of the
excess of cost over the assigned value of net assets acquired by determining
whether the amortization of the balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operations.
Amortization expense charged to operations for the three years ended May 31,
1997, was $10,936,000, $7,553,000 and $4,991,000 respectively.
Other intangible assets consist of the following major classes:
<TABLE>
<CAPTION>
MAY 31 1997 1996
(IN THOUSANDS)
<S> <C> <C>
Trademarks $ 85,472 $ 65,530
Formulae 83,693 62,995
Distributor network 37,500 17,500
Workforce 33,300 24,122
Other 10,199 10,084
- -------------------------------------------------------------
250,164 180,231
Accumulated amortization 31,066 20,433
- -------------------------------------------------------------
Other Intangible Assets, Net $219,098 $159,798
==============================================================
</TABLE>
10. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred and are
included in operating expenses. The amounts charged for the three years ended
May 31, 1997, were $14,610,000, $13,712,000 and $12,337,000, respectively. The
customer sponsored portion of such expenditures was not significant.
11. INTEREST EXPENSE, NET
Interest expense is shown net of investment income which consists of interest,
dividends and capital gains. Investment income for the three years ended May 31,
1997, was $2,059,000, $2,005,000 and $1,739,000, respectively.
12. INCOME TAXES
The Company and its wholly owned domestic subsidiaries file a consolidated
federal income tax return. The tax effects of transactions are recognized in the
year in which they enter into the determination of net income, regardless of
when they are recognized for tax purposes. As a result, income tax expense
differs from actual taxes payable. The accumulation of these differences at May
31, 1997, is shown as a noncurrent liability of $70,210,000 (net of a noncurrent
asset of $31,773,000). At May 31, 1996, the noncurrent liability was $57,810,000
(net of a noncurrent asset of $29,366,000). The Company does not intend to
distribute the accumulated earnings of consolidated foreign subsidiaries
amounting to $40,816,000 at May 31, 1997, and $31,826,000 at May 31, 1996, and
therefore no provision has been made for the taxes which would result if such
earnings were remitted to the Company.
13. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
31
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- MAY 31, 1997, 1996 AND 1995
RPM, INC. AND SUBSIDIARIES
NOTE B -- BORROWINGS
A description of long-term debt follows:
<TABLE>
<CAPTION>
MAY 31 1997 1996
(IN THOUSANDS)
<S> <C> <C>
$400 million face value at maturity Liquid Yield Option
Notes (LYONs) due 2012. The 5.25% LYONs are zero coupon
subordinated notes currently convertible at $18.50 ($17.57
at May 31, 1996) and are redeemable by the holder for the
issuance price plus accrued original issue discount in
September 1997, 2002 and 2007. There are 9,767,000 shares
reserved for the conversion of this debt. $180,716 $171,589
Revolving credit agreement for $500,000,000 with ten banks
through February 3, 2002. Interest, which is tied to one of
various rates, was 5.94% at May 31, 1997. The Chairman of
the Board and Chief Executive Officer of the Company is a
director of one of the banks providing this facility. 417,000
Revolving credit agreement for $150,000,000 refinanced with
proceeds from the credit agreement described above. 82,000
7% unsecured senior notes due June 15, 2005. 150,000 150,000
Multi-currency revolving credit agreement for $45,000,000
with a bank through December 14, 1998. Interest, which is
tied to one of various rates, averaged 3.6% on the
$11,981,000 Dutch Guilder component, 3.7% on the $8,868,000
Belgian Franc component and 3.8% on the $2,950,000 French
Franc component at May 31, 1997. 23,799 29,167
6.75% unsecured senior notes due to an insurance company in
annual installments from 1997 through 2003. 12,000 12,000
Other notes and mortgages payable at various rates of
interest due in installments through 2005, substantially
secured by property . 4,891 4,645
- ---------------------------------------------------------------------------------
788,406 449,401
Less current portion 3,967 1,747
- ---------------------------------------------------------------------------------
Total long-term debt, less current maturities $784,439 $447,654
- ---------------------------------------------------------------------------------
</TABLE>
Additionally, at May 31, 1997, the Company has unused short-term lines of credit
with several banks totalling $28,000,000.
The aggregate maturities of long-term debt for the five years subsequent to May
31, 1997, are as follows: 1998 - $3,967,000; 1999 - $26,891,000; 2000 -
$2,218,000; 2001 - $2,000,000; 2002 $418,836,000.
NOTE C -- TAXES
The provision for taxes on income includes the following:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax rate of 35% applied to
income before income taxes $ 47,505 $ 41,960 $ 37,972
Increase (decrease) in taxes resulting from:
Tax credits (291) (585) (411)
State and local taxes - Net of federal income tax benefit 5,994 5,323 4,870
Foreign taxes in excess of U.S. federal tax rate 1,161 500 1,440
Amortization of goodwill 2,144 3,411 1,880
Difference between tax and book income, related to pooled entities (404) (572)
All other items, none of which exceed 5% of computed tax 900 752 697
- ----------------------------------------------------------------------------------------------------------
Actual tax expense $ 57,413 $ 50,957 $ 45,876
- ----------------------------------------------------------------------------------------------------------
Actual tax rate 42.30% 42.50% 42.29%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Current
<S> <C> <C> <C>
Federal $ 48,363 $ 43,992 $ 34,292
State 9,222 8,189 7,492
Foreign 7,228 4,473 4,789
- ----------------------------------------------------------------------------------------------------------
64,813 56,654 46,573
Deferred
Federal (7,681) (5,814) (809)
Foreign 281 117 112
- ----------------------------------------------------------------------------------------------------------
Actual tax expense $ 57,413 $ 50,957 $ 45,876
</TABLE>
Deferred income taxes result from timing differences in recognition of revenue
and expense for book and tax purposes, primarily from the tax timing differences
relating to business combinations.
32
<PAGE> 10
NOTE D -- COMMON SHARES
There are 200,000,000 common shares authorized (100,000,000 at May 31, 1996)
with a stated value of $.018 per share. At May 31, 1997 and 1996, there were
78,423,000 and 77,449,000 shares outstanding respectively, each of which is
entitled to one vote.
Earnings per share are based on the weighted average number of common shares and
common share equivalents outstanding during each year (78,315,000 in 1997,
76,548,000 in 1996 and 73,660,000 in 1995). In computing such average number of
shares outstanding, the number of common shares was increased by common stock
options with exercisable prices lower than the average market prices of common
shares during each year and reduced by the number of shares assumed to have been
purchased with proceeds from the exercised options.
The Company has options outstanding under three stock option plans: the 1979
Nonqualified Stock Option Plan, which, prior to its expiration in September
1989, provided for the granting of options for up to 2,104,000 shares; the 1989
Stock Option Plan, which provides for the granting of options for up to
3,516,000 shares; and the 1996 Key Employees Stock Option Plan which provides
for the granting of options for up to 3,600,000 shares. These options are
generally exercisable cumulatively in equal annual installments commencing one
year from the grant date and have expiration dates ranging from July 1997 to May
2007. At May 31, 1997, 4,174,000 shares (1,177,000 May 31, 1996) were available
for future grant.
Transactions during the last two years are summarized as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION 1997 1996
(IN THOUSANDS)
<S> <C> <C>
Outstanding, beginning of year (weighted
average price of $12.97 ranging from $5.47
to $15.80 per share) 2,245 1,828
Granted (weighted average price of $16.11
ranging from $15.00 to $17.25 per share) 603 614
Canceled (weighted average price of $15.18
ranging from $10.53 to $17.25 per share) (24) (33)
Exercised (weighted average price of $8.76
ranging from $5.47 to $15.45 per share) (261) (164)
- -------------------------------------------------------------
Outstanding, end of year (weighted average
price of $14.12 ranging from $6.11 to
$17.25 per share) 2,563 2,245
- -------------------------------------------------------------
Exercisable, end of year (weighted average
price of $12.53 ranging from $6.11 to
$15.80 per share) 1,226 1,087
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT MAY 31, 1997 AT MAY 31, 1997
- --------------------------------------------------------------- ---------------------------
RANGE OF SHARES AVERAGE AVERAGE SHARES AVERAGE
EXERCISE PRICES (000) YEARS PRICE (000) PRICE
<S> <C> <C> <C> <C> <C> <C>
$ 5.00 - $ 9.99 215 2.5 $ 7.68 215 $ 7.68
$10.00 - $14.99 927 5.7 $13.05 752 $12.88
$15.00 - $19.00 1,421 8.5 $15.79 259 $15.52
----- -----
2,563 7.0 $14.12 1,226 $12.53
</TABLE>
The Company is accounting for its stock option plans under the provisions of APB
Opinion No. 25 and, accordingly, no compensation cost has been recognized. If
compensation cost had been determined based on the fair value at the grant date
for awards under this plan consistent with the method prescribed by SFAS No.
123, the Company's net income and earnings per share for the years ended May 31,
1997 and 1996, would have been reduced to the pro forma amounts indicated in the
following table:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1997 1996
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Pro forma net income $ 77,315 $ 68,524
- --------------------------------------------------------------
Pro forma earnings per share:
Primary $.99 $.90
- --------------------------------------------------------------
Fully diluted $.94 $.85
- --------------------------------------------------------------
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions. The expected volatility rate is 27.53% for 1997 and 1996. The
expected life is 6.91 and 7.00 years, with dividend yields of 2.78% and 2.80%
and risk-free interest rates of 6.34% and 6.09%, for 1997 and 1996,
respectively.
NOTE E -- LEASES
At May 31, 1997, certain property, plant and equipment were leased by the
Company under long-term leases. Certain of these leases provide for increased
rental based upon an increase in the cost-of-living index. Future minimum lease
commitments as of May 31, 1997, for all noncancellable leases are as follows:
<TABLE>
<CAPTION>
MAY 31 (IN THOUSANDS)
<S> <C>
1998 $ 7,657
1999 5,291
2000 2,986
2001 1,953
2002 1,277
- --------------------------------------------------------------
Thereafter 4,044
- --------------------------------------------------------------
Total minimum lease commitments $23,208
</TABLE>
Rental expenses for all operating leases totalled $8,804,000 in 1997, $6,614,000
in 1996 and $6,290,000 in 1995. Capitalized leases were insignificant for the
three years ended May 31, 1997.
33
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MAY 31, 1997, 1996 AND 1995
(continued)
RPM, INC. AND SUBSIDIARIES
NOTE F -- RETIREMENT PLANS
To provide uniform retirement income for its non-union employees, the Company
has a defined benefit retirement plan in which substantially all non-union
employees participate. The Retirement Plan is a non-contributory plan fully paid
for by the Company, with accrued benefits vesting after five years of service.
This plan provides benefits that are based on years of service and average
compensation. Benefits for union employees are provided by separate plans and
are generally based on years of service. The Company's funding policy is to
contribute annually an amount that can be deducted for federal income tax
purposes using a different actuarial cost method and different assumptions from
those used for financial reporting.
The net periodic pension cost for the three years ended May 31, 1997, included
the following components:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - Benefits earned
during the period $ 4,417 $ 3,086 $ 3,524
Interest cost on projected
benefit obligations 5,038 4,428 2,533
Actual return on plan assets (7,388) (7,367) 1,753
Net amortization and deferral 3,336 3,946 (3,540)
- -------------------------------------------------------------
Net pension cost $ 5,403 $ 4,093 $ 4,270
- -------------------------------------------------------------
</TABLE>
The general discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations were 8% (7.75% for May 31, 1996) and 5%, respectively. The expected
long-term rate of return on assets was 8.5%. The plans' assets consist primarily
of stocks, bonds and fixed income securities.
The following table sets forth the funded status of the Company's pension plans
and the amounts reflected in the accompanying balance sheets:
<TABLE>
<CAPTION>
MAY 31 1997 1996
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of projected
benefit obligation:
Vested employees $(71,681) $(45,706)
Nonvested employees (2,358) (2,206)
- -------------------------------------------------------------
Accumulated benefit obligation (74,039) (47,912)
Additional amount related to
projected salary increases (18,537) (10,293)
- -------------------------------------------------------------
Total projected benefit obligation (92,576) (58,205)
Funded assets at fair value 92,027 50,154
- -------------------------------------------------------------
Projected benefit obligation in
excess of assets (549) (8,051)
Unamortized net asset existing at date
of adoption (450) (518)
Unrecognized prior service cost 1,458 769
Unrecognized net loss 2,304 4,603
- -------------------------------------------------------------
Prepaid/(Accrued) pension cost $ 2,763 $ (3,197)
=============================================================
</TABLE>
Some subsidiaries contribute to multi-employer defined benefit plans for their
collective bargaining groups. Contributions to these plans were immaterial for
the three year period ended May 31, 1997. In addition, the Company maintains a
401(k) Plan for substantially all non-union employees in the United States.
NOTE G -- POST RETIREMENT HEALTH CARE BENEFITS
In addition to the defined benefit pension plan, the Company also provides
health care benefits to certain of its retired employees through unfunded plans.
Employees become eligible for these benefits if they meet minimum age and
service requirements. The components of this expense for the three years ended
May 31, 1997 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - Benefits earned
during this period $ 36 $ 4 $ 47
Interest cost on the
accumulated obligation 714 673 763
Net amortization (113) 20
- -------------------------------------------------------------
Net periodic post-retirement
expense $ 750 $ 564 $ 830
=============================================================
</TABLE>
The accumulated post-retirement obligation recognized on the May 31, 1997 and
May 31, 1996 balance sheets are comprised of the following components:
<TABLE>
<CAPTION>
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Current retirees $ 8,705 $ 8,231
Future retirees 3,344 798
Unrecognized net gain 1,313 595
- -------------------------------------------------------------
Accumulated post-retirement
benefit obligation $ 13,362 $ 9,624
</TABLE>
An 8% (7.75% at May 31, 1996) general discount rate was used in determining the
accumulated post-retirement benefit obligation. A 12% increase in the cost of
covered health care benefits was generally assumed for fiscal 1997. This trend
rate in all cases is assumed to decrease incrementally to 5% after several years
and remain at that level thereafter except for various union plans which will
cap at alternate benefit levels. A 1% increase in the health care costs trend
rate would have increased the accumulated post-retirement benefit obligation as
of May 31, 1997 by $1,096,900 and the net post-retirement expense by $72,000.
34
<PAGE> 12
Note H -- Contingencies and Loss Reserves
Accrued loss reserves consisted of the following classes:
<TABLE>
<CAPTION>
MAY 31 1997 1996
(IN THOUSANDS)
<S> <C> <C>
Accrued product liability reserves $ 17,145 $ 15,429
Accrued warranty reserves - Current 11,848 10,364
Accrued environmental reserves 6,332 5,546
Other 2,374 2,392
- -------------------------------------------------------------
Accrued loss reserves - Current 37,699 33,731
Accrued warranty reserves - Long-term 17,762 768
- -------------------------------------------------------------
Total accrued loss reserves $ 55,461 $ 34,499
=============================================================
</TABLE>
The Company, through its wholly owned insurance subsidiary, provides certain
insurance coverages, primarily product liability, to the Company's other
domestic subsidiaries. Excess coverage is provided by outside carriers. The
Company has provided the reserves reflected above to provide for these losses as
well as other uninsured claims.
Provision for estimated warranty costs is recorded at the time of
sale and periodically adjusted to reflect actual experience. Included
at May 31, 1997 and 1996 are warranty reserves of subsidiaries acquired during
those years in the amounts of $20,948,000 and $7,761,000, respectively.
In addition, the Company, like others in similar businesses, is involved in
several proceedings relating to environmental matters. It is the Company's
policy to accrue remediation costs when it is probable that such efforts will be
required and the related costs can be reasonably estimated. These liabilities
are undiscounted and do not take into consideration any possible recoveries of
future insurance proceeds or claims against third parties. Because of the
uncertainty inherent in the estimation process, it is at least reasonably
possible that actual costs will differ from estimates, but, based upon
information presently available, such future costs are not expected to have a
material adverse effect on the Company's competitive or financial position or
its ongoing results of operations. However, such costs could be material to
results of operations in a future period.
NOTE I -- INDUSTRY SEGMENT AND GEOGRAPHIC
AREA INFORMATION
The Company operates principally in one business segment -- the manufacture and
sale of protective coatings. In computing net income for foreign subsidiaries,
no allocations of general corporate expenses have been made.
Information concerning the Company's operations in different geographical areas
of the Company's business at May 31, 1997, 1996 and 1995 and for the years then
ended is summarized as follows:
<TABLE>
<CAPTION>
UNITED EUROPEAN OTHER FOREIGN
STATES OPERATIONS OPERATIONS TOTAL
(IN THOUSANDS)
- -------------------------------------------------------------------------------------
NET SALES
<S> <C> <C> <C> <C>
May 31, 1997 $1,149,348 $ 115,299 $ 85,890 $1,350,537
May 31, 1996 1,001,706 90,880 43,810 1,136,396
May 31, 1995 913,119 85,537 32,080 1,030,736
- -------------------------------------------------------------------------------------
GROSS PROFIT
May 31, 1997 520,461 46,660 31,025 598,146
May 31, 1996 431,493 41,366 13,718 486,577
May 31, 1995 392,244 37,913 10,185 440,342
- -------------------------------------------------------------------------------------
INTEREST EXPENSE, NET
May 31, 1997 31,473 605 502 32,580
May 31, 1996 22,785 2,738 317 25,840
May 31, 1995 20,159 2,334 288 22,781
- -------------------------------------------------------------------------------------
INCOME BEFORE TAX
May 31, 1997 118,108 10,337 7,283 135,728
May 31, 1996 108,589 8,773 2,524 119,886
May 31, 1995 100,721 6,665 1,106 108,492
- -------------------------------------------------------------------------------------
NET INCOME
May 31, 1997 68,843 5,444 4,028 78,315
May 31, 1996 62,080 5,130 1,719 68,929
May 31, 1995 59,336 2,404 876 62,616
- -------------------------------------------------------------------------------------
ASSETS EMPLOYED
May 31, 1997 1,412,157 114,350 106,721 1,633,228
May 31, 1996 1,041,726 86,275 27,075 1,155,076
May 31, 1995 858,257 90,340 16,926 965,523
- -------------------------------------------------------------------------------------
</TABLE>
The above sales for the year ended May 31, 1997, do not include sales of Company
products by joint ventures and licensees of approximately $105,000,000. The
Company reflects income from joint ventures on the equity method and receives
royalties from its licensees.
Export sales were less than 10% of total consolidated revenue for each of the
three years.
35
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--MAY 31, 1997, 1996 AND 1995
(continued)
PPM, INC. AND SUBSIDIARIES
NOTE J -- INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended May 31, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997
<S> <C> <C> <C> <C>
Net Sales $329,231 $316,076 $297,177 $408,053
- -----------------------------------------------------------------------------------------
Gross Profit 142,696 134,046 125,793 195,611
- -----------------------------------------------------------------------------------------
Net Income 23,956 18,533 7,508 28,318
- -----------------------------------------------------------------------------------------
Primary Earnings Per Share $ .31 $ .24 $ .10 $ .36
- -----------------------------------------------------------------------------------------
Fully Diluted Earnings Per Share $ .29 $ .23 $ .10 $ .33
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 NOVEMBER 30 FEBRUARY 29 MAY 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net Sales $282,954 $281,402 $255,157 $316,883
- -----------------------------------------------------------------------------------------
Gross Profit 119,641 117,452 104,966 144,518
- -----------------------------------------------------------------------------------------
Net Income 19,993 16,258 8,047 24,631
- -----------------------------------------------------------------------------------------
Primary Earnings Per Share $ .27 $ .22 $ .11 $ .32
- -----------------------------------------------------------------------------------------
Fully Diluted Earnings Per Share $ .25 $ .21 $ .11 $ .30
- -----------------------------------------------------------------------------------------
</TABLE>
The computation of fully diluted earnings per share reflects additional shares
issuable assuming conversion of convertible securities. Quarterly earnings per
share do not total to the earnings per share due to the weighted average number
of shares outstanding in each quarter.
NOTE K -- SUBSEQUENT EVENTS
Proceeds received subsequent to May 31, 1997, from the sales of the Company's
Craft House subsidiary and Tremco's Windows and Autoglass businesses were used
to reduce the Company's long-term debt by approximately $135,000,000.
NOTE L -- RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share will not be material.
================================================================================
INDEPENDENT AUDITORS REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
RPM, INC. AND SUBSIDIARIES
MEDINA, OHIO
We have audited the accompanying consolidated balance sheets of RPM, Inc. and
Subsidiaries as of May 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three year period ended May 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RPM, Inc. and
Subsidiaries at May 31, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three year period ended May 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ciulla Smith & Dale LLP
Cleveland, Ohio
July 10, 1997
36
<PAGE> 1
EXHIBIT 21.1
------------
The following is a list of subsidiaries of RPM, Inc. as of August 1, 1997.
Jurisdiction of
Name Incorporation
- ---- -------------
Bondex International, Inc. Ohio
Cal-O-Cam, Inc. Michigan
Consolidated Coatings Corporation Ohio
Consolidated Inter-Continental Corporation Ohio
Consolidated Protective Coatings, Ltd. Canada
Day-Glo Color Corp. Ohio
Kop-Coat, Inc. Ohio
Alox Corporation New York
Alox International Sales Corp. New York
Mameco International, Inc. Ohio
Paramount Technical Products, Inc. South Dakota
L.D. Wracm, Inc. Ohio
Republic Powdered Metals, Inc. Ohio
BSP Systems, Inc.(1) Delaware
RPM of North Carolina, Inc.(1) Ohio
Tremco, Inc.(2) Ohio
Tremco Service Corporation Delaware
Tremco AB Sweden
Tremco Gmbh Germany
Tremco LTD Canada
Tremco Limited U.K.
OV Tremco LTD Finland
Tretol Group LTD U.K.
Tretol LTD U.K.
TretolBond LTD U.K.
Tremco Asia Pacific Pty Limited Australia
Tremco Pty Limited Australia
PABCO Products Pty Limited Australia
Tremco (NZ) Limited New Zealand
Tremco Japan Pty, Ltd. Australia
Tremco Far East Limited Hong Kong
Sime Tremco Private Limited Singapore
Bondo/Mar-Hyde Corporation Ohio
Euchem, Inc.(3) Ohio
Westgate Advertising, Inc. Ohio
Carboline Company Delaware
Carboline International Corporation(4) Delaware
Carboline Dubai Corporation Missouri
Carboline Marine Ltd. Delaware
<PAGE> 2
Map II, Inc. Delaware
RPM World Trade, Ltd. Virgin Islands
Stonhard, Inc. Delaware
Stonhard (Canada) Ltd. Canada
Stonhard GmbH Germany
Stonhard Luxembourg, S.A. Luxembourg
Stonhard S.A. de C.V. Mexico Mexico
Stonhard South America Ltda. Brazil
Wisconsin Protective Coatings Corp. Delaware
Briner Paint Mfg. Co. Texas
American Emulsions Co., Inc. Georgia
Lubraspin Corporation Georgia
Select Dye & Chemical, Inc. Georgia
Design/Craft Fabric Corporation Illinois
Chemical Specialties Manufacturing Corporation Maryland
RPM of Mass, Inc. Massachusetts
Haartz-Mason, Inc. Massachusetts
Westfield Coatings Corporation Massachusetts
William Zinsser & Co., Inc. New Jersey
Richard E. Thibaut, Inc. New York
Mantrose-Haeuser Co., Inc. Massachusetts
Floquil-Polly S Color Corp. New York
Mohawk Finishing Products, Inc. New York
H. Behlen & Bros., Inc. New York
Bondex International (Canada) Ltd. Canada
Chemical Coatings, Inc. North Carolina
Sentry Polymers, Inc. Texas
First Colonial Insurance Company Vermont
Composite Structures International, Inc. Delaware
Fibergrate Corporation Texas
Chemgrate Corporation Washington
Chem-Grate Corporation Tennessee
Chemgrate (Asia) Inc. Washington
Chemgrate Shanghai FRP Co. Ltd. China
Chemgrate (PRC), Inc. Washington
Dryvit Systems, Inc. (5) Rhode Island
Dryvit Systems, Canada, Ltd. Canada
Tech 21 Panel Systems, Inc. Rhode Island
Rust-Oleum Corporation Illinois
Rust-Oleum Concrete Protection Systems, Inc. Oklahoma
Rust-Oleum Sales Company, Inc. Ohio
ROC Sales, Inc. Illinois
Rust-Oleum International Corporation Delaware
Simian Company, Inc. Delaware
Star Finishing Products, Inc. Illinois
TCI, Inc. Georgia
<PAGE> 3
The Testor Corporation Ohio
Testor Australia Pty, Ltd. Australia
RPM/Europe B.V.(5) Netherlands
Rust-Oleum/Netherlands, B.V. Netherlands
Radiant Color N.V. Belgium
Martin Mathys, N.V. Belgium
RPM/Praha spol.n.r.o. Czech Republic
RPOW UK Limited U.K.
Chemspec Europe Limited U.K.
Rust-Oleum U.K. Limited U.K.
Stonhard U.K. Limited U.K.
Mantrose U.K. Limited U.K.
Agricoat Industries, Limited. U.K.
RPOW (France) S.A. France
Rust-Oleum (France) S.A. France
Stonhard S.A.R.L. France
RPM (Belgium) N.V. Belgium
Monile France S.A. France
RPM Finance N.V. Netherlands
RPM (Luxembourg) S.A. Luxembourg
RPM Asia Pte Ltd. Singapore
RPM China Pte Ltd.(6) Singapore
Espan Corporation Pte Ltd. Singapore
Espan Building Industries Pte Ltd. Singapore
Multicor S.A. Argentina I. y C. Argentina
(1) BSP Systems, Inc. and RPM of North Carolina, Inc. each own 50% of AGR
Company, an Ohio general partnership.
(2) Tremco, Inc. also owns 49% of the outstanding stock of Sime Tremco Sdn
Bhd, a Malaysian company, which owns 100% of MBP Sdn Bhd, a Malaysian
company.
(3) Euchem, Inc. owns 50% of The Euclid Chemical Company, an Ohio general
partnership, which, in turn, owns 100% of the outstanding shares of
Euclid Chemical Canada, Ltd. and two Ohio corporations, Redwood
Transport, Inc. and Euclid Chemical International Sales Corporation.
(4) Carboline International Corporation also owns 54% of Chemrite Coatings,
Limited, a South African corporation.
(5) RPM/Europe B.V. and Dryvit Systems, Inc. are 51% joint venture partners
in Midwest Traders International, a Polish company.
(6) RPM China Pte Ltd., is a 30% joint venture partner in Managro
Industries Pte Ltd., a Singapore company.
<PAGE> 1
Exhibit 23.1
Consent of Independent Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated July 10, 1997 in the Annual
Report on Form 10-K for the year ending May 31, 1997, in RPM, Inc.'s
Registration Statements on Form S-3 (Reg. Nos. 33-50868, Liquid Yield Option
Notes, 33-61513, Dryvit Systems, Inc. acquisition, 333-08209, TCI, Inc.
acquisition, and 333-19305, acquisition of Marson Automotive Division) and
Registration Statements on Form S-8 (Reg. Nos. 2-65508, 1979 Stock Option Plan
and 33-32794, 1989 Stock Option Plan).
/s/ Ciulla, Smith & Dale, LLP
-----------------------------
Ciulla, Smith & Dale, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 37,442
<SECURITIES> 0
<RECEIVABLES> 303,929
<ALLOWANCES> 12,006
<INVENTORY> 215,306
<CURRENT-ASSETS> 720,321
<PP&E> 460,096
<DEPRECIATION> 189,812
<TOTAL-ASSETS> 1,633,228
<CURRENT-LIABILITIES> 241,786
<BONDS> 784,439
<COMMON> 1,428
0
0
<OTHER-SE> 491,868
<TOTAL-LIABILITY-AND-EQUITY> 1,633,228
<SALES> 1,350,537
<TOTAL-REVENUES> 1,350,537
<CGS> 752,391
<TOTAL-COSTS> 1,182,229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,580
<INCOME-PRETAX> 135,728
<INCOME-TAX> 57,413
<INCOME-CONTINUING> 78,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,315
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .95
</TABLE>
