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, 2002
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. 1-14187
RPM, INC.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-6550857
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258
- -------------------------------------------------------------------------------
(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:
Title of Each Class Name of Exchange on Which Registered
- ------------------- ------------------------------------
Common Shares, Without Par Value New York Stock Exchange
Rights to Purchase Common Shares New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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
--- ---
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 16, 2002, 114,829,899 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 New York Stock Exchange on August 16, 2002) was approximately
$1,679,740,280. For purposes of this information, the 2,095,652 outstanding
Common Shares which were owned beneficially as of May 31, 2002 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 11, 2002 (the "2002 Proxy Statement") and
(ii) the Registrant's 2002 Annual Report to Shareholders for the fiscal year
ended May 31, 2002 (the "2002 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this Annual
Report on Form 10-K is as of May 31, 2002.
2
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
In June 2002, the Company's Board of Directors approved a plan
to change the Company's place of incorporation from Ohio to Delaware. Under the
plan, RPM International Inc., a newly formed Delaware entity, will become the
parent holding company of RPM and several other intermediate holding companies
and wholly-owned subsidiaries. Each outstanding Common Share, without par value,
of RPM will be converted into one share of common stock, par value $.01 per
share, of RPM International Inc. at the effective time of the reincorporation.
RPM currently serves as a holding company for its various operating companies.
After the reincorporation, the Company's various operating companies will be
realigned according to their product offerings, served end markets, customer
base and operating philosophy. Those operating companies that tend to be
entrepreneurial and serve niche markets (such as many of the entities that make
up the group of companies referred to as "RPM II") will continue to be owned by
RPM. Operating companies that primarily serve the consumer market will be
transferred to a new intermediate holding company to be wholly-owned by RPM
International Inc. Operating companies that primarily serve the industrial
market will be transferred to a new intermediate holding company also to be
wholly-owned by RPM International Inc.
In addition to allowing the Company to more effectively align
the structure of its various operating companies and further streamline the
management and operations of its businesses, the Company's management believes
that by reincorporating in Delaware, it will be able to take advantage of
Delaware's modern and flexible corporate laws as well as the expertise of the
Delaware courts in corporate matters. Management anticipates that the favorable
business corporation laws of Delaware should benefit the Company by allowing it
to conduct its affairs in a more flexible and efficient manner.
The reincorporation is subject to the approval of holders of
two-thirds of the Company's Common Shares at the annual meeting scheduled for
October 11, 2002. The Company's management does not expect that the
reincorporation will have a material impact on the Company's day-to-day
operations. The Company will continue to be headquartered in Ohio and does not
anticipate any change in its relationships with its customers, suppliers or
employees worldwide.
RPM International Inc. common stock will be traded on the New
York Stock Exchange under the symbol "RPM," the same symbol under which the
Company's Common Shares currently trade. RPM International Inc. will succeed to
the registration and reporting history of
3
RPM under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended.
Subsequent to the end of the 2002 fiscal year, on June 6,
2002, the Company entered into a securitization transaction with several banks
for certain of its subsidiaries, providing for a wholly owned special purpose
entity ("RPM Funding") to receive investments of up to $125 million, see Note B
(Borrowings) of the Notes to Consolidated Financial Statements, which appears on
page 40 of the Annual Report to Shareholders, incorporated herein by reference.
This securitization is being accomplished through the sale of various accounts
receivable by certain of the Company's subsidiaries to RPM Funding, and by RPM
Funding then transferring those receivables to a conduit administered by the
banks. This securitization will be reflected in the Company's financial
statements and, therefore, will not be off-balance sheet financing. The
securitization will increase the Company's liquidity and reduce financing costs
by replacing up to $125 million of existing borrowings at lower interest rates.
As of July 1, 2002, $100 million was securitized under the agreement, which
amount was used to reduce the $395 million outstanding balance of the Company's
$500 million, 5-year revolving credit facility, leaving $205 million of
liquidity available as of that date under this facility.
BUSINESS
RPM manufactures and markets high quality specialty paints,
protective coatings and roofing systems, sealants and adhesives, focusing on the
maintenance and improvement needs of both the industrial and consumer markets.
The Company's family of products includes those marketed under brand names such
as CARBOLINE, DAP, DAY-GLO, FLECTO, RUST-OLEUM, STONHARD, TREMCO AND ZINSSER. As
of May 31, 2002, RPM marketed its products in approximately 130 countries and
territories and operated manufacturing facilities in 62 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, Colombia, Germany, Italy,
Malaysia, Mexico, New Zealand, The Netherlands, Poland, South Africa, the United
Arab Emirates and the United Kingdom. Approximately 25 percent of the Company's
sales are generated in international markets through a combination of exports
and sales by affiliates in foreign countries. For the fiscal year ended May 31,
2002, the Company recorded sales of approximately $1.986 billion.
OPERATING SEGMENT INFORMATION
The Company's portfolio of business is organized into two
operating segments: the Industrial Division and the Consumer Division. The
Industrial Division constitutes approximately 53 percent of sales and includes
maintenance and protection products for roofing and waterproofing systems,
flooring, corrosion control and other specialty applications. The Consumer
Division constitutes approximately 47 percent of sales and includes
rust-preventative, special purpose and decorative paints, caulks, sealants,
primers and other branded consumer products. Reference is made to "Reportable
Segment and Geographic Area Information" on pages 22 and 23 of the Annual Report
to Shareholders, incorporated herein by reference, for financial information
relating to operating segments.
INDUSTRIAL DIVISION
The Industrial Division has operations primarily in North
America and Europe as well as a presence in regions of South America, Asia,
South Africa, Australia and the Middle East. The Company's industrial
businesses, which account for the vast majority of its
4
international sales, sell directly to contractors, distributors and end-users,
such as industrial manufacturing facilities, educational and governmental
institutions and commercial establishments. The Industrial Division generated
approximately $1.054 billion in sales for the fiscal year ended May 31, 2002 and
is comprised of the following major product lines:
- institutional roofing systems and sealants used in
building protection, maintenance and weatherproofing
applications marketed under the Company's
well-established TREMCO, REPUBLIC, VULKEM and
DYMERIC brand names;
- high-performance polymer flooring systems for
industrial, institutional and commercial facility
floor surfaces marketed under the STONHARD brand
name. The Company also manufactures and supplies
molded and pultruded fiberglass reinforced plastic
gratings used for industrial platforms, staircases
and walkways marketed under the FIBERGRATE brand
name;
- high-performance, heavy-duty corrosion control
coatings and a supplier of structural and
fireproofing protection products and secondary
containment linings for a wide variety of industrial
infrastructure applications marketed under the
CARBOLINE, NULLIFIRE and PLASITE brand names;
- exterior insulating finishing systems, including
textured finish coats, sealers and variegated
aggregate finishes marketed under the DRYVIT brand
name; and
- a variety of products for specialized applications,
including powder coatings for exterior and interior
applications marketed under the TCI brand name,
fluorescent colorants and pigments marketed under
the DAY-GLO brand name, concrete and masonry
additives marketed under the EUCO brand name,
commercial carpet cleaning solutions marketed under
the CHEMSPEC brand name, specialty processing
chemicals for the textile industry marked under the
AMERICAN EMULSIONS brand name, wood and lumber
treatments marketed under the KOP-COAT brand name
and pleasure marine coatings marketed under the
PETTIT, WOOLSEY and Z-SPAR brand names.
CONSUMER PRODUCTS
The Consumer Division manufactures professional and
do-it-yourself, or DIY, products for home maintenance and improvement,
automotive repair and maintenance, and hobby and leisure applications. The
Consumer Division's major manufacturing and distribution operations are located
in North America. The Company markets its products through a wide range of
distribution channels including home improvement centers, mass merchandisers,
hardware stores, paint stores and distributors. The Consumer Division generated
approximately $0.932 billion in sales in the fiscal year ended May 31, 2002 and
is comprised of the following major product lines:
- small project rust-preventative, decorative and
assorted specialty paints and coatings for the DIY
and professional markets through a wide assortment
of
5
RUST-OLEUM products. In addition to the original
line of rust-preventative coatings sold under the
STOPS RUST name, leading brands within the
RUST-OLEUM portfolio include AMERICAN ACCENTS,
PAINTER'S TOUCH, TREMCLAD, HARD HAT, FLECTO,
VARATHANE and WATCO. New specialty coatings
introduced in the past fiscal year include EPOXY
SHIELD, ROAD WARRIOR and INDUSTRIAL CHOICE MARKING
AEROSOL;
- a complete line of caulks and sealants, patch and
repair products and adhesives for the home
improvement, repair and construction markets through
the Company's wide assortment of DAP products.
Leading brands within the DAP portfolio include ALEX
PLUS, KWIK SEAL PLUS with MICROBAN, SIDE WINDER
ADVANCED SIDING and WINDOW SEALANT, WELDWOOD, `33'
GLAZING and PLASTIC WOOD. Recently introduced
products include DRYDEX, EASY SOLUTIONS and
CRACKSHOT;
- a broad line of specialty primers and sealers
marketed under the ZINSSER, B-I-N, BULLS EYE 1-2-3,
COVER-STAIN and SEALCOAT UNIVERSAL brand names, as
well as wallcovering removal and preparation
coatings under the principal brands of DIF,
PAPERTIGER and SHIELDZ. ZINSSER PLUS MILDEWPROOF
COMMERCIAL WALLCOVERING SYSTEM was introduced this
past fiscal year; and
- an assortment of other products, including autobody
paints and repair products marketed under the BONDO
brand name, hobby paints and cements marketed under
the TESTORS brand name, wood furniture finishes and
touch-up products marketed under the CCI, MOHAWK,
CHEMICAL COATINGS and WESTFIELD COATINGS brand
names, deck and fence restoration products marketed
under the WOLMAN brand name and shellac-based
chemicals for industrial uses, edible glazes and
food coatings by MANTROSE-HAEUSER under the NATURE
SEAL brand name.
HISTORICAL RESTRUCTURING ACTIVITY
The Company actively pursues initiatives to enhance profitability by
lowering its operating costs through focused corporate leadership and broad
operating company support. In August 1999, the Company launched a comprehensive
restructuring program aimed at permanently reducing its fixed costs by more than
$23 million. The major features of the restructuring program included: (i) the
closure of 17 facilities to eliminate redundancies in manufacturing,
administration and distribution, (ii) a reduction of approximately 10% of the
Company's work force and (iii) the consolidation of certain consumer product
line distribution and warehousing activities to reduce costs and improve working
capital efficiencies. This restructuring program was completed by May 31, 2001,
and when combined with additional workforce reductions in response to slower
economic conditions during the 2002 fiscal year, is believed by the Company to
be generating savings in excess of management's initial objectives.
6
FOREIGN OPERATIONS
The Company's foreign manufacturing operations for the fiscal
year ended May 31, 2002 accounted for approximately 19% of its total sales
(which does not include exports directly from the United States), although it
also receives license fees and royalty income from numerous license agreements
and also has joint ventures accounted for under the equity method in various
foreign countries. The Company has manufacturing facilities in Argentina,
Belgium, Brazil, Canada, China, Colombia, Germany, Italy, Malaysia, Mexico, New
Zealand, The Netherlands, Poland, South Africa, the United Arab Emirates and the
United Kingdom, and sales offices or public warehouse facilities in Australia,
Canada, Finland, France, Germany, Hong Kong, Iberia, Mexico, the Philippines,
Singapore, Sweden, the United Kingdom and several other countries. Information
concerning the Company's foreign operations is set forth in Management's
Discussion and Analysis of Results of Operations and Financial Condition, which
appears in the Annual Report to Shareholders, incorporated herein by reference.
COMPETITION
The Company is engaged in highly competitive industries and,
with respect to all of its major products, faces competition from local,
regional and national firms. The industries are fragmented, and the Company does
not face competition from any one company in particular. However, several of the
Company's competitors have greater financial resources and sales organizations
than the Company. While third-party figures are not necessarily available with
respect to the size of the Company's position in the market for each of its
products, the Company believes that it is a major producer of roofing systems,
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. However, the Company does not believe that it has a significant share
of the total protective coatings market. The following is a summary of the
competition faced by the Company in various markets.
Paints, Coatings, Adhesives and Sealants Industry
-------------------------------------------------
In the market for paints, coatings, adhesives and sealants,
the top ten producers account for approximately one-third of the global market.
In addition to the Company, leading suppliers tend to focus on coatings while
other companies focus on adhesives and sealants. This industry has experienced
significant consolidation over the past several decades, however, the market
remains fragmented, which creates further consolidation opportunities. Barriers
to market entry are relatively high due to the lengthy interval between product
development and market acceptance, the importance of brand identity, and the
difficulty in establishing a reputation as a reliable supplier in this sector.
Like the Company, most of the suppliers in this industry have a portfolio of
products that span across the various markets.
Consumer Home Improvement. Within the Consumer Division
operations, the Company generally serves the home improvement market with
products designed for niche architectural, rust-preventative, decorative,
special purpose, caulking and sealing applications. Products sold by the Company
in this market include, but are not limited to, those sold under the RUST-OLEUM,
DAP, ZINSSER and BONDO brand names. Leading manufacturers of home
7
improvement-related coatings, adhesives and sealants market their products to
DIY users, professional contractors, industrial contractors, and industrial
end-users through a wide range of distribution channels including home
improvement centers, mass merchandisers, hardware stores, paint stores and
industrial distributors. Competitors in this market generally compete for market
share by marketing and building upon brand recognition, providing customer
service and developing new products based on customer needs.
Special Purpose-- Industrial Maintenance Protective Coatings.
Anti-corrosion protective coatings must withstand the destructive elements of
nature and other operating processes under harsh environments and conditions.
Some of the larger consumers of high-performance protective and corrosion
control coatings are the oil and gas, pulp and paper, petrochemical,
shipbuilding and public utility industries. In the public sector, corrosion
control coatings are used on structures such as bridges and in water and waste
water treatment plants. These markets are highly fragmented. The Company and its
competitors gain market share in this industry by offering high quality
products, supplying a variety of products and offering customized solutions. The
Company sells products marketed primarily under the CARBOLINE, PLASITE, and TCI
brand names to this market.
Roofing Systems Industry
------------------------
In the roofing industry, reroofing applications account for
three-quarters of U.S. demand, with the remaining quarter made up by the new
roofing segment. The largest manufacturers focus primarily on residential
roofing as well as single-ply systems for low-end commercial and institutional
applications, competing mainly on price and minimally on service. The Company
competes primarily in the higher-end, multi-ply and modified bitumen segments of
the built-up and low-slope roofing industry. This niche within the larger market
tends to exhibit less commodity-market characteristics, with customers valuing
the greater protection and longer life provided by these roofing systems, as
well as ongoing maintenance, inspection and technical services. Typical
customers demanding higher-performance roofing systems include governmental
facilities, universities, hospitals and certain other manufacturing facilities.
The Company markets to this industry primarily under its TREMCO line of
products.
Construction Chemicals Industry
-------------------------------
Flooring Systems. Polymer flooring systems are used in
industrial, commercial and, to a lesser extent, residential applications to
provide a smooth, seamless surface that is impervious to penetration by water
and other substances. Polymer flooring systems are based primarily on epoxy
resins, although urethane products have experienced significant growth in recent
years. Most flooring is applied during new construction, but there is also a
significant repair and renovation market. Key performance attributes in polymer
flooring systems that distinguish competitors include static control, chemical
resistance, contamination control, durability and aesthetics. The Company
primarily markets under the STONHARD and FIBERGRATE brand names in this
industry. This market is also fragmented.
Sealants, Concrete and Masonry Products. Sealants used in a
variety of construction applications include urethane and silicone-based
products designed for sealing windows and commercial buildings, waterproofing,
fireproofing and concrete sealing, among others. In the concrete and masonry
additives market, a variety of chemicals can be added to cement, concrete,
asphalt and other masonry to improve the processability, performance, or
appearance of these products. Chemical cement admixtures are typically grouped
according to
8
functional characteristics, such as water-reducers, set controllers,
superplasticizers and air-entraining agents. Key attributes that differentiate
competitors in these markets include quality assurance, on-the-job consultation
and the provision of value-added engineered products. The Company primarily
offers products marketed under the EUCO, REPUBLIC, VULKEM and DYMERIC brand
names in this industry.
INTELLECTUAL PROPERTY
The intellectual property portfolios of the subsidiaries of
the Company include numerous valuable patents, trade secrets and know-how,
domain names, 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), DAP(R) and TREMCO(R), are
material to the Company's business.
Day-Glo Color Corp., a subsidiary of the Company, is the owner
of more than 50 trademark registrations of the mark "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 more than 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. These
registrations are maintained and renewed on a regular basis.
Rust-Oleum Corporation, a subsidiary of the Company, is the
owner of more than 50 United States trademark registrations for the mark
"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. These registrations are
maintained and renewed 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. These registrations are maintained and renewed on a regular basis.
DAP Products Inc., a subsidiary of the Company, is the owner
of more than 150 United States and foreign trademark applications and
registrations which include the mark "DAP(R)." DAP Products Inc. is also the
owner of several other United States and foreign registrations for other
trademarks including "PUTTY KNIFE(R)." These registrations are maintained and
renewed on a regular basis.
Tremco Incorporated, a subsidiary of the Company, is the owner
of more than 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. These registrations are maintained and renewed on a regular basis.
9
The Company's other principal product trademarks include:
ALUMANATION(R), AVALON(R), B-I-N(R), BITUMASTIC(R), BONDO(R), BULLS EYE
1-2-3(R), DRYVIT(R), DYMERIC(R), DYNALITE(R), DYNATRON(R), EASY FINISH(R),
FLECTO(R), EPOXSTEEL(R), FIBERGRATE(R), FLOQUIL(R), GEOFLEX(R), 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), TCI(R),
TESTORS(R), ULTRALITE(TM), VARATHANE(R), VULKEM(R), WOOLSEY(R), ZINSSER(R) and
Z-SPAR(R); and, in Europe, NULLIFIRE(R), RADGLO(R) and MARTIN MATHYS(R).
RAW MATERIALS
The Company does not have any single source suppliers of raw
materials that are material to its business, and 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, the Company cannot guaranty
that it will have the ability to do so in the future.
SEASONAL FACTORS
The Company's business is dependent on external weather
factors. The Company historically experiences strong sales and net 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
Eight large Consumer Division accounts, such as DIY home
centers, represented approximately 23% of the Company's total sales for the
fiscal year ended May 31, 2002. Sales to The Home Depot represented 11% of the
Company's total sales for the last fiscal year. Except for sales to these
customers, the Company's business is not dependent upon any one customer or
small group of customers but is rather dispersed over a substantial number 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
2002, 2001 and 2000, the Company invested approximately $20.9 million, $21.8
million and $22.3 million, respectively, on research and development activities.
In addition to this laboratory work, the Company views its field technical
service as being integral to the success of its research activities. The
research and development activities and the field technical service costs are
both included as part of selling, general and administrative expenses.
10
ENVIRONMENTAL MATTERS
The Company is subject to numerous foreign, federal, state and
local environmental protection and health and safety laws and regulations
governing, among other things:
- the sale, export, generation, storage, handling, use and
transportation of hazardous materials;
- the emission and discharge of hazardous materials into the soil,
water and air; and
- the health and safety of the Company's employees.
The Company is also required to obtain permits from governmental
authorities for certain operations. The Company cannot guarantee that it has
been or will be at all times in complete compliance with such laws, regulations
and permits. If the Company violates or fails to comply with these laws,
regulations or permits, it could be fined or otherwise sanctioned by regulators.
Certain environmental laws assess liability on current or previous
owners or operators of real property for the cost of removal or remediation of
hazardous substances. Persons who arrange for the disposal or treatment of
hazardous substances also may be responsible for the cost of removal or
remediation of these substances, even if such persons never owned or operated
any disposal or treatment facility. Certain of the Company's subsidiaries are
involved in various environmental claims, proceedings and/or remedial activities
relating to facilities currently or previously owned, operated or used by these
subsidiaries, or their predecessors. In addition, the Company or its
subsidiaries, together with other parties, have been designated as potentially
responsible parties, or PRPs, under federal and state environmental laws for the
remediation of hazardous waste at certain disposal sites. In addition to
clean-up actions brought by federal, state and local agencies, plaintiffs could
raise personal injury, natural resource damage or other private claims due to
the presence of hazardous substances on a property. Environmental laws often
impose liability even if the owner or operator did not know of, or was not
responsible for, the release of hazardous substances.
The Company has in the past, and will in the future, incur costs
to comply with environmental laws. Environmental laws and regulations are
complex, change frequently and have tended to become stringent over time. In
addition, costs may vary depending on the particular facts and development of
new information. As a result, the Company's operating expenses and continuing
capital expenditures may increase. More stringent standards may also limit its
operating flexibility. In addition, to the extent hazardous materials exist on
or under real property, the value and future use of that real property may be
adversely affected. Because the Company's competitors will have similar
restrictions, the Company's management believes that compliance with more
stringent environmental laws and regulations is not likely to affect the
Company's competitive position. However, a significant increase in these costs
could adversely affect the Company's business, results of operations, financial
condition or cash flows. For information regarding environmental accruals, see
Note H (Contingencies and Loss Reserves) of the Notes to Consolidated Financial
Statements which appear in the Annual Report to Shareholders, incorporated
herein by reference.
11
EMPLOYEES
As of May 31, 2002, the Company employed 7,687 persons, of
whom 583 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 119-acre site in Medina, Ohio, which is
owned by the Company. As of May 31, 2002, the Company's operations occupied a
total of approximately 7.4 million square feet, with the majority, approximately
6.0 million square feet, devoted to manufacturing, assembly and storage. Of the
approximately 7.4 million square feet occupied, 5.3 million square feet are
owned and 2.1 million square feet are occupied under operating leases. In
addition, approximately 0.3 million owned square feet is associated with
property intended to be sold or sublet in conjunction with the Company's
restructuring program.
Set forth below is a description, as of May 31, 2002, of the
Company's principal manufacturing facilities which management believes are
material to the Company's operations:
APPROXIMATE
SQUARE FEET
BUSINESS/ OF
LOCATION SEGMENT FLOOR SPACE LEASED OR OWNED
-------- ------- ----------- ---------------
Pleasant Prairie, Rust-Oleum 303,200 Owned
Wisconsin (Consumer)
Toronto, Ontario, Tremco 207,000 Owned
Canada (Industrial)
Cleveland, Ohio Euclid Chemical 173,000 Owned
(Industrial)
Cleveland, Ohio Tremco 160,300 Owned
(Industrial)
Cleveland, Ohio Day-Glo 147,000 Owned
(Industrial)
Baltimore, Maryland DAP 144,200 Owned
(Consumer)
Tipp City, Ohio DAP 140,000 Owned
(Consumer)
Lake Charles, Carboline 114,300 Owned
Louisiana (Industrial)
Somerset, New Jersey Zinsser 110,000 Owned
(Consumer)
Maple Shade, Stonhard 77,500 Owned
New Jersey (Industrial)
12
The Company leases certain of its properties under long-term
leases. Some of the leases provide for increased rent based on an increase in
the cost-of-living index. For information concerning the Company's rental
obligations, see Note E (Leases) of Notes to Consolidated Financial Statements
which appear in the Annual Report to Shareholders, incorporated herein by
reference. 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.
EIFS Litigation
---------------
As previously reported, Dryvit is a defendant or co-defendant
in numerous exterior insulated finish systems ("EIFS") related lawsuits. As of
May 31, 2002, Dryvit was a defendant or co-defendant in approximately 850 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 and other commercial structures. The vast majority of
Dryvit's EIFS lawsuits seek monetary relief for water intrusion related property
damages, although a number of claims also stem from alleged personal injuries
from exposure to mold.
As previously reported, Dryvit settled the North Carolina
class action styled Ruff, et al. v. Parex, Inc., et al. ("Ruff"). As of May 31,
2002, approximately 600 claims had been submitted to the claims administrator
for verification and validation. Of these 600 claims, 110 claims were rejected
and 280 claims were paid in the amount of $4,450,000 pursuant to funding
arrangements described below with Dryvit's insurers. The remaining claims are at
various stages of investigation, review and validation by the claims
administrator.
As previously reported, Dryvit is a defendant in an attempted
state class action filed in Jefferson County, Tennessee styled Bobby R. Posey,
et al. v. Dryvit Systems, Inc. (formerly styled William J. Humphrey, et al. v.
Dryvit Systems, Inc.) (Case No. 17,715-IV). The Posey 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.
On April 8, 2002, the judge in the Posey case signed a
preliminary approval order for a nationwide class action settlement of a
substantial portion of Dryvit's residential EIFS litigation. The proposed class
covers all persons in any state (other than North Carolina) who own a one- or
two-family residential dwelling or townhouse clad with Dryvit EIFS installed
after January 1, 1989. Nationwide notice to all eligible class members began on
or about June 13, 2002. A fairness hearing is set for on or about October 1,
2002, to seek final court approval of the proposed settlement. If there is not
an excessive number of opt outs by the September 3, 2002 deadline, and the court
grants final approval of the settlement at the fairness hearing, the settlement
will result in the dismissal of all other pending attempted state class actions.
As previously reported, Dryvit is a defendant in other attempted state class
actions including cases filed in Madison County, Illinois styled Osborne, et.
al. v. Dryvit Systems, Inc. (Case No.
13
00L000395) and in Mobile County, Alabama styled Tony Bryan, et. al. v. Dryvit
Systems, Inc. (Case No. CV-01-00761 JSJ).
Certain of Dryvit's insurers have paid or are currently paying
a portion of Dryvit's defense costs in the class actions, and individual
commercial building and homeowner lawsuits. Dryvit, RPM's wholly-owned captive
insurance company, First Colonial Insurance Company ("First Colonial"), and
certain of Dryvit's umbrella carriers have entered into various cost-sharing
agreements to cover both the individual and class action cases which have been
subject to periodic renegotiations. Under these cost-sharing agreements,
Dryvit's insurers have covered a substantial portion of the EIFS indemnity and
defense costs. Dryvit is currently in discussions with its insurers, including
First Colonial, with respect to funding Dryvit's potential obligations under the
proposed national class action settlement. Based on Dryvit's existing insurance
arrangements and Dryvit's obligations under the proposed class action
settlement, management believes that the EIFS litigation will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
Asbestos Litigation
-------------------
As previously reported, the Company and certain of its
wholly-owned subsidiaries, principally Bondex International, Inc. (collectively
referred to as "the Company"), are defendants in various asbestos-related bodily
injury lawsuits. These cases generally seek damages for asbestos-related
diseases based on alleged exposures to asbestos-containing products previously
manufactured by the Company.
The Company continues to vigorously defend all
asbestos-related lawsuits. In many cases, the claimants are unable to
demonstrate that any injuries they have incurred, in fact, resulted from
exposure to one of the Company's products. In such cases, the Company is
generally dismissed without payment. With respect to those cases where
compensable disease, exposure and causation are established with respect to one
of the Company's products, the Company generally settles for amounts that
reflect the confirmed disease, the seriousness of the case, the particular
jurisdiction and the number and solvency of other parties in the case.
As of May 31, 2002, the Company had a total of 1,784 active
asbestos cases compared to 1,151 as of May 31, 2001. This increase in the number
of cases filed is due, in part, to the bankruptcy filings of various other
asbestos litigation defendants. During the quarter ended May 31, 2002, the
Company secured dismissals and/or settlements of 236 claims for $1,356,125, net
of insurer payments and excluding defense costs, compared to 14 dismissals
and/or settlements for $129,660 for the same quarter ended May 31, 2001. For the
fiscal year ended May 31, 2002, the Company secured dismissals and/or
settlements of 334 claims for $2,494,437, net of insurer payments and excluding
defense costs, compared to dismissals and/or settlements of 85 claims for
$851,183 for the fiscal year ended May 31, 2001.
The Company's third party insurers have historically been
responsible, under a cost sharing agreement, for the payment of approximately
90% of the indemnity and defense costs associated with the Company's asbestos
litigation. The Company expects that its insurers will continue to cover a
substantial portion of these costs associated with its asbestos litigation at
least into the 2004 fiscal year. For the estimated costs associated with
asbestos litigation which are not covered by insurance, the Company has
established a financial reserve in an amount which it deems to be adequate.
14
Based on the Company's existing insurance arrangements and the
financial reserve mentioned above, at the present time management does not
believe that the Company's current asbestos litigation will have a material
adverse effect on the Company's consolidated financial condition or results of
operations. However, the potential cost of liabilities associated with asbestos
claims is subject to many uncertainties, including (i) the ultimate number of
claims filed against the Company, (ii) the cost of resolving current and future
claims, (iii) the amount of insurance available to cover such claims, (iv)
future earnings and cash flow of the Company, (v) the impact of bankruptcies of
other companies whose share of liability may be imposed on the Company under
certain state liability laws, (vi) the unpredictable aspects of the litigation
process, and (vii) potential legislative changes. Accordingly, management cannot
be certain that the future costs of the Company's asbestos litigation will not
have a material adverse effect on the Company's future business, consolidated
financial condition, results of operations or cash flows.
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 condition 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. The Company's share of such costs, however, has not been material and
management believes that these environmental proceedings will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations. See "Business-Environmental Matters."
See Note H (Contingencies and Loss Reserves) of the Notes to
Consolidated Financial Statements which appear in the Annual Report to
Shareholders, incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
15
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 1, 2002 are as follows:
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
Thomas C. Sullivan 65 Chairman of the Board and Chief Executive Officer
James A. Karman 65 Vice Chairman
Frank C. Sullivan 41 President and Chief Operating Officer
Dennis F. Finn 49 Vice President - Environmental and Regulatory Affairs
Glenn R. Hasman 48 Vice President - Finance and Communications
Paul G. Hoogenboom 42 Vice President - Operations and Systems
Stephen J. Knoop 37 Vice President - Corporate Development
Robert L. Matejka 59 Vice President, Chief Financial Officer and Controller
Ronald A. Rice 39 Vice President - Administration and Assistant Secretary
Keith R. Smiley 40 Vice President, Treasurer and Assistant Secretary
P. Kelly Tompkins 45 Vice President, General Counsel and Secretary
- -----------------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
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
will step down from his position as the Chief Executive Officer of the Company
effective as of October 11, 2002 and will retire as an employee of the Company
effective as of January 1, 2003. Mr. Sullivan will continue to serve as Chairman
of the Board and as a member of the Board of Directors and will serve the
Company in a consulting capacity pursuant to a consulting agreement effective
January 1, 2003 and continuing through May 31, 2005. Mr. Sullivan is the father
of Frank C. Sullivan, President of the Company.
James A. Karman was elected Vice Chairman on August 5, 1999.
From September 1978 to August 1999, he served as President and Chief Operating
Officer. Mr. Karman also was the Chief Financial Officer of the Company from
October 1982 to October 1993, and again from June 2001 to October 2001. 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
will step down from his position as Vice Chairman of the Board of Directors
effective as of October 11, 2002 and will retire as an employee of the Company
as of January 1, 2003. Mr. Karman will continue to serve as a member of the
Board of Directors and will serve the Company in a consulting capacity pursuant
to a consulting agreement effective January 1, 2003 and continuing through May
31, 2004.
16
Frank C. Sullivan was elected Chief Operating Officer on
October 12, 2001 and President on August 5, 1999. From October 1995 to August
1999 he served as Executive Vice President, and was Chief Financial Officer from
October 1993 to August 1999. 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 formerly 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 President
and Chief Operating Officer under an employment agreement for a period ending
May 31, 2003, which will be either amended or replaced by a new agreement to
reflect his anticipated election as Chief Executive Officer of the Company on
October 11, 2002. Mr. Sullivan is the son of Thomas C. Sullivan, Chairman of the
Board and Chief Executive Officer of the Company.
Dennis F. Finn was elected Vice President-Environmental and
Regulatory Affairs on October 12, 2001. Prior to joining the Company in November
2000 as director of environmental and regulatory affairs, Mr. Finn served for 10
years as director of environmental health and safety at Day-Glo Color Corp., one
of the Company's operating companies. He also held various positions with Nalco
Chemical Company and IIT Research Institute.
Glenn R. Hasman was elected Vice President-Finance and
Communications on August 1, 2000. Mr. Hasman served as Vice President-Controller
from August 1999 to August 2000, as Vice President-Financial Operations from
October 1997 to August 1999, as Vice President-Administration from October 1993
to October 1997 and as Controller from July 1990 to October 1993. 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, with a former wholly-owned subsidiary of the Company. From 1979 to
1982, Mr. Hasman served as 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-Finance and Communications under an
employment agreement that provides for automatic annual renewal.
Paul G. Hoogenboom was elected Vice President-Operations on
August 1, 2000. Mr. Hoogenboom served as Vice President and General Manager of
the Company's e-commerce subsidiary, RPM-e/c, Inc., in 1999. From 1998 to 1999,
Mr. Hoogenboom was a Director of Cap Gemini, a computer systems and technology
consulting firm. During 1997, Mr. Hoogenboom was employed as a strategic
marketing consultant for Xylan Corporation, a network switch manufacturer. From
1994 to 1997, Mr. Hoogenboom was Director of Corporate I.T. and Communications
for A.W. Chesterton Company, a manufacturer of fluid sealing systems. Mr.
Hoogenboom is employed as Vice President-Operations under an employment
agreement that provides for automatic annual renewal.
Stephen J. Knoop was elected Vice President-Corporate
Development on August 5, 1999. From June 1996 to August 1999, Mr. Knoop served
as Director of Corporate Development of the Company. From 1990 to May 1996, Mr.
Knoop was an attorney at Calfee, Halter & Griswold LLP. Mr. Knoop is employed as
Vice President-Corporate Development under an employment agreement that provides
for automatic annual renewal.
17
Robert L. Matejka was elected Chief Financial Officer on
October 12, 2001 and Vice President-Controller on August 1, 2000. From 1995 to
1999, he served as Vice President-Finance of the motor and drive systems
businesses of Rockwell International Corporation. From 1973 to 1995, Mr. Matejka
served in various capacities with Reliance Electric Company, most recently as
its Assistant Controller. From 1965 to 1973, he was an Audit Supervisor with
Ernst & Young. Mr. Matejka is employed as Chief Financial Officer and Vice
President - Controller under an employment agreement that provides for automatic
annual renewal.
Ronald A. Rice was elected Vice President-Administration on
October 12, 2001 and Assistant Secretary on August 5, 1999. From August 1999 to
October 2001, he served as the Company's Vice President-Risk Management and
Benefits. From 1997 to August 1999, he served as Director of Risk Management and
Employee Benefits, and from 1995 to 1997 he served as Director of Benefits. From
1985 to 1995, Mr. Rice served in various capacities with the Wyatt Company, most
recently he served as Senior Account Manager from 1992 to 1995. Mr. Rice is
employed as Vice President-Administration and Assistant Secretary under an
employment agreement that provides for automatic annual renewal.
Keith R. Smiley was elected Vice President and Assistant
Secretary on August 5, 1999, and 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. Mr. Smiley is employed as Vice President, Treasurer and
Assistant Secretary under an employment agreement that provides for automatic
annual renewal.
P. Kelly Tompkins has served as Vice President, General
Counsel and Secretary since June 1998. From June 1996 to June 1998, Mr. Tompkins
served as Assistant General Counsel. From 1987 to 1995, Mr. Tompkins was
employed by Reliance Electric Company in various positions including Senior
Corporate Counsel, Director of Corporate Development and Director of Investor
Relations. From 1985 to 1987, Mr. Tompkins was employed as a litigation attorney
by Exxon Corporation. Mr. Tompkins is employed as Vice President, General
Counsel and Secretary under an employment agreement that provides for automatic
annual renewal.
18
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RPM Common Shares are traded on the New York Stock Exchange
under the symbol RPM. 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 AND DIVIDENDS PAID
----------------------------------------
Dividends Paid
Fiscal 2002 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 11.150 $ 8.020 $0.1250
2nd Quarter 15.050 7.910 $0.1250
3rd Quarter 17.080 12.900 $0.1250
4th Quarter 17.870 14.150 $0.1250
Dividends Paid
Fiscal 2001 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 10.7500 $ 8.6250 $0.1225
2nd Quarter 10.2500 7.7500 0.1250
3rd Quarter 9.9375 8.2500 0.1250
4th Quarter 10.5000 8.2500 0.1250
- --------------------
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 16, 2002 was approximately 40,230.
RECENT SALES OF UNREGISTERED SECURITIES.
None.
19
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,
2002. The data was derived from the annual Consolidated Financial Statements of
the Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
FISCAL YEARS ENDED MAY 31,
--------------------------
2002* 2001 2000 1999 1998
----- ---- ---- ---- ----
(Amounts in thousands, except per
share and percentage data)
Net sales $1,986,126 $2,007,762 $1,962,410 $1,720,628 $1,623,326
Income before income taxes 154,124 101,487 71,761 159,597 149,556
Net income 101,554 62,961 40,992 94,546 87,837
Return on sales % 5.1% 3.1% 2.1% 5.5% 5.4%
Basic earnings per share 0.97 0.62 0.38 0.87 0.89
Diluted earnings per share 0.97 0.62 0.38 0.86 0.84
Shareholders' equity 858,106 639,710 645,724 742,876 566,337
Shareholders' equity per share 8.22 6.26 6.02 6.83 5.75
Return on shareholders' equity % 13.6% 9.8% 5.9% 14.4% 16.6%
Average shares outstanding 104,418 102,202 107,221 108,731 98,527
Cash dividends paid 52,409 50,605 51,901 50,446 43,474
Cash dividends per share 0.5000 0.4975 0.4850 0.4645 0.4400
Retained earnings 409,603 360,458 348,102 359,011 314,911
Working capital 436,600 443,652 408,890 402,870 387,284
Total assets 2,036,403 2,078,490 2,099,203 1,737,236 1,685,917
Long-term debt 707,921 955,399 959,330 582,109 716,989
Depreciation and amortization 56,859 81,494 79,150 62,135 57,009
- ---------------
Note: Acquisitions made by the Company during the periods presented may impact
comparability from year to year. For information concerning acquisitions for
fiscal years 2002 and 2001, see Note A(2) of Notes to Consolidated Financial
Statements, which appear in the Annual Report to Shareholders, incorporated
herein by reference.
*Reflects the adoption of SFAS No. 142 regarding "Goodwill and Other
Intangible Assets". See Note A(10) to Notes to Consolidated Financial
Statements, which appear in the Annual Report to Shareholders, incorporated
herein by reference.
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 22
through 31 of the 2002 Annual Report to Shareholders, incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest
rates and foreign currency exchange rates since it funds its operations through
long-and short-term borrowings and
20
denominates its business transactions in a variety of foreign currencies. A
summary of the Company's primary market risk exposures is presented below.
Interest Rate Risk
The Company's primary interest rate risk exposure results from
floating rate debt including various revolving credit and other lines of credit.
At May 31, 2002, approximately 70% of the Company's total long-term debt
consisted of floating rate debt. If interest rates were to increase 100 basis
points (1%) from May 31, 2002 rates, and assuming no changes in long-term debt
from the May 31, 2002 levels, the additional annual expense would be
approximately $5.0 million on a pre-tax basis. The Company currently does not
hedge its exposure to this floating rate interest rate risk.
Foreign Currency Risk
The Company's foreign sales and results of operations are
subject to the impact of foreign currency fluctuations. As most of the Company's
foreign operations are in countries with fairly stable currencies, such as the
United Kingdom, Belgium and Canada, this effect has not been material. In
addition, foreign debt is denominated in the respective foreign currency,
thereby eliminating any related translation impact on earnings. If the dollar
were to strengthen, the Company's foreign results of operations would be
negatively impacted, but the effect is not expected to be material. A 10%
adverse change in foreign currency exchange rates would not have resulted in a
material impact on the Company's net income for the fiscal year ended May 31,
2002. The Company does not currently hedge against the risk of exchange rate
fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 32
through 49 of the 2002 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.
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 "Proposal One - Election of Directors" in
the Company's 2002 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 2002 Proxy Statement under the heading
"Proposal One - Section 16(a) Beneficial Ownership Reporting Compliance," which
information is incorporated herein by reference.
21
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 2002
Proxy Statement under the heading "Proposal One - Executive Compensation," which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
The information required by this item is set forth in the 2002
Proxy Statement under the headings "Share Ownership of Principal Holders and
Management" and "Proposal One - Equity Compensation Plan Information," 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 2002
Proxy Statement under the heading "Proposal One - 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 2002 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 2002 Annual Report to Shareholders on pages 32
through 49, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -
May 31, 2002 and 2001
Consolidated Statements of Income -
years ended May 31, 2002, 2001 and 2000
Consolidated Statements of Shareholders'
Equity - years ended May 31, 2002, 2001
and 2000
Consolidated Statements of Cash Flows -
years ended May 31, 2002, 2001 and 2000
Notes to Consolidated Financial
Statements (including Unaudited Quarterly
Financial Information)
22
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 2002 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 on March 14,
2002, during the fourth fiscal quarter, to report that it had issued a
press release dated March 13, 2002, announcing the Company's third
quarter earnings.
23
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 29, 2002 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 Executive
- ---------------------- Officer (Principal Executive Officer)
Thomas C. Sullivan
/s/ James A. Karman Vice Chairman and a Director
- ----------------------------
James A. Karman
/s/ Frank C. Sullivan Chief Operating Officer, President and a
- ---------------------------- Director
Frank C. Sullivan
/s/ Robert L. Matejka Vice President, Chief Financial Officer
- ---------------------------- and Controller (Principal Financial
Robert L. Matejka Officer)
/s/ Dr. Max D. Amstutz
- ----------------------------
Dr. Max D. Amstutz Director
/s/ Edward B. Brandon Director
- ----------------------------
Edward B. Brandon
/s/ Lorrie Gustin Director
- ----------------------------
Lorrie Gustin
24
/s/ E. Bradley Jones Director
- ----------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- ----------------------------
Donald K. Miller
/s/ William A. Papenbrock Director
- ----------------------------
William A. Papenbrock
/s/ Albert B. Ratner Director
- ----------------------------
Albert B. Ratner
/s/ Jerry Sue Thornton Director
- ----------------------------
Jerry Sue Thornton
/s/ Joseph P. Viviano Director
- ----------------------------
Joseph P. Viviano
Date: August 29, 2002
25
RPM, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended Articles of Incorporation, of RPM, Inc., which
is incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 as filed
with the Commission on January 6, 1997.
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, 2001.
4.1 Specimen Certificate of Common Shares, without par
value, of RPM, Inc., which is incorporated herein by
reference to Exhibit 4.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1998.
4.2 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.
4.3 Specimen Note Certificate of Liquid Asset Notes With
Coupon Exchange ("LANCEs(SM)") Due 2008, 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, 1998.
4.4 Rights Agreement by and between RPM, Inc. and Harris
Trust and Savings Bank dated as of April 28, 1999, which
is incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form 8-A as
filed with the Commission on May 11, 1999.
4.4.1 Amendment to Rights Agreement dated December 18, 2000 by
and among the Company, Computershare Investor Services
(formerly Harris Trust and Savings Bank) and National
City Bank, which is incorporated herein by reference to
Exhibit 4.4.1 to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 2001.
4.5 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.
4.6 First Supplemental Indenture, dated as of March 5, 1998
to the Indenture dated as of June 1, 1995, between RPM,
Inc. and The First National Bank of Chicago, as trustee,
with respect to the Liquid Asset Notes with Coupon
Exchange ("LANCEs(SM)") due 2008, which is incorporated
herein by reference to Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1998.
E-1
EXHIBIT NO. DESCRIPTION
----------- -----------
4.7 Note Purchase Agreement, dated as of November 15, 2001,
between the Company and the Purchasers thereto with
respect to the sale of $15 million principal amount of
6.12% Senior Notes, Series A, due November 15, 2004, $10
million principal amount of 6.61% Senior Notes, Series
B, due November 15, 2006, and $30 million principal
amount of 7.3% Senior Notes, Series C, due November,
2008, which is incorporated herein by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended November 30, 2001.
*10.1 Succession and Post-Retirement Consulting Letter
Agreement, dated April 12, 2002, by and between RPM,
Inc. and Thomas C. Sullivan, current Chief Executive
Officer and Chairman of the Board.
*10.2 Succession and Post-Retirement Consulting Letter
Agreement, dated April 12, 2002, by and between RPM,
Inc. and James A. Karman, current Vice Chairman of the
Board.
*10.3 Form of Employment Agreement entered into by and between
RPM, Inc. and each of Frank C. Sullivan, President and
Chief Operating Officer, P. Kelly Tompkins, Vice
President, General Counsel and Secretary, Glenn R.
Hasman, Vice President - Finance and Communications,
Stephen J. Knoop, Vice President - Corporate
Development, Robert L. Matejka, Chief Financial Officer
and Vice President - Controller, Ronald A. Rice, Vice
President - Administration and Assistant Secretary,
Keith R. Smiley, Vice President, Treasurer and Assistant
Secretary and Paul G. Hoogenboom, Vice
President-Operations, 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, 2001.
*10.4 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 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 2001.
*10.5 RPM, Inc. 1996 Stock Option Plan, and form of Stock
Option Agreement to be used in connection therewith,
which is incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1997.
*10.5.1 Amendment No. 1 to RPM, Inc. 1996 Stock Option Plan,
which is incorporated herein by reference to Exhibit
10.7.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998.
*10.5.2 Amendment to RPM, Inc. 1996 Stock Option Plan, which is
incorporated herein by reference to Exhibit 4.3.1 to the
Company's Registration Statement on Form S-8 as filed
with the Commission on May 3, 2001.
*10.6 RPM, Inc. Retirement Savings Trust and Plan, as amended
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, 2001.
E-2
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.7 RPM, Inc. Benefit Restoration Plan, 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, 2001.
*10.8.1 RPM, Inc. Deferred Compensation Plan, effective May 31,
2002.
*10.8.2 Master Trust Agreement for RPM, Inc. Deferred
Compensation Plan(s).
*10.9 RPM, Inc. Incentive Compensation Plan, 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, 2001.
*10.10 RPM, Inc. 1997 Restricted Stock Plan, and Form of
Acceptance and Escrow Agreement to be used in connection
therewith, which is incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended November 30, 1997.
*10.10.1 First Amendment to the RPM, Inc. 1997 Restricted Stock
Plan, effective as of October 1, 1998.
*10.10.2 Second Amendment to the RPM, Inc. 1997 Restricted Stock
Plan, dated as of May 22, 2002.
*10.11 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,
2001.
10.12 Five-Year $500,000,000 Credit Agreement, dated as of
July 14, 2000, among the Company, The Chase Manhattan
Bank as Administrative Agent and Chase Securities Inc.,
which is incorporated by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 2000.
10.12.1 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, which is
incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended August 31, 2001.
10.13 Commercial Paper Placement Agency Agreement, dated as of
August 10, 1999, between the Company and Chase
Securities, Inc. (similar forms of agreement were also
executed with Banc One Capital Markets, Inc. and Banc of
America Securities LLC) incorporated herein by reference
to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended August 31,
1999.
11.1 Computation of Net Income per Common Share.
13.1 Financial Information contained in 2002 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
- ------------------------------
E-3
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
E-4
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 3, 2002, 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, 2002. 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
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES SCHEDULE II
----------------------------------------------
(IN THOUSANDS)
ADDITIONS
CHARGED TO
BALANCE AT ADDITIONS SELLING, ACQUISITIONS BALANCE
BEGINNING CHARGED TO GENERAL AND ADDITIONS CHARGED (DISPOSALS) AT END
OF PERIOD COST OF SALES ADMINISTRATIVE TO RESTRUCTURING OF BUSINESSES DEDUCTIONS OF PERIOD
--------- ------------- -------------- ---------------- ------------- ---------- ---------
YEAR ENDED MAY 31, 2002
- -----------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $17,705 $ $ 7,156 $ $ $ 8,977(1) $15,884
======= ========== =========== =========== ========== ======= =======
ACCRUED LOSS RESERVES - CURRENT $55,416 $ $ 23,898 $ $ (100) $27,300(2) $51,914
======= ========== =========== =========== ========== ======= =======
ACCRUED WARRANTY RESERVES -
LONG-TERM $11,959 $ $ (235) $ $ $ 2,069(2) $ 9,655
======= ========== =========== =========== ========== ======= =======
YEAR ENDED MAY 31, 2001
- -----------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $16,248 $ $ 8,817 $ $ 10 $ 7,370(1) $17,705
======= ========== =========== =========== ========== ======= =======
ACCRUED LOSS RESERVES - CURRENT $64,765 $ $ 15,329 $ $ $24,678(2) $55,416
======= ========== =========== =========== ========== ======= =======
ACCRUED WARRANTY RESERVES -
LONG-TERM $13,740 $ $ (209) $ $ $ 1,572(2) $11,959
======= ========== =========== =========== ========== ======= =======
ACCRUED RESTRUCTURING RESERVES $13,540 $ $ $ $ $13,540(3) $
======= ========== =========== =========== ========== ======= =======
YEAR ENDED MAY 31, 2000
- -----------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS $14,248 $ $ 9,794 $ $ 644 $ 8,438(1) $16,248
======= ========== =========== =========== ========== ======= =======
ACCRUED LOSS RESERVES - CURRENT $49,296 $ $ 28,241 $ $ 9,119 $21,891(2) $64,765
======= ========== =========== =========== ========== ======= =======
ACCRUED WARRANTY RESERVES -
LONG-TERM $18,816 $ $ (2,836) $ $ $ 2,240(2) $13,740
======= ========== =========== =========== ========== ======= =======
ACCRUED RESTRUCTURING RESERVES $ 1,638 $ 7,876 $ $ 51,970 $ $47,944(3) $13,540
======= ========== =========== =========== ========== ======= =======
(1) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF, NET OF RECOVERIES
(2) PRIMARILY CLAIMS PAID DURING THE YEAR
(3) RESTRUCTURING INITIATIVES COMPLETED DURING THE YEAR
S-2