<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000 OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO
________.
COMMISSION FILE NO. 1-14187
-------
RPM, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
OHIO 34-6550857
-------------------------------------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
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
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO .
---- ----
AS OF OCTOBER 11, 2000
102,034,804 RPM INC. COMMON SHARES WERE OUTSTANDING.
<PAGE> 2
RPM, INC. AND SUBSIDIARIES
--------------------------
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
------------------------------ --------
<S> <C>
CONSOLIDATED BALANCE SHEETS 3
AUGUST 31, 2000 AND MAY 31, 2000
CONSOLIDATED STATEMENTS OF INCOME 4
THREE MONTHS ENDED
AUGUST 31, 2000 AND AUGUST 31, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
THREE MONTHS ENDED
AUGUST 31, 2000 AND AUGUST 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 8 - 13
RESULTS FOR OPERATIONS AND FINANCIAL CONDITION
PART II. OTHER INFORMATION 14 - 16
---------------------------
</TABLE>
<PAGE> 3
3
PART I. -- FINANCIAL INFORMATION
--------------------------------
ITEM 1. -- FINANCIAL STATEMENTS
-------------------------------
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
------
AUGUST 31, 2000 MAY 31, 2000
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 24,398 $ 31,340
TRADE ACCOUNTS RECEIVABLE (LESS ALLOWANCE FOR DOUBTFUL
ACCOUNTS $15,236 AND $16,248) 403,042 399,683
INVENTORIES 248,133 244,559
PREPAID EXPENSES AND OTHER CURRENT ASSETS 117,465 109,510
---------------- ----------------
TOTAL CURRENT ASSETS 793,038 785,092
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, AT COST 615,123 599,679
LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION 241,874 233,451
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, NET 373,249 366,228
---------------- ----------------
OTHER ASSETS
COSTS OF BUSINESSES OVER NET ASSETS ACQUIRED, NET OF AMORTIZATION 590,586 595,106
INTANGIBLE ASSETS, NET OF AMORTIZATION 316,614 320,631
OTHER 35,455 32,146
---------------- ----------------
TOTAL OTHER ASSETS 942,655 947,883
---------------- ----------------
TOTAL ASSETS $ 2,108,942 $ 2,099,203
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
CURRENT PORTION OF LONG TERM DEBT $ 4,037 $ 4,987
NOTES AND ACCOUNTS PAYABLE 150,178 154,256
ACCRUED COMPENSATION AND BENEFITS 62,925 68,938
ACCRUED LOSS RESERVES 62,086 64,765
OTHER ACCRUED LIABILITIES 64,586 68,702
RESTRUCTURING RESERVE 10,981 13,540
INCOME TAXES PAYABLE 10,928 1,014
---------------- ----------------
TOTAL CURRENT LIABILITIES 365,721 376,202
---------------- ----------------
LONG-TERM LIABILITIES
LONG-TERM DEBT, LESS CURRENT MATURITIES 971,312 959,330
DEFERRED INCOME TAXES 54,157 57,381
OTHER LONG-TERM LIABILITIES 62,572 60,566
---------------- ----------------
TOTAL LONG-TERM LIABILITIES 1,088,041 1,077,277
---------------- ----------------
SHAREHOLDERS' EQUITY
COMMON SHARES, STATED VALUE $.015 PER SHARE;
AUTHORIZED 200,000,000 SHARES;
OUTSTANDING 102,015,000 AND
103,134,000 SHARES, RESPECTIVELY 1,617 1,616
PAID-IN CAPITAL 424,360 424,077
TREASURY SHARES, AT COST (99,617) (88,516)
ACCUMULATED OTHER COMPREHENSIVE LOSS (35,673) (39,555)
RETAINED EARNINGS 364,493 348,102
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 655,180 645,724
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,108,942 $ 2,099,203
================ ================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE> 4
4
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
NET SALES $ 552,816 $ 495,542
COST OF SALES 305,671 269,579
---------------- ----------------
GROSS PROFIT 247,145 225,963
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 184,036 158,762
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE 0 45,000
INTEREST EXPENSE, NET 16,576 9,889
---------------- ----------------
INCOME BEFORE INCOME TAXES 46,533 12,312
PROVISION FOR INCOME TAXES 17,683 5,048
---------------- ----------------
NET INCOME $ 28,850 $ 7,264
================ ================
BASIC EARNINGS PER COMMON SHARE $ 0.28 $ 0.07
================ ================
DILUTED EARNINGS PER COMMON SHARE $ 0.28 $ 0.07
================ ================
DIVIDENDS PER COMMON SHARE $ 0.1225 $ 0.1175
================ ================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE> 5
5
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 28,850 $ 7,264
DEPRECIATION AND AMORTIZATION 19,282 17,909
ITEMS NOT AFFECTING CASH AND OTHER (1,994) (2,803)
CHANGES IN OPERATING WORKING CAPITAL (24,419) 25,788
---------------- ----------------
21,719 48,158
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY AND EQUIPMENT (16,417) (13,407)
ACQUISITION OF NEW BUSINESSES, NET OF CASH 0 (292,513)
---------------- ----------------
(16,417) (305,920)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM STOCK OPTION EXERCISES 284 354
REPURCHASE OF COMMON SHARES (11,101) (74)
INCREASE (DECREASE) IN DEBT 11,032 285,085
DIVIDENDS (12,459) (12,840)
---------------- ----------------
(12,244) 272,525
---------------- ----------------
NET INCREASE (DECREASE) IN CASH (6,942) 14,763
CASH AT BEGINNING OF PERIOD 31,340 19,729
---------------- ----------------
CASH AT END OF PERIOD $ 24,398 $ 34,492
================ ================
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
<PAGE> 6
6
RPM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal, recurring accruals) considered necessary for a fair presentation have
been included for the three months ended August 31, 2000. For further
information, refer to the consolidated financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended May 31, 2000.
Certain reclassifications may have been made to prior year amounts to conform
with the current year presentation.
NOTE B - INVENTORIES
--------------------
Inventories were composed of the following major classes:
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<CAPTION>
AUGUST 31, 2000 (1) MAY 31, 2000
--------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies $ 88,023 $ 86,755
Finished goods 160,110 157,804
---------- ----------
$ 248,133 $ 244,559
========== ==========
</TABLE>
(1) Estimated, based on components at May 31, 2000.
NOTE C - ACQUISITIONS
---------------------
On August 3, 1999, the Company acquired all the outstanding shares of DAP
Products Inc. and DAP Canada Corp. (collectively, "DAP"). DAP, headquartered in
Baltimore, Maryland, is a leading manufacturer of sealants, caulks, patch and
repair compounds, wood preservatives and water repellents and adhesives, for the
retail do-it-yourself market.
This acquisition has been accounted for by the purchase method of accounting.
The following data summarizes, on an unaudited proforma basis, the combined
results of operations of the companies for the three months ended August 31,
1999. The proforma 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>
THREE MONTHS ENDED AUGUST 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
<S> <C>
Net Sales $ 539,580
Net Income $ 6,950
Basic earnings per common share $ .06
Diluted earnings per common share $ .06
</TABLE>
<PAGE> 7
7
RPM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
NOTES D - COMPREHENSIVE INCOME
------------------------------
Other comprehensive income includes foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains or losses on
securities. Total comprehensive income, comprised of net income and other
comprehensive income (loss), amounted to $32,732,000 and $7,013,000 during the
first quarter of fiscal years 2001 and 2000, respectively.
NOTE E - RESTRUCTURING CHARGE
-----------------------------
In August 1999, the Company recorded a restructuring and asset impairment charge
of $45,000,000 ($26,550,000 after-tax, or $.24 per basic and diluted shares).
Subsequently, in last year's fourth quarter, as the program's aggregate impact
was finalized, an additional $6,970,000 was charged to income. Included in these
charges are severance and other employee related costs, contract exit and
termination costs, facility closures and write-downs of property, plant and
equipment, and write-downs of intangibles.
As of August 31, 2000, the Company has paid or incurred $40,989,000 related to
these charges. The Company anticipates that substantially all of the remaining
restructuring and plant rationalization costs will be paid or incurred by May
31, 2001. Following is a summary of the aggregate charge, the amounts paid or
accrued to date, and the reserved balance at this quarter's end:
<TABLE>
<CAPTION>
TOTAL CHARGE UTILIZED THROUGH 8/31/00 BALANCE AT 8/31/00
------------ ------------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Severance Costs $21,986 $12,175 $ 9,811
Exit and Termination Costs 2,059 889 1,170
Property, Plant and Equipment 22,342 22,342 0
Intangibles 5,583 5,583 0
------------------- -------------------------- --------------------------
$51,970 $40,989 $10,981
=================== ========================== ==========================
</TABLE>
The severance and other employee-related costs provide for a reduction of
approximately 760 employees related to the facility closures and the
streamlining of operations related to cost reduction initiatives. The costs of
exit and contract termination are comprised primarily of non-cancelable lease
obligations on the closed facilities. The charges for property, plant and
equipment and intangibles represent write-downs to net realizable value of less
efficient and duplicate facilities, machinery and equipment and intangibles no
longer needed in the combined restructured manufacturing operations.
<PAGE> 8
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
THREE MONTHS ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
REPORTABLE SEGMENT INFORMATION
------------------------------
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, was adopted by the Company effective May 31,
1999. This Standard requires disclosure of segment information using the
management approach, or the basis used internally to evaluate operating
performance and to decide resource allocations. Comparative quarterly results on
this basis are as follows:
------------------------------------------------------------------------
QUARTER ENDED AUGUST 31,
----------------------------
(In thousands) 2000 1999
------------------------------------------------------------------------
Net External Sales
Industrial Division $ 304,634 $ 302,009
Consumer Division 248,182 193,533
------------ ------------
Totals: $ 552,816 $ 495,542
============ ============
Earnings Before Interest and Taxes (EBIT)
Industrial Division $ 46,166 $ 32,873
Consumer Division 23,792 (5,925)
Corporate/Other (6,849) (4,747)
------------ ------------
Totals: $ 63,109 $ 22,201
============ ============
Identifiable Assets AUGUST 31, 2000 MAY 31, 2000
--------------- ------------
Industrial Division $ 1,018,661 $ 1,120,801
Consumer Division 1,031,591 914,334
Corporate/Other 58,690 64,068
------------ ------------
Totals: $ 2,108,942 $ 2,099,203
============ ============
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<PAGE> 9
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
THREE MONTHS ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The Company's sales of $553 million reflect an increase of $57 million, or 12%,
in the first quarter when compared to last year. Net income increased $22
million, quadrupling last year's first quarter result, largely due to the $27
million after tax restructuring and asset impairment charge last year. Without
the restructuring and asset impairment charge, net income decreased $5 million
quarter over quarter to $29 million.
On August 3, 1999, the Company completed its acquisition of DAP Products Inc.
and DAP Canada Corp. (collectively "DAP"). DAP, with annual sales of
approximately $250 million, is a leading North American manufacturer and
marketer of caulks and sealants, spackling and glazing compounds, contact
cements, and other specialty adhesives. DAP, reported within the Consumer
Division, was neutral to earnings this quarter.
The DAP acquisition accounted for approximately 58% of the first quarter sales
increase. The Company's existing operations, net of several minor Industrial
Division product line divestitures, generated the balance of the sales increase,
almost entirely from higher unit volumes as pricing adjustments have not been
significant. Exchange rate differences had a slight negative effect on
year-to-year sales. Sales generated in foreign markets may continue to be
negatively impacted if the dollar continues strengthening. Internal growth
within the Industrial Division increased approximately 5% in the first quarter.
Within the Consumer Division, core sales were up approximately 6% over last
year's comparative volume level.
Gross profit margin was reduced nearly a point from last year, to 44.7% of
sales. The Industrial Division improved to 47.4% from 46.2%, mainly from the
impact of product line divestitures, but also as a result of firm price posture
and cost control. Within the Consumer Division, margins moved from 44.7% a year
ago to 41.4% this quarter, principally from lower margins at DAP. This is the
last quarter in which the DAP acquisition effects quarterly margin comparison
since our next quarter will include DAP results for the full three months of
both periods. As the portion of the sales increase that is attributable to mass
merchandisers and home centers has grown, margin percentages generally have
declined, while aggregate gross margin dollars are increasing. Raw material
price changes have not been a significant factor this year. Downward pressure on
margins may come from that portion of raw materials that are oil-based should
oil prices continue at higher levels. Pricing actions and product formulations
will continue being modified to offset as much of this potential negative impact
as possible. As the Company nears completion of the manufacturing, distribution
and administration consolidations that are part of its restructuring plan,
certain cost redundancies exist and will continue during these transitions.
<PAGE> 10
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
THREE MONTHS ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
Selling, general and administrative expenses of 33.3% of sales compare with 32%
a year ago. With respect to the aggregate $25 million increase in this expense
compared to the comparable period last year, more than 42% is the result of the
DAP acquisition. This year a full three months of DAP spending is included in
operations while last year's results only include August spending. The
Industrial Division expenses increased to 32.3% of sales from 30.6%, while the
Consumer Division expenses decreased to 31.8% from 32.6% in 1999. The Consumer
Division benefited mainly from increased volume coupled with overall ongoing
expense control, and a lower SG&A percentage at DAP. Both Divisions continued
with product and market development, promotional and other growth-related
initiatives to set the stage for stronger sales growth in the future, including
accelerated e-commerce related initiatives within the Corporate/Other segment.
At the corporate level, professional fees were also higher than normal
principally due to increased legal and regulatory expenses, other consulting and
advisory services. (See Part II, Item 3)
In the first quarter of 1999, the Company announced a restructuring program to
generate manufacturing, distribution, and administrative efficiencies, and to
better position the Company for increased profitability and long-term growth.
The cost of the program and related asset impairment was estimated at $45
million before taxes ($0.24 per common share); subsequently in last year's
fourth quarter, an additional $7 million was charged as the program's aggregate
impact was finalized. The program is expected to generate annualized before tax
savings of approximately $23 million upon completion. Phased in over fiscal
years 2000 and 2001, the full savings expectation should be realized beginning
in fiscal 2002. Through the first quarter of 2000, the Company had paid or
incurred $41 million of these charges, approximately two-thirds of which was
associated with the write-down of property and intangibles with the remainder
covering severance, exit and termination costs (refer to Note E). The net cash
requirements of the restructuring program are estimated to total approximately
$10 million.
Net interest expense increased $6.7 million in this year's first quarter,
reflecting primarily the additional indebtedness to acquire DAP and to
repurchase common shares of the Company. Average interest rates this quarter
were up over last year by more than 100 basis points, further increasing net
interest expense.
The effective income tax rate for this year's quarter of 38% represents an
improvement over last year. The change is primarily caused by the favorable mix
of differing tax rates and sourced income amounts in the various countries in
which the Company operates. The Company expects this improvement to continue
throughout this fiscal year.
Before the restructuring charge, net income decreased 15% on the 12% sales
increase, with the margin declining to 5.2% from 6.8% last year. Improvements in
earnings from gross profit increases in our core businesses and the improvement
in the income tax rate were more than offset by higher interest costs, marketing
and product development expenditures in our core businesses, legal and
professional fees and e-commerce initiatives. DAP's acquisition costs plus the
earnings foregone through product lines
<PAGE> 11
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
THREE MONTHS ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
divested also served to reduce earnings margins. The resulting earnings per
share this year at $0.28 (both basic and diluted) is $0.03 lower than a year
ago, excluding the impact of the fiscal 2000 restructuring and asset impairment
charge. The change in average shares outstanding resulting from the Company's
share repurchase program is providing a minor benefit to earnings per share.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
CASH PROVIDED FROM OPERATIONS
-----------------------------
The Company generated $21.7 million of cash from operations during the first
quarter compared with $48.2 million in last year's first quarter. The
restructuring and asset impairment charge last year is the major factor
contributing to the $21.6 million increase this year's net income is providing
when compared to last year. On the related working capital side, the restructure
issue's reserves increased working capital last year approximately $23 million
and serve to decrease working capital this year by approximately $3 million, as
expenditures are being made on the program. The remainder of the change in
working capital components, $24.2 million, results from modestly higher
receivable and inventory increases and the settling of larger liability side
components of working capital which existed at May 31, 2000 when compared to May
31, 1999.
The Company's cash flows from operations will continue as its primary
source of financing internal growth.
INVESTING ACTIVITIES
--------------------
The Company is not capital intensive, and capital expenditures generally do not
exceed depreciation and amortization in a given year. Capital expenditures are
made primarily to accommodate the Company's continued growth through improved
production and distribution efficiencies and capacity, and to enhance
administration. The investment of $293 million in new businesses in last year's
quarter reflects the acquisition of DAP, net of cash acquired.
FINANCING ACTIVITIES
--------------------
On January 22, 1999, the Company announced the authorization of a share
repurchase program, allowing the repurchase of up to 5 million of the Company's
common shares over a period of 12 months. On October 8, 1999, the Company
announced the authorized expansion of this repurchase program to a total of 10
million common shares. As of August 31, 2000, the Company had repurchased 9
million of its common shares at an average price of $11.11 per share. No future
repurchases are anticipated at this time.
<PAGE> 12
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
THREE MONTHS ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
The acquisition of DAP was financed with a bridge loan arranged through one of
the Company's lead banks. This transaction was subsequently refinanced through a
$700 million commercial paper program, fully backed by the Company's existing
$300 million revolving credit facility, plus a new $400 million revolving credit
facility. During this year's first quarter, the Company refinanced its
$300 million revolving credit facility and its $400 million revolving credit
facility with a $200 million 364-day revolving credit facility, and a
$500 million 5-year revolving credit facility. The credit facilities are mainly
used to back up the Company's $700 million commercial paper program. The
Company's debt-to-capital ratio is now at 60%, unchanged from May 31, 2000.
The stronger dollar effect on the Company's foreign net assets has tended to
reduce shareholders' equity, and this trend could continue if the dollar
continues to strengthen and the growth of foreign net assets continues.
The Company maintains excellent relations with its banks and other financial
institutions to further enable the financing of future growth opportunities.
OTHER MATTERS
-------------
YEAR 2000 READINESS DISCLOSURE
------------------------------
The Company has completed its Year 2000 remediation efforts and, since the turn
of the century, has not experienced any significant problems internally or with
suppliers and customers in connection with this event. Nevertheless, there still
remain some future dates that could potentially cause computer systems problems.
The Company's most reasonably likely worst case scenario would be a short-term
slowdown or cessation of manufacturing operations at one or more of its
facilities and a short-term inability of the Company to process orders and
billings in a timely manner, and to deliver product to customers. Because the
Company has not, to date, experienced any significant problems in the Year 2000,
it does not anticipate any major impact in its operations.
ENVIRONMENTAL MATTERS
---------------------
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
condition.
<PAGE> 13
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RPM, INC. AND SUBSIDIARIES
THREE MONTHS ENDED AUGUST 31, 2000
--------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
--------------------------
The foregoing discussion includes forward-looking statements relating to the
business of the Company. These forward-looking statements, or 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 (including those specified below) which are difficult to predict
and, in many instances, are beyond the control of the Company. As a result,
actual results of the Company could differ materially from those expressed in or
implied by any such forward-looking statements. These uncertainties and factors
include (a) the price and supply of raw materials, particularly oil-based
feed stocks, titantium dioxide, certain resins, aerosols and solvents; (b)
continued growth in demand for the Company's products; (c) environmental
liability risks inherent in the 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; (f) the potential impact of the
Euro currency conversion; (g) 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; (h) the Company's ability
to make future acquisitions and its ability to effectively integrate such
acquisitions; (i) the potential future impact of Year 2000 related software
conversion issues; the potential impact of the Company's suppliers', customers'
and other third parties' ability to identify and resolve their own Year 2000
obligations in such a way as to allow them to continue normal business
operations or furnish raw materials, products, services or data to the Company
and its operating companies without interruption; (j) liability risks inherent
in the Company's EIFS and asbestos litigation and the continuation of insurance
coverage for such risks; and (k) the ability of the Company to realize the
projected pre-tax savings associated with the restructuring and consolidation
program, and to divest non-core product lines.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates since it funds its operations through long- and short-term
borrowings and denominates its business transactions in a variety of foreign
currencies. There were no material changes in the Company's exposure to market
risk from May 31, 2000.
<PAGE> 14
14
PART II - OTHER INFORMATION
RPM, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
ITEM 1 - LEGAL PROCEEDINGS
--------------------------
BONDEX
As previously reported, the Company, its wholly-owned subsidiaries, Bondex
International, Inc. ("Bondex") and Republic Powdered Metals, Inc. ("Republic"),
are each defendants or co-defendants in asbestos-related bodily injury lawsuits
filed on behalf of various individuals in various jurisdictions including
Illinois, Missouri, Texas, New York and Pennsylvania. These cases seek damages
for asbestos-related diseases based on alleged exposures to asbestos-containing
products previously manufactured by either the Company, Bondex or Republic. In
many cases, the plaintiffs are unable to demonstrate that any injuries they may
have incurred, in fact, resulted from exposure to Bondex, Republic or Company
products. Bondex, Republic or the Company are generally dismissed from those
cases. With respect to those cases where compensable disease, exposure and
causation are established, Bondex, Republic and the Company generally settle for
amounts each considers reasonable given the facts and circumstances of each
case.
During the quarter ended August 31, 2000, there was an increase in settlement
demand amounts for certain cases. This increase was caused by (1) the serious
nature of each case; (2) the presence of only a few co-defendants; and (3) the
necessity of higher cost settlements for certain more serious cases in
particular jurisdictions. The amounts paid to defend and settle these and the
other active asbestos-related bodily injury cases continue to be substantially
covered by existing product liability insurance.
At May 31, 2000, Bondex, Republic and the Company had a total of 636 active
cases. As of August 31, 2000, Bondex, Republic and the Company had a total of
715 active asbestos cases. Since May 31, 2000, Bondex, Republic and the Company
secured dismissals and/or settlements, the total cost of which collectively to
Bondex, Republic and the Company, net of insurer contributions, amounted to
approximately $814,000.
Bondex, Republic and the Company continue to vigorously defend all
asbestos-related lawsuits. Under cost-sharing agreements among the Company,
Bondex, Republic and its insurers, the insurers are responsible for payment of a
substantial portion of defense costs and indemnity payments with the Company,
Bondex and Republic each responsible for the balance. The Company believes that
based on its existing reserves and insurance assets, its current asbestos
litigation will not have a material adverse effect on the Company's financial
position or results of operations.
DRYVIT
On September 14, 2000, Dryvit received a class action Complaint filed in
Lancaster County, Pennsylvania styled Lape, et al. v. Murray Development
Corporation, et al. (Case No. CI-00-09239) ("Lape"). The Lape case, which is not
a state-wide class, involves approximately 200 homes located in various
subdivisions in Lancaster County, Pennsylvania. The homeowners allege various
claims against Dryvit and the other defendants, seek certification of the class
and have a prayer for unspecified monetary damages.
ITEM 2 - CHANGES IN SECURITIES
------------------------------
(c) Recent Sales of Unregistered Securities.
No securities of the Company that were not registered under the
Securities Act of 1933 have been issued or sold by the Company during
the period covered by this Quarterly Report on Form 10-Q other than the
following:
(i) On July 17, 2000, the Company issued 174,510 Common Shares to
certain of its officers and other employees pursuant to the
RPM, Inc. 1997 Restricted Stock Plan (the "Restricted Stock
Plan"). Such shares are restricted pursuant to the terms of
the Restricted Stock Plan. The issuance of such shares was
made to individuals who were participants in the RPM, Inc.
Benefit Restoration Plan and such awards were designed to
replace cash benefit payments being canceled under the RPM,
Inc. Benefit Restoration Plan. Consequently, no additional
consideration was received by the Company for such issuance.
The dollar value of the restricted share awards was based on
the closing price of the Company's Common Shares on April 28,
2000, of $10.125 per share. Registration under the Securities
Act of 1933 was not effected with respect to the transaction
described above in reliance upon the exemption from the
registration contained in Section 4(2) of the Securities Act
of 1933.
<PAGE> 15
PART II - OTHER INFORMATION
15 RPM, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
--------
Official Exhibit Number Description
----------------------- -----------
11.1 Statement regarding computation of
per share earnings.
27.1 Financial Data Schedule.
<PAGE> 16
16
PART II - OTHER INFORMATION
RPM, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
(b) Reports on Form 8-K
-------------------
The Company filed the following Current Report on Form 8-K,
during the three months ended August 31, 2000:
(i) Current Report on Form 8-K, dated July 11, 2000, to
file a news release with respect to the Company's
financial results for fiscal year 2000.
<PAGE> 17
17
SIGNATURES
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
RPM, INC.
BY /S/ THOMAS C. SULLIVAN
------------------------------------
THOMAS C. SULLIVAN
CHAIRMAN & CHIEF EXECUTIVE OFFICER
BY /S/ JAMES A. KARMAN
------------------------------------
JAMES A. KARMAN
VICE CHAIRMAN & CHIEF FINANCIAL OFFICER
DATE: 10/16/00
