1
EXHIBIT 99.5
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
MAY 31, 1994
------------
2
Independent Auditor's Report
----------------------------
The Board of Directors and
Shareholders
RPM, Inc.
Medina, Ohio
We have audited the accompanying consolidated balance sheets of RPM,
Inc. and Subsidiaries as of May 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three year period ended May 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of RPM,
Inc. and Subsidiaries at May 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three year period
ended May 31, 1994, in conformity with generally accepted accounting
principles.
Cleveland, Ohio
July 8, 1994
3
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands except per share amounts)
ASSETS
------
May 31
---------------------------------
1994 1993
-------- --------
(Restated)
Current Assets
Cash and short-term cash investments $ 18,370 $ 22,885
Marketable securities, at cost (Note A) 7,029 4,654
Trade accounts receivable (less allowances
of $8,148 in 1994 and $6,901 in 1993) 162,256 159,232
Inventories (Note A) 130,487 126,948
Prepaid expenses and other current assets 16,388 17,093
-------- --------
Total current assets 334,530 330,812
-------- --------
Property, Plant and Equipment, At Cost (Note A)
Land 14,677 14,237
Buildings and leasehold improvements 96,019 87,954
Machinery and equipment 152,498 140,550
-------- --------
263,194 242,741
Less allowance for depreciation and
amortization 112,160 99,152
-------- --------
Property, plant and equipment, net 151,034 143,589
-------- --------
Other Assets
Cost of businesses over net assets
acquired, net of amortization (Note E) 111,598 108,386
Other intangible assets, net of amortization
(Note E) 25,328 31,208
Equity in unconsolidated affiliates (Note J) 12,509 12,103
Other 25,839 22,426
-------- --------
Total other assets 175,274 174,123
-------- --------
Total Assets $660,838 $648,524
======== ========
See Notes to Consolidated Financial Statements.
4
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
---------------------------------------
(In thousands except per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
May 31
---------------------------------
1994 1993
-------- --------
(Restated)
Current Liabilities
Notes and accounts payable $ 49,109 $ 58,474
Current portion of long-term debt (Note B) 1,196 21,262
Accrued compensation and benefits 24,492 21,538
Accrued warranty and loss reserves 12,978 13,753
Other accrued liabilities 18,042 16,848
Income taxes payable (Notes A and C) 1,719 7,065
-------- --------
Total current liabilities 107,536 138,940
-------- --------
Long-Term Debt, Less Current Maturities (Note B) 233,039 258,712
-------- --------
Deferred Income Taxes and Other (Notes A and C) 5,787 6,973
-------- --------
Shareholders' Equity
Common shares, stated value $.023 per share;
authorized 100,000,000 shares, issued and
outstanding 56,751,000; 53,000,000 in 1993
(Note D) 1,291 1,206
Paid-in capital 146,109 96,514
Cumulative translation adjustment (Note A) (2,290) (673)
Retained earnings 169,366 146,852
-------- --------
Total shareholders' equity 314,476 243,899
-------- --------
Total Liabilities And Shareholders' Equity $660,838 $648,524
======== ========
See Notes to Consolidated Financial Statements.
5
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands except per share amounts)
Year Ended May 31
----------------------------------
1994 1993 1992
-------- -------- --------
(Restated) (Restated)
Net Sales $815,598 $768,372 $680,091
Cost of Sales 476,146 448,079 393,677
-------- -------- --------
Gross Profit 339,452 320,293 286,414
Selling, General and Administrative
Expenses 237,931 236,955 208,822
Interest Expense, Net 13,427 17,202 16,491
-------- -------- --------
Income Before Income Taxes 88,094 66,136 61,101
Provision for Income Taxes (Note C) 35,454 26,638 22,620
-------- -------- --------
Net Income $ 52,640 $ 39,498 $ 38,481
======== ======== ========
Average shares outstanding (Note D) 56,717 53,267 52,790
====== ====== ======
Earnings per common share and common
share equivalents (Note D) $.93 $.74 $.73
==== ==== ====
Earnings per common share assuming
full dilution (Note D) $.89 $.72 $.72
==== ==== ====
Cash dividends per common share $.51 $.47 $.44
==== ==== ====
See Notes to Consolidated Financial Statements.
6
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
(In thousands except per share amounts)
Common Stock
------------------------
Cumulative
Number Stated Paid-In Translation Retained
Of Shares Value Capital Adjustment Earnings Total
---------- ---------- ---------- ---------- ---------- ----------
(Note D)
Balance at May 31, 1991 (Restated) $ 52,290 $ 1,190 $ 97,752 $ (241) $ 116,064 $ 214,765
Net income 38,481 38,481
Dividends paid (20,685) (20,685)
Sub S Corp. income 4,014 (4,014)
Sub S Corp. distributions (1,004) (1,004)
Stock option exercises 90 2 497 499
Business combinations 475 11 700 711
Translation adjustments 593 593
---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 1992 (Restated) 52,855 1,203 101,959 352 129,846 233,360
Net income 39,498 39,498
Dividends paid (63) (22,370) (22,433)
Sub S Corp. income 122 (122)
Sub S Corp. distributions (6,040) (6,040)
Stock option exercises 145 3 661 664
Amendment of Articles (125) (125)
Translation adjustments (1,025) (1,025)
---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 1993 (Restated) 53,000 1,206 96,514 (673) 146,852 243,899
Net income 52,640 52,640
Dividends paid (27,949) (27,949)
Sub S Corp. income 2,177 (2,177)
Sub S Corp. distributions (1,614) (1,614)
Stock option exercises 75 1 566 567
Conversion of debt 3,676 84 48,466 48,550
Translation adjustments (1,617) (1,617)
---------- ---------- ---------- ---------- ---------- ----------
Balance at May 31, 1994 $ 56,751 $ 1,291 $ 146,109 $ (2,290) $ 169,366 $ 314,476
========== ========== ========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
7
RPM, INC. AND SUBSIDIARIES
----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands except per share amounts)
Year Ended May 31
----------------------------------------------
1994 1993 1992
-------- -------- --------
(Restated) (Restated)
Cash Flows From Operating Activities:
Net income $ 52,640 $ 39,498 $ 38,481
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 25,905 22,283 20,436
Reduction in note receivable 600
Increase (decrease) in deferred
liabilities (916) (254) 761
(Earnings) loss of unconsolidated
affiliates (1,732) (2,303) (3,749)
Distribution from joint venture 1,220 1,000 1,000
Changes in assets and liabilities, net of ef-
fect from purchases and sales of businesses:
(Increase) in marketable securities (2,375) (316) (4,338)
(Increase) in accounts and notes
receivable (1,066) (8,112) (1,847)
(Increase) in inventory (2,195) (733) (2,113)
(Increase) in prepaid expenses and non-
current assets (7,198) (4,582) (2,206)
Increase (decrease) in accounts payable (9,985) 7,975 (1,121)
Increase (decrease) in accrued liabilities (2,034) 8,052 (68)
Other (781) (858) (216)
-------- -------- --------
51,483 61,650 45,620
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures (25,700) (18,320) (17,802)
Acquisition of new businesses, net of cash
acquired (4,094) (10,161) (125,307)
-------- -------- --------
(29,794) (28,481) (143,109)
-------- -------- --------
Cash Flows From Financing Activities:
Additions to long-term debt 72,320 147,496 204,102
Reductions of long-term debt and short-term
debt (69,528) (153,655) (77,059)
Cash dividends paid (30,126) (27,855) (21,804)
Exercise of stock options 567 664 499
Other 563 (1,282) (571)
-------- -------- --------
(26,204) (34,632) 105,167
-------- -------- --------
Net Increase (Decrease) in Cash (4,515) (1,463) 7,678
Cash at Beginning of Year 22,885 24,348 16,670
-------- -------- --------
Cash at End of Year $ 18,370 $ 22,885 $ 24,348
======== ======== ========
8
RPM, INC. AND SUBSIDIARIES
---------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
(In thousands except per share amounts)
Year Ended May 31
---------------------------------------------
1994 1993 1992
-------- -------- --------
(Restated) (Restated)
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 7,461 $ 13,646 $ 17,443
Income taxes 37,708 25,401 23,116
Supplemental Schedule of Non-cash Investing
and Financing Activities:
Conversion from debt to equity 48,550
Interest accreted on LYONs 7,812 4,999
Disclosure of accounting policy:
- - -------------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
See Notes to Consolidated Financial Statements.
9
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
(1) Principles of Consolidation
The consolidated financial statements include the accounts of
RPM, Inc. and its wholly owned domestic and foreign
subsidiaries. The Company accounts for its investment in less
than majority owned joint ventures under the equity method.
Intercompany accounts, transactions and unrealized profits and
losses are eliminated in consolidation.
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation.
(2) Business Combinations
On June 8, 1993, the Company acquired all the outstanding
shares of Dynatron/Bondo Corporation in exchange for 2,118,000
shares of the Company's common stock. Dynatron/Bondo
Corporation, located in Atlanta, Georgia, is a manufacturer of
auto and marine body filler and related products.
On October 26, 1993, the Company acquired all the outstanding
shares of Stonhard, Inc. in exchange for 3,560,000 shares of
the Company's common stock. Stonhard, Inc., located in Maple
Shade, New Jersey, is a manufacturer of polymer-based
floorings, linings and construction products.
Both acquisitions have been accounted for as poolings of
interests. Accordingly, historical financial data presented
in this report has been restated to include the accounts and
transactions of Dynatron/Bondo Corporation and Stonhard, Inc.
as though both were acquired as of June 1, 1991. The
following table reconciles combined net sales and net income
of the separate companies for the two years ended May 31, 1993
and the six months ended November 30, 1993:
Year Ended
June 1, 1993 May 31
Through --------------------------------
November 30, 1993 1993 1992
----------------- -------- --------
(In thousands)
Net Sales
---------
RPM, Inc. $336,902 $625,680 $552,092
Dynatron/Bondo 22,874 48,828 45,191
Stonhard, Inc. 51,814 93,864 82,808
-------- -------- --------
Combined $411,590 $768,372 $680,091
======== ======== ========
Net Income
----------
RPM, Inc. $ 25,066 $ 39,376 $ 34,467
Dynatron/Bondo 1,952 2,925 3,721
Stonhard, Inc. 2,177 (2,803) 293
-------- -------- --------
Combined $ 29,195 $ 39,498 $ 38,481
======== ======== ========
10
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- - ---------------------------------------------------
(2) Business Combinations - Continued
In addition, during the two year period ended May 31, 1994,
the Company completed several acquisitions accounted for by
the purchase method of accounting.
The difference of approximately $2,200,000 between the fair
value of net assets acquired and the primarily cash purchase
consideration of $14,300,000 has been allocated to goodwill.
The assets, liabilities and operating results of these
companies are reflected in the Company's financial statements
from their respective dates of acquisition forward.
The following data summarizes, on an unaudited pro-forma
basis, the combined results of operations of the Company and
the businesses acquired accounted for by the purchase method
of accounting for the year ended May 31, 1993. These
pro-forma amounts give effect to appropriate adjustments
resulting from the combination, but are not necessarily
indicative of future results of operations or of what results
would have been for the combined companies:
May 31, 1993
------------
(Unaudited)
(In thousands except
per share amounts)
Net Sales $775,121
========
Net Income $ 39,991
========
Earnings per common share and common
share equivalent $.75
====
Earnings per common share assuming
full dilution $.72
====
There were no significant acquisitions accounted for by the
purchase method of accounting during the year ended May 31,
1994, therefore pro-forma amounts are not presented.
(3) Foreign Currency
For the periods presented, assets and liabilities have been
translated using exchange rates prevailing at year end.
Income and expense for the periods have been translated using
an average exchange rate. The resulting translation
adjustments have been recorded in shareholders' equity and
will be included in net earnings only upon the sale or
liquidation of the underlying foreign investment, which is not
contemplated at this time. Transaction gains and losses have
been immaterial during the past three fiscal years.
(4) Marketable Securities
Marketable securities are included in the accompanying
consolidated balance sheets at cost, which approximates market.
11
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- - ---------------------------------------------------
(5) Inventories
Inventories are stated at the lower of cost or market, cost
being determined substantially on a first-in, first-out (FIFO)
basis and market being determined on the basis of replacement
cost or net realizable value. Inventory costs include raw
material, labor and manufacturing overhead. Inventories were
composed of the following major classes:
May 31
----------------------------------
1994 1993
-------- --------
(In thousands)
Raw material and supplies $ 45,286 $ 46,716
Finished goods 85,201 80,232
-------- --------
Total Inventory $130,487 $126,948
======== ========
(6) Depreciation
Depreciation is computed over the estimated useful lives of
the assets primarily using the straight-line method. The
annual depreciation rates are based on the following ranges of
useful lives:
Land improvements 5 to 25 years
Buildings and improvements 10 to 50 years
Machinery and equipment 3 to 20 years
(7) Income Taxes
The Company and its wholly owned domestic subsidiaries file a
consolidated federal income tax return. The tax effects of
transactions are recognized in the year in which they enter
into the determination of net income, regardless of when they
are recognized for tax purposes. As a result, income tax
expense differs from actual taxes payable. The accumulation
of these differences at May 31, 1994, is shown as a noncurrent
liability of $4,533,000 ($5,896,000 at May 31, 1993). The
Company does not intend to distribute the accumulated earnings
of consolidated foreign subsidiaries amounting to $22,234,000
at May 31, 1994, and $10,533,000 at May 31, 1993, and
therefore no provision has been made for the taxes which would
result if such earnings were remitted to the Company.
(8) Interest Expense, Net
Interest expense is shown net of investment income which
consists primarily of interest and dividends. Investment
income for the three years ended May 31, 1994 was $856,000,
$1,317,000 and $935,000, respectively.
(9) Research and Development
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amounts
charged for the three years ended May 31, 1994, were
$11,081,000, $9,952,000 and $9,119,000, respectively. The
customer sponsored portion of such expenditures was not
significant.
12
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE B - BORROWINGS
- - -------------------
May 31
----------------------------------
1994 1993
-------- --------
(In thousands)
A description of long-term debt follows:
$400 million face value at maturity Liquid Yield
Option Notes (LYONs) due 2012. The 5.25% LYONs
are zero coupon subordinated notes currently
convertible at $19.80 ($18.80 at May 31, 1993)
and are redeemable by the holder for the issu-
ance price plus accrued original issue discount
in September 1997, 2002 and 2007. There are
7,813,000 shares reserved for the conversion
of this debt. $154,695 $146,883
Revolving credit agreement for $55,000,000 with
a bank through November 1, 1996 (refinanced in
June 1994). Interest, which is tied to one of
various rates, averaged 4.73% at May 31, 1994. 45,000 -
Debt of pooled entity subsequently refinanced
with proceeds from credit agreement described
above. - 36,995
Multi-currency revolving credit agreement for
$30,000,000 (with a 20% currency fluctuation
provision) with a bank through December 14, 1996,
representing a refinancing of a similar agree-
ment at May 31, 1993. Interest, which is tied
to one of various rates, is 5.61% on the
$15,157,257 Dutch Guilder component and 5.75%
on the $15,575,000 Belgian Franc component at
May 31, 1994. 30,732 22,117
6.75% Convertible Subordinated Debenture Euro-
bond Issue converted subsequent to May 31, 1993. - 50,000
Non-interest bearing notes payable in Belgian
Francs to former shareholders of a subsidiary
paid in June 1993 and March 1994. - 18,408
Other notes and mortgages payable at various
rates of interest due in installments through
2005, substantially secured by property. 3,808 5,571
-------- --------
234,235 279,974
Less current portion 1,196 21,262
-------- --------
Total long-term debt, less current maturities $233,039 $258,712
======== ========
Additionally, at May 31, 1994, the Company had an unused short-term line of
credit with a bank for $15,000,000.
The aggregate maturities of long-term debt for the five years subsequent to
May 31, 1994, are as follows: 1995 - $1,196,000; 1996 - $564,000; 1997 -
$31,195,000; 1998 - $45,430,000; 1994 - $424,000.
13
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE C - TAXES
- - --------------
The provision for taxes on income includes the following:
Year Ended May 31
------------------------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
Federal income tax rate of 35% in 1994,
34% in 1993 and 1992, applied to
income before taxes $ 30,833 $ 22,486 $ 20,774
Increase (decrease) in taxes resulting
from:
Tax credits (439) (275) (222)
State and local taxes - net of federal
income tax benefit 3,705 3,326 2,434
Foreign taxes in excess of U.S. Federal
tax rate 1,282 870 118
Permanent differences between tax and
book basis, related to acquisitions 1,093 939 913
Difference between tax and book income,
related to pooled entities (1,137) (153) (1,463)
All other items, none of which exceed
5% of computed tax 117 (555) 66
-------- -------- --------
Actual tax expense $ 35,454 $ 26,638 $ 22,620
======== ======== ========
Actual tax rate 40.25% 40.27% 37.02%
====== ====== ======
The provision for income taxes consists of the following:
Current
Federal $ 24,674 $ 19,358 $ 17,116
State 5,700 5,040 3,688
Foreign 3,717 2,745 1,284
-------- -------- --------
34,091 27,143 22,088
Deferred
Federal 2,059 (493) 516
Foreign (696) (12) 16
-------- -------- --------
Actual tax expense $ 35,454 $ 26,638 $ 22,620
======== ======== ========
Deferred income taxes result from timing differences in the recognition
of revenue and expense for book and tax purposes, primarily from the tax
timing differences of accelerated depreciation.
14
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE D - COMMON SHARES
- - ----------------------
There are 100,000,000 common shares authorized with a stated value of
$.023 per share. At May 31, 1994 and 1993, there were 56,751,000 and
53,000,000 shares outstanding respectively, each of which is entitled to
one vote. See Consolidated Statements of Shareholders' Equity for more
information. Share data for May 31, 1993 and May 31, 1992, has been
restated to reflect the acquisitions of Dynatron/Bondo Corporation and
Stonhard, Inc. in which 5,678,000 common shares were exchanged for all
of the outstanding shares of the acquired companies in transactions
accounted for as poolings of interests.
Earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding during each year
(56,717,000 in 1994, 53,267,000 in 1993 and 52,790,000 in 1992). In
computing such average number of shares outstanding, the number of
common shares was increased by common stock options with exercisable
prices lower than the average market prices of common shares during each
year and reduced by the number of shares assumed to have been purchased
with the proceeds from the exercise of the options.
The Company has options outstanding under two stock option plans, the
1979 Nonqualified Stock Option Plan, which, prior to its expiration in
September 1989, provided for the granting of options for up to 1,683,000
shares, and the 1989 Stock Option Plan, which provides for the granting
of options for up to 2,813,000 shares at a price equal to the fair
market value at the date of grant. These options are exercisable
cumulatively in equal annual installments commencing one year from the
grant date and have expiration dates ranging from February 1996 to
October 2003. At May 31, 1994, 1,795,000 shares (2,051,000 at May 31,
1993) were available for future grant.
Transactions during the two years are summarized as follows:
Shares Under Option
---------------------------
1994 1993
-------- ---------
(In thousands)
Outstanding, beginning of year 1,084 1,070
Granted during the year 256 267
Expired during the year (4) (32)
Exercised during the year (at prices
ranging from $3.84 to $16.66 per share) (84) (221)
-------- --------
Outstanding, end of year (at an average
price of $12.99 ranging from $3.84 to
$18.00 per share) 1,252 1,084
======== ========
Exercisable, end of year (at an average
price of $10.35 ranging from $3.84 to
$16.67 per share) 656 526
======== ========
15
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE E - INTANGIBLES
- - --------------------
The excess of cost over the underlying value of the net assets of
companies acquired is being amortized on the straight-line basis,
primarily over forty years. Amortization expense charged to operations
for the three years ended May 31, 1994 was $3,688,000, $3,265,000 and
$3,070,000, respectively. Cost of businesses over net assets acquired
is shown net of accumulated amortization of $20,007,000 at May 31, 1994
($16,316,000 at May 31, 1993).
The cost of formulas, trademarks and other intangibles acquired are
being amortized on the straight-line basis over their estimated lives,
ranging generally from ten to forty years. Amortization expense charged
to operations for the three years ended May 31, 1994, was $1,142,000,
$1,960,000 and $1,596,000, respectively. Intangibles are shown net of
accumulated amortization of $7,859,000 at May 31, 1994 ($7,585,000 at
May 31, 1993).
NOTE F - LEASES
- - ---------------
At May 31, 1994, certain property, plant and equipment were leased by
the Company under long-term leases. Certain of these leases provide for
increased rental based upon an increase in the cost-of-living index.
Future minimum lease commitments as of May 31, 1994, for all
noncancellable leases are as follows:
May 31 (In thousands)
------ --------------
1995 $ 3,708
1996 2,808
1997 2,294
1998 1,664
1999 677
Thereafter -
--------
Total minimum lease commitments $ 11,151
========
Rental expenses for all operating leases totalled $5,873,000 in 1994,
$5,777,000 in 1993 and $5,290,000 in 1992. Capitalized leases were
insignificant for the three year period ended May 31, 1994.
NOTE G - RETIREMENT PLANS
- - -------------------------
To provide uniform retirement income for its non-union employees, the
Company has a defined benefit retirement plan in which substantially all
non-union employees participate. The Retirement Plan is a
non-contributory plan fully paid for by the Company, with accrued
benefits vesting after five years of service. This plan provides
benefits that are based on years of service and average compensation.
Benefits for union employees are provided by separate plans and are
generally based on years of service. The Company's funding policy is to
contribute annually an amount that can be deducted for federal income
tax purposes using a different actuarial cost method and different
assumptions from these used for financial reporting.
16
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993, AND 1992
----------------------------
NOTE G - RETIREMENT PLANS - Continued
- - -------------------------
The net periodic pension cost for the three years ended May 31, 1994,
included the following components:
1994 1993 1992
-------- -------- --------
(In thousands)
Service cost - Benefits earned during
the period $ 2,750 $ 2,087 $ 2,370
Interest cost on projected benefit
obligations 2,171 1,919 1,408
Actual return on plan assets (1,678) (1,783) (954)
Net amortization and deferral (514) 536 103
-------- -------- --------
Net pension cost $ 2,729 $ 2,759 $ 2,927
======== ======== ========
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations were 7.5% (8.5% for May 31, 1993) and 5%, respectively. The
expected long-term rate of return on assets was 8.5% (8.0% for May 31,
1993 and 1992). The plans' assets consist primarily of stocks, bonds
and fixed income securities.
The following table sets forth the funded status of the Company's
pension plans and the amounts reflected in the accompanying balance
sheets:
May 31
----------------------------
1994 1993
-------- -------
(In thousands)
Actuarial present value of projected benefit
obligation:
Vested employees $ 22,174 $ 16,398
Nonvested employees 1,223 1,053
-------- --------
Accumulated benefit obligation 23,397 17,451
Additional amount related to projected
salary increases 7,530 5,195
-------- --------
Total projected benefit obligation 30,927 22,646
Funded assets at fair value 24,003 24,523
-------- --------
Projected benefit obligation less than (in
excess of) assets (6,924) 1,877
Unamortized net (asset) existing at date of
adoption (657) (727)
Unrecognized prior service cost 1,477 1,278
Unrecognized net loss 5,511 14
-------- --------
Prepaid (accrued) pension cost $ (593) $ 2,442
======== ========
Some subsidiaries have non-contributory, qualified defined contribution
plans and other subsidiaries contribute to multi-employer plans for
their collective bargaining groups. Contributions to these plans were
immaterial for the three year period ended May 31, 1994. In addition,
the Company maintains a non-contributory 401(K) Plan for substantially
all non-union employees in the United States.
17
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE H - POSTRETIREMENT HEALTH CARE BENEFITS
- - --------------------------------------------
In addition to the defined benefit pension plan, the Company also
provides health care benefits to certain of its retired employees
through unfunded plans. Employees become eligible for these benefits if
they meet minimum age and service requirements. The Company elected to
recognize its transition obligation upon adoption of SFAS No. 106 in
1993. The components of this expense for the years ended May 31, 1994
and May 31, 1993 were as follows:
1994 1993
-------- --------
(In thousands)
Immediate recognition of transition
obligation $ - $ 1,091
Service cost - Benefits earned during
the period - 10
Interest cost on the accumulated obligation 199 199
-------- --------
Net periodic postretirement expense $ 199 $ 1,300
======== ========
The accumulated postretirement obligation recognized in the May 31, 1994 and May 31, 1993 balance sheets are comprised of
the following components:
Current retirees $ 2,314 $ 2,222
Future retirees 282 356
-------- --------
Accumulated postretirement benefit
obligation $ 2,596 $ 2,578
======== ========
An 8% discount rate was used in determining the accumulated
postretirement benefit obligation. A 13% increase in the cost of
covered health care benefits was assumed for fiscal 1994. This rate is
assumed to decrease incrementally to 6% after several years and remain
at that level thereafter except for various union plans which will cap
at alternate benefit levels. An 1% increase in the health care costs
trend rate would have increased the accumulated postretirement benefit
obligation as of May 31, 1994 by $151,000 and the net postretirement
expense by $12,000.
NOTE I - CONTINGENCIES
- - ----------------------
The Company is a party to various legal and environmental actions which
have arisen in the ordinary course of business. Environmental
expenditures caused by current or past operations are expensed while
expenditures relating to future operations are capitalized. The Company
records liabilities when costs are probable and can be reasonably
estimated. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
18
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE J - INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
- - ---------------------------------------------------------
The Company operates principally in one business segment -- the
manufacture and sale of protective coatings.
Information concerning the Company's operations in different
geographical areas of the Company's business at May 31, 1994, 1993 and
1992 and for the years then ended is summarized as follows:
Other
United European Foreign Corporate
States Operations Operations Office Total
-------- ---------- ---------- --------- ----------
(In thousands)
Net Sales
- - ---------
May 31, 1994 $714,968 $ 71,912 $ 28,718 $815,598
May 31, 1993 659,795 77,628 30,949 768,372
May 31, 1992 597,398 53,778 28,915 680,091
Net Income
- - ----------
May 31, 1994 60,805 502 80 $ (8,747) 52,640
May 31, 1993 51,628 (2,938) (1,242) (7,950) 39,498
May 31, 1992 47,089 (1,118) 240 (7,730) 38,481
Assets Employed
- - ---------------
May 31, 1994 494,541 112,545 15,899 37,853 660,838
May 31, 1993 497,290 96,933 14,828 39,473 648,524
May 31, 1992 479,786 93,019 16,222 34,319 623,346
The above sales do not include approximately $83,000,000 of product
sales through joint ventures and licensees worldwide.
Export sales were less than 10% of total consolidated revenue for each
of the three years.
19
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE K - INTERIM FINANCIAL INFORMATION (Unaudited)
- - --------------------------------------
The following is a summary of the unaudited quarterly results of
operations for the years ended May 31, 1994 and 1993:
Three Months Ended
------------------------------------------------
August 31 November 30 February 28 May 31
--------- ----------- ----------- --------
(In thousands except per share amounts)
1994
----
Net Sales $209,347 $202,243 $186,562 $217,446
-------- -------- -------- --------
Gross Profit 89,514 84,777 75,437 89,724
-------- -------- -------- --------
Net Income 15,262 13,933 6,565 16,880
-------- -------- -------- --------
Primary Earnings Per
Share $.27 $.25 $.12 $.30
==== ==== ==== ====
Fully Diluted Earnings
Per Share $.25 $.23 $.12 $.28
==== ==== ==== ====
1993
----
Net Sales $202,871 $184,736 $177,085 $203,680
-------- -------- -------- --------
Gross Profit 84,070 77,471 71,714 87,038
-------- -------- -------- --------
Net Income 12,484 9,629 3,039 14,346
-------- -------- -------- --------
Primary Earnings Per
Share $.23 $.18 $.06 $.27
==== ==== ==== ====
Fully Diluted Earnings
Per Share $.22 $.18 $.06 $.25
==== ==== ==== ====
<FN>
The computation of fully diluted earnings per share reflects
additional shares issuable assuming conversion of convertible securities.
Quarterly earnings per share do not total to the earnings per share
due to the weighted average number of shares outstanding in each
quarter.
20
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1994, 1993 AND 1992
---------------------------
NOTE L - SUBSEQUENT EVENTS
- - --------------------------
On June 28, 1994, the Company acquired all the outstanding shares of
Rust-Oleum Corporation for $176,500,000 in cash. Rust-Oleum
manufactures and markets primarily rust-preventative coatings for the
consumer market. This acquisition will be accounted for by the
purchase method of accounting and the difference of $85,000,000
between the fair value of net assets acquired and the purchase
consideration will be allocated to goodwill. The Company's financial
statements will reflect the assets, liabilities and operating results
of Rust-Oleum from the date of acquisition forward.
Pro-forma amounts as if Rust-Oleum had been acquired on June 1, 1992,
are as follows:
Year Ended May 31
------------------------------
1994 1993
-------- --------
(Unaudited)
(In thousands except per
share amounts)
Net Sales $955,845 $900,730
======== ========
Net Income $ 49,615 $ 33,419
======== ========
Earnings per common share and common
share equivalent $.87 $.63
==== ====
Earnings per common share assuming
full dilution $.84 $.62
==== ====
Financing for the above acquisition, as well as the refinancing of
certain other debt including the $45,000,000 revolving credit
agreement discussed in Note B, is in the form of a $300,000,000
revolving credit agreement with nine banks dated June 28, 1994.
21
EXHIBIT 99.5
RPM, INC.
---------
ANNUAL REPORT ON FORM 10-K
--------------------------
FOR THE FISCAL YEAR ENDED MAY 31, 1994
--------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
22
6364 Pearl Road
Ciulla Stephens & Co. Cleveland, Ohio 44130
- - -----------------------------------------------------------------------------
Certified Public Accountants (216) 884-2036
Report of Independent Public Accountants
----------------------------------------
In connection with our examination of the consolidated financial statements
of RPM, Inc. and Subsidiaries at May 31, 1994 and May 31, 1993, and for each
of the three years in the period ended May 31, 1994 which report thereon
dated July 8, 1994 is incorporated by reference in this Annual Report
on Form 10-K, we also examined the financial statement schedules listed in the
accompanying index at Item 14(a)(2). In our opinion, these financial statement
schedules present fairly, when read in conjunction with the related
consolidated financial statements, the financial data required to be set forth
therein.
Cleveland, Ohio
July 8, 1994
23
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Schedule VIII
----------------------------------------------
(In thousands)
Additions
Charged To
Balance at Selling and Balance at
Beginning General and End
0f Period Administrative Acquisitions Deductions of Period
----------- ------------------ ---------------- --------------- --------------
Year Ended May 31, 1994
- - ------------------------
Allowance for doubtful accounts $ 6,901 $ 4,184 $ 70 $ 3,007(1) $ 8,148
======== ======== ========== ========= ==========
Accrued warranty and loss reserves $ 13,753 $ 7,312 $ $ 8,087(2) $ 12,978
======== ======== ========== ========= ==========
Year Ended May 31, 1993
- - -----------------------
Allowance for doubtful accounts $ 5,586 $ 4,535 $ 192 $ 3,412(1) $ 6,901
======== ======== ========== ========= ==========
Accrued warranty and loss reserves $ 11,582 $ 5,704 $ 460 $ 3,993(2) $ 13,753
======== ======== ========== ========= ==========
Year Ended May 31, 1992
- - -----------------------
Allowance for doubtful accounts $ 3,801 $ 3,731 $ 777 $ 2,723(1) $ 5,586
======== ======== ========== ========= ==========
Accrued warranty and loss reserves $ 4,214 $ 6,983 $ 1,729 $ 1,344(2) $ 11,582
======== ======== ========== ========= ==========
<FN>
(1) Uncollectible accounts written off, net of recoveries
(2) Claims paid during the year
24
RPM, INC. AND SUBSIDIARIES
--------------------------
SHORT-TERM BORROWINGS Schedule IX
---------------------
(In thousands)
Maximum Average Weighted
Amount Amount Average
Balance Weighted Outstanding Outstanding Interest
Category of Aggregate At End Average During During Rate During
Short-Term Borrowings Of Period Interest Rate The Period The Period The Period
- - ---------------------------- ----------- --------------- ---------------- -------------- -------------
(A) (B)
May 31, 1994
- - -----------------
Notes payable to banks None None $ 4,000 $ 1,025 4.1%
May 31, 1993
- - -----------------
Notes payable to banks $ 3,200 4.0% $ 9,000 $ 1,808 4.5%
May 31, 1992
- - ------------------
Notes payable to banks None None None None None
<FN>
Note A: Average amount outstanding during the period is computed by dividing
the total of mid-month outstanding principle balances by 365.
Note B: Average interest rate for the year is computed by dividing actual
short-term interest expense by the average short-term debt outstanding.
25
RPM, INC. AND SUBSIDIARIES
---------------------------
SUPPLEMENTAL INCOME STATEMENT INFORMATION Schedule X
-----------------------------------------
(In thousands)
For The Year Ended May 31
------------------------------
1994 1993 1992
---- ---- ----
1. Maintenance and repairs A A A
2. Amortization of intangible assets A A A
3. Taxes, other than payroll and income A A A
4. Royalties A A A
5. Advertising costs $8,137 $7,845 $6,458
<FN>
A: Amounts not presented are less than 1% of net sales.