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, 2001, OR
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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
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RPM, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-6550857
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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, 2001,
102,224,737 RPM INC. COMMON SHARES WERE OUTSTANDING.
RPM, INC. AND SUBSIDIARIES
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INDEX
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PAGE NO.
--------
PART I. FINANCIAL INFORMATION
------------------------------
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2001 AND MAY 31, 2001 3
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
AUGUST 31, 2001 AND AUGUST 31, 2000 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
AUGUST 31, 2001 AND AUGUST 31, 2000 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 9
PART II. OTHER INFORMATION 14
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PART I. - FINANCIAL INFORMATION 3
-------------------------------
ITEM 1. - FINANCIAL STATEMENTS
------------------------------
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
(In thousands, except per share amounts)
ASSETS
------
August 31, 2001 May 31, 2001
--------------- ------------
Current Assets
Cash and short-term investments $ 36,361 $ 23,926
Trade accounts receivable (less allowance for doubtful
accounts $17,804 and $17,705, respectively) 386,372 411,718
Inventories 272,866 277,494
Prepaid expenses and other current assets 106,606 106,282
----------- -----------
Total current assets 802,205 819,420
----------- -----------
Property, Plant and Equipment, At Cost 631,299 623,054
Less: accumulated depreciation and amortization 273,465 261,018
----------- -----------
Property, plant and equipment, net 357,834 362,036
----------- -----------
Other Assets
Goodwill, net of amortization 601,479 571,276
Intangible assets, net of amortization 271,438 300,372
Other 25,344 25,386
----------- -----------
Total other assets 898,261 897,034
----------- -----------
Total Assets $ 2,058,300 $ 2,078,490
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Notes and accounts payable $ 141,190 $ 152,307
Current portion of long term debt 177,212 7,379
Accrued compensation and benefits 64,838 74,888
Accrued loss reserves 53,506 55,416
Other accrued liabilities 65,759 75,022
Income taxes payable 20,075 10,756
----------- -----------
Total current liabilities 522,580 375,768
----------- -----------
Long-term Liabilities
Long-term debt, less current maturities 764,681 955,399
Other long-term liabilities 48,481 53,479
Deferred income taxes 52,833 54,134
----------- -----------
Total long-term liabilities 865,995 1,063,012
----------- -----------
Shareholders' Equity
Common shares, stated value $.015 per share;
authorized 200,000 shares;
outstanding 102,212 shares and
102,211 shares, respectively 1,619 1,619
Paid-in capital 430,029 430,015
Treasury shares, at cost (99,308) (99,308)
Accumulated other comprehensive loss (46,926) (53,074)
Retained earnings 384,311 360,458
----------- -----------
Total shareholders' equity 669,725 639,710
----------- -----------
Total Liabilities And Shareholders' Equity $ 2,058,300 $ 2,078,490
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
RPM, INC. AND SUBSIDIARIES 4
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended August 31,
-----------------------------
2001 2000
------------ ------------
Net Sales $533,275 $554,923
Cost of Sales 282,601 298,607
-------- --------
Gross Profit 250,674 256,316
Selling, General and Administrative Expenses 181,619 193,207
Interest Expense, Net 13,064 16,576
-------- --------
Income Before Income Taxes 55,991 46,533
Provision for Income Taxes 19,422 17,683
-------- --------
Net Income $ 36,569 $ 28,850
======== ========
Basic and diluted earnings per common share $ 0.36 $ 0.28
======== ========
Dividends per common share $ 0.1250 $ 0.1225
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
RPM, INC. AND SUBSIDIARIES 5
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
(In thousands)
Three Months Ended August 31,
-----------------------------
2001 2000
----------- -----------
Cash Flows From Operating Activities:
Net Income $ 36,569 $ 28,850
Depreciation and amortization 14,549 19,282
Items not affecting cash and other (4,727) (1,994)
Changes in operating working capital 6,629 (24,419)
-------- --------
53,020 21,719
-------- --------
Cash Flows From Investing Activities:
Additions to property and equipment (6,998) (16,417)
-------- --------
(6,998) (16,417)
-------- --------
Cash Flows From Financing Activities:
Proceeds from stock option exercises 14 284
Repurchase of common shares 0 (11,101)
Increase (decrease) in debt (20,885) 11,032
Dividends (12,716) (12,459)
-------- --------
(33,587) (12,244)
-------- --------
Net Increase (Decrease) in Cash 12,435 (6,942)
Cash at Beginning of Period 23,926 31,340
-------- --------
Cash at End of Period $ 36,361 $ 24,398
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
RPM, INC. AND SUBSIDIARIES 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2001
(UNAUDITED)
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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 month periods ended August 31, 2001 and 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,
2001.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation. In an effort to achieve improved reporting
consistency across divisions, and in conjunction with the migration to the
Hyperion Enterprise consolidation system, the Company has adopted a new chart of
accounts. Accordingly, the Company has elected to reclassify certain internal
distribution costs from cost of sales to selling, general and administrative
expenses. Additionally, a portion of those costs are offset by the movement of
certain employee benefits costs respective to manufacturing personnel out of
selling, general and administrative expenses and into cost of sales. For the
quarter ended August 31, 2000, the net effect of the reclassification of these
expenses resulted in the movement of approximately $7 million from cost of sales
to selling, general and administrative expenses.
NOTE B - BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
--------------------------------------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards, ("SFAS") No. 141, "Business Combinations",
which eliminates the pooling method of accounting for all business combinations
initiated after June 30, 2001, and addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination. The Company will adopt this accounting standard for business
combinations initiated after June 30, 2001.
The Company also adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
effective June 1, 2001. Under SFAS No. 142, goodwill is no longer amortized, but
is reviewed for impairment annually, or more frequently if certain indicators
arise. The Company is required to complete the initial step of a transitional
impairment test within six months of adoption of SFAS No. 142 and to complete
the final step of the transitional impairment test by the end of the fiscal
year. Any impairment loss resulting from the transitional impairment test will
be recorded retroactively as a cumulative effect of a change in accounting
principle for the quarter ended August 31, 2001. Subsequent impairment losses,
if any, will be reflected in operating income in the income statement.
RPM, INC. AND SUBSIDIARIES 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2001
(UNAUDITED)
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Had the Company been accounting for its goodwill and other intangible assets
under SFAS No. 142 for all periods presented, the Company's net income (in
thousands) and earnings per share would have been as follows:
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QUARTER ENDED AUGUST 31,
-----------------------------------------
2001 2000
---------------- -----------------
NET INCOME:
Reported Net Income $ 36,569 $ 28,850
Add back goodwill amortization, net of tax -- 4,832
Add back workforce amortization, net of tax -- 400
Add back tradename amortization, net of tax -- 123
---------------- -----------------
Adjusted net income $ 36,569 $ 34,205
================ =================
BASIC AND DILUTED EARNINGS PER SHARE:
Reported net income $ 0.36 $ 0.28
Goodwill amortization, net of tax -- 0.05
Workforce amortization, net of tax -- --
Tradename amortization, net of tax -- --
---------------- -----------------
Adjusted net income $ 0.36 $ 0.33
================ =================
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RPM, INC. AND SUBSIDIARIES 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2001
(UNAUDITED)
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NOTE C - INVENTORIES
--------------------
Inventories were composed of the following major classes:
AUGUST 31, 2001 MAY 31, 2001
--------------- ------------
(IN THOUSANDS)
Raw Materials and supplies $ 94,666 $ 89,071
Finished Goods 178,200 188,423
-------- --------
$272,866 $277,494
======== ========
NOTE 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 amounted to $42,717,000 and $32,732,000 during the first
quarter of fiscal years 2002 and 2001, respectively.
RPM, INC. AND SUBSIDIARIES 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTH PERIOD ENDED AUGUST 31, 2001
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
REPORTABLE SEGMENT INFORMATION
------------------------------
The Company has determined that it has two operating segments -- Industrial and
Consumer -- based on the nature of business activities, products and services;
the structure of management; and the structure of information as presented to
the Board of Directors. Within each division, individual operating companies or
groups of companies generally address common markets, utilize similar
technologies, and can share manufacturing or distribution capabilities. The
Company evaluates the profit performance of the two divisions based on earnings
before interest and taxes since interest expense is essentially related to
corporate acquisitions, as opposed to segment operations. Comparative first
quarter results on this basis are as follows:
--------------------------------------------------------------------------------
QUARTER ENDED AUGUST 31,
----------------------------------------
(In thousands) 2001 2000
---------------- -----------------
Net External Sales
Industrial Division $ 289,168 $ 307,601
Consumer Division 244,107 247,322
------------ -----------
Totals: $ 533,275 $ 554,923
=========== ===========
Earnings Before Interest
and Taxes
Industrial Division $ 42,178 $ 46,166
Consumer Division 33,980 23,792
Corporate/Other (7,103) (6,849)
----------- -----------
Totals: $ 69,055 $ 63,109
=========== ===========
Identifiable Assets AUGUST 31, 2001 MAY 31, 2001
--------------- ------------
Industrial Division $ 996,941 $ 1,002,209
Consumer Division 996,891 1,016,067
Corporate/Other 64,468 60,214
----------- -----------
Totals: $ 2,058,300 $ 2,078,490
=========== ===========
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RPM, INC. AND SUBSIDIARIES 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTH PERIOD ENDED AUGUST 31, 2001
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RESULTS OF OPERATIONS
---------------------
Fiscal 2002 first quarter sales were $21.6 million, or 3.9 percent, lower than
first quarter sales a year ago. There were three components to this difference.
The March 2001 divestiture of DAP's $30 million commercial Durabond unit
accounted for 1 1/2 percent, or approximately 40 percent of the sales
difference. The U.S. dollar was comparatively stronger year over year,
primarily against the Euro and the Canadian dollar, for a foreign exchange
translation effect of a negative 0.7 percent, or almost 20 percent of the
difference. Lastly, as expected, due mainly to the soft economy and an
atmosphere of general uncertainty, ongoing operation's sales were off modestly
and made up the balance of the negative sales difference. By segment,
industrial sales were off nearly 5 percent as a number of flooring, roofing,
and other maintenance projects were postponed or canceled, primarily within the
private sector, while public sector business in general held fairly steady.
Consumer sales, on the other hand, were ahead nearly 3 percent and in contrast
to last year when the larger retailers, in particular, were downward managing
their inventories.
The gross profit margin improved to 47.0 percent from last year's 46.2 percent.
The divested Durabond unit of DAP did carry lower gross margins and accounted
for about half of this margin difference. Internal margin improvement made up
the balance of this improvement, from reduced conversion costs corresponding to
the restructuring program, certain reduced raw material costs, such as titanium
dioxide and containers, and effective cost controls in light of the slower
sales. Both segments shared in the margin improvement with the industrial
division improving to 48.4 percent from 48.0 percent and the consumer division
improving to 45.4 percent from 43.9 percent, the latter getting an extra boost
from the divestiture.
Selling, general and administrative (SG&A) expenses overall declined 6.0 percent
to 34.1 percent of sales from 34.8 percent in the first quarter of last year.
The Company adopted Statement of Financial Accounting Standards No. 142 ("FAS
142") Goodwill and Other Intangible Assets as of June 1, 2001, the beginning of
the new fiscal year, and that change is reflected in SG&A [Refer to Note B to
the Consolidated Financial Statements]. On a pro forma basis, last year's SG&A
percentage under FAS 142 would have been 33.8 percent of sales. The divested
Durabond unit of DAP within the consumer division had carried a lower SG&A
percentage and had an approximate effect of .4 percent of sales year over year.
Adjusted for both FAS 142 and the divestiture, last year's SG&A percentage would
have been approximately 34.2 percent of sales. The slight improvement to 34.1
percent of sales this year on lower sales again corresponds in part to the
restructuring program, with fewer personnel year over year, as well as
discretionary and other cost controls in light of the slower sales. By segment
and pre-FAS 142 for comparison, the industrial division SG&A percentage this
first quarter was 34.7 percent compared with 33.0 percent last year, while the
consumer division improved to 32.7 percent of sales from 34.3 percent a year
ago. The decline in industrial sales volume was the main factor driving that
segment's higher SG&A percentage this year, along with higher distribution
costs. Corporate/other net expenditures also fall within the SG&A category, and
were slightly higher year over year primarily as a result of higher costs of
coordinated benefit programs, including hospitalization.
Net interest expense was $3.5 million lower than a year ago, as a result of
lower interest rates on the variable debt portion (approximately 80 percent) of
the Company's total debt. The overall effective interest rate this first quarter
of 5.3 percent compares with last year's 6.9 percent.
The income tax rate this first quarter of 34.7 percent reflects the adoption of
FAS 142. Tax rates would otherwise be comparable year over year, at
approximately 38 percent.
The net income increase of $7.7 million, or 27 percent, reflects improved EBIT
performance from operations despite the lower sales, the adoption of FAS 142,
and the lower interest rates. Diluted earnings per share improved $.08 or 29
percent, to $.36 from last year's $.28. On a pro forma basis, last year's
diluted earnings per share would have been $.05 higher under FAS 142.
The recent tragic events in this country did delay a number of shipments and
affected buying decisions during September. Consequently, the sales outlook for
the Company's second quarter and balance of this fiscal year remains uncertain.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
CASH PROVIDED FROM OPERATIONS
-----------------------------
The Company generated $53.0 million of cash from operations during the first
quarter compared with $21.7 million in last year's first quarter. The positive
change in working capital year-over-year, $31.0 million, results from greater
receivable and inventory declines from May 31, 2001, than during the same
period a year ago.
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.
FINANCING ACTIVITIES
--------------------
During this year's first quarter, the Company refinanced its $300 million
revolving credit facility with a $200 million 364-day term loan due July 12,
2002. As of August 31, 2001, the Company's short-term debt increased to $177.2
million, reflecting the term loan described above. The Company will continue to
reduce this debt through internally generated cash flow and intends to
refinance a portion of the debt as long-term. The Company's debt-to-capital
ratio is 58.4% at August 31, 2001 compared to 60.1% at May 31, 2001.
The effect in this first quarter of the weakening dollar on the Company's
foreign net assets has tended to increase shareholders' equity, and this trend
could continue if the dollar continues to weaken and the growth of foreign net
assets continues. The Euro was the principal currency strengthening against the
dollar.
RPM, INC. AND SUBSIDIARIES 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTH PERIOD ENDED AUGUST 31, 2001
--------------------------------------------------------------------------------
The Company maintains excellent relations with its banks and other financial
institutions to further enable the financing of future growth opportunities.
OTHER MATTERS
-------------
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 (refer to Note H to the Consolidated Financial Statements).
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 titanium
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) future acquisitions and the Company's ability to
effectively integrate such acquisitions; (i) liability risks and insurance
coverage inherent in the Company's EIFS and asbestos litigation; and (j) the
ability of the Company 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, 2001.
12
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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ITEM 1 - LEGAL PROCEEDINGS
--------------------------
EIFS LITIGATION
---------------
As previously reported, Dryvit Systems, Inc., a wholly-owned subsidiary of the
Company ("Dryvit"), is a defendant or co-defendant in numerous lawsuits seeking
damages for structures clad with exterior insulated finish systems ("EIFS")
products manufactured by Dryvit and other EIFS manufacturers. As of August 31,
2001, Dryvit was a defendant or co-defendant in approximately 750 single family
residential EIFS cases, the vast majority of which are pending in North
Carolina, South Carolina and Alabama. Dryvit is also defending EIFS lawsuits
involving office buildings or other commercial structures. The vast majority of
Dryvit's EIFS lawsuits and most of the allegations involve claims of water
intrusion into structures and related property damages.
As previously reported, Dryvit settled the North Carolina class action styled
Ruff, et al. v. Parex, Inc., et al. ("Ruff"). As of August 31, 2001, a total of
535 claims had been submitted to the claims administrator for verification and
validation. Of these 535 claims, 250 were actually paid through August 31, 2001
in the amount of $4,051,435. The remaining claims are at various stages of
investigation, review and validation by the claims administrator. Dryvit
continues to believe that it has adequate insurance commitments in place to
cover its obligations under the Ruff settlement.
As previously reported, Dryvit was named in an attempted class action filed in
the U.S. District Court for the Eastern District of North Carolina
(5:99-CV-4700-BR(3)), styled Lienhart, et al. v. Dryvit Systems, Inc. et al.,
involving an EIFS-type product known as Fastrak System 4000 ("Leinhart"). On
June 26, 2001, the 4th Circuit U.S. Court of Appeals vacated the District
Court's December 18, 2000 class certification order ruling that certification
was not appropriate because it is likely that individual issues necessary to
adjudicate Dryvit's liability will predominate over class issues. The Court of
Appeals has remanded the Lienhart case to the District Court for further
proceedings in accordance with its order.
As previously reported, on or about December 1, 2000, Dryvit was named along
with other defendants in a state class action filed in Jefferson County,
Tennessee styled William J. Humphrey, et al. v. Dryvit Systems, Inc. (Case No.
17,715-IV) ("Humphrey"). The Humphrey case is an attempted state-wide class
action which seeks various types of damages on behalf of all similarly situated
persons who paid for the purchase of a Dryvit EIFS-clad structure in the State
of Tennessee during the period beginning November 14, 1990 to the date of the
complaint.
As previously reported, on May 30, 2000, Dryvit was named along with other
defendants in a state class action filed in Madison County, Illinois styled
Osborne, et al. v. Dryvit Systems, Inc. (Case No. 00L000395) ("Osborne"). The
Osborne case is an attempted state-wide class action which seeks various types
of damages on behalf of a class of all persons who owned a Dryvit EIFS-clad home
located in the State of Illinois during the period January 1, 1990 to the date
of the complaint.
13
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
As previously reported, on or about March 22, 2001, Dryvit was named along with
other defendants in a state class action Complaint filed in Mobile County,
Alabama styled Tony Bryan, et al. v. Dryvit Systems, Inc. (Case No. CV-01-00761
JSJ) ("Bryan"). The Bryan case is an attempted state-wide class action which
seeks various types of damages on behalf of all "Persons who own a single
residence in the State of Alabama on which an Exterior Insulation and Finish
system ("EIF system") has been installed or any previous owner of such residence
who incurred any costs or expenses to inspect, repair or replace the EIF system
at any time from November 14, 1990 until the date the Defendants' continuing
conduct is terminated."
Dryvit, the Company's captive insurer, First Colonial Insurance Company, and
other third party insurers are parties to a cost-sharing arrangement which is
currently funding Dryvit's defense and costs. Dryvit believes that the damages
alleged in these EIFS cases are substantially covered by insurance and that such
insurance is presently adequate. Based on Dryvit's current insurance
arrangements, the Company continues to believe that the EIFS litigation will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
ASBESTOS LITIGATION
-------------------
As previously reported, the Company, certain of its wholly-owned subsidiaries,
including Bondex International, Inc. ("Bondex") and Republic Powdered Metals,
Inc. ("Republic"), are defendants or co-defendants ("Defendants") in
asbestos-related bodily injury lawsuits filed on behalf of various individuals
in various jurisdictions. These cases generally seek damages for
asbestos-related diseases based on alleged exposures to asbestos-containing
products previously manufactured by the Defendants. In many cases, the
plaintiffs are unable to demonstrate that any injuries they have incurred, in
fact, resulted from exposure to Defendants' products. Defendants are generally
dismissed from those cases. With respect to those cases where compensable
disease, exposure and causation are established, Defendants generally settle for
various amounts based on the seriousness of the case, the particular
jurisdiction and the number and solvency of co-defendants in a given case.
As of August 31, 2001, Defendants had a total of 1,451 active asbestos cases
compared to 715 as of August 31, 2000. For the quarter ended August 31, 2001,
Defendants secured dismissals and/or settlements of 74 cases, the total cost of
which collectively to Defendants, net of insurer payments and excluding defense
costs, amounted to $394,312, which compared to dismissals and/or settlements of
10 cases and $480,250 for the same quarter ended August 31, 2000. This increase
in the number of claims filed is due, in part, to the bankruptcy filings of
various other asbestos litigation defendants.
Defendants continue to vigorously defend all asbestos-related lawsuits. Under a
cost-sharing agreement among Defendants and their insurers, the insurers are
responsible for payment of substantially all of the indemnity and defense costs
with the Defendants each responsible for the balance. The Company continues to
believe that resolution of its current asbestos cases will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
14
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
In addition to the foregoing legal proceedings, various of the Company's
subsidiaries are, from time to time, parties to legal proceedings associated
with their businesses and operations. It is not possible to predict the outcome
of these proceedings, but management believes that these other proceedings will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
ENVIRONMENTAL PROCEEDINGS
-------------------------
As previously reported, various of the Company's subsidiaries are, from time to
time, identified as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state
environmental statutes. In some cases, the Company's subsidiaries are
participating in the cost of certain clean-up efforts or other remedial actions.
However, the Company's share of such costs has not been material and the Company
believes that these environmental proceedings will not have a material adverse
effect upon the Company's consolidated financial position or results of
operations.
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 11, 2001, the Company issued 150,551 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 25, 2001, of $8.69 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.
15
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) EXHIBITS
Official Exhibit Number Description
----------------------- -----------
10.1 Amendment No. 1 dated July 13, 2001 to the 364-Day Credit
Agreement and the Five-Year Credit Agreement among the
Company, the Lenders party thereto and the Chase Manhattan
Bank, as Administrative Agent.
11.1 Statement regarding computation of per share earnings.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended
August 31, 2001.
16
SIGNATURES
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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/ ROBERT L. MATEJKA
----------------------
ROBERT L. MATEJKA
VICE PRESIDENT & CHIEF FINANCIAL OFFICER
DATED: OCTOBER 15, 2001
--------------------------