1
Page 1 of 11
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- - --- Act of 1934 for the quarterly period ended August 31, 1994 or
----------------------------------------------
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- - --- Exchange Act of 1934 for the transition period from _________to_________.
Commission File No. 0-5132
------
RPM, INC.
- - ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-6550857
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 777; 2628 Pearl Road; Medina, Ohio 44258
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (216) 273-5090
- - ------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days.
Yes x No
----- -----
As of October 1, 1994, 56,778,327 RPM, Inc. Common Shares were outstanding.
Exhibit Index on Page 10 of 13 pages.
2
2
RPM, INC. AND SUBSIDIARIES
--------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
------------------------------ --------
Consolidated Balance Sheets
August 31, 1994 and May 31, 1994 3
Consolidated Statements of Income
Three Months Ended August 31, 1994 and 1993 4
Consolidated Statements of Cash Flows
Three Months Ended August 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
Exhibit XI - Consolidated Statements of Computations
of Earnings Per Common Share and Common Share
Equivalents 9
PART II. OTHER INFORMATION 10 - 11
3
3
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except per share amounts)
ASSETS
August 31, 1994 May 31, 1994
--------------- ---------------
(Unaudited)
Current Assets:
Cash $47,494 $18,370
Marketable securities, at cost 9,155 7,029
Trade accounts receivable (less allowance for doubt-
ful accounts $10,586 and $8,148) 197,511 162,256
Inventories 148,770 130,487
Prepaid expenses 15,587 16,388
--------------- ---------------
Total current assets 418,517 334,530
--------------- ---------------
Property, Plant and Equipment, At Cost 340,802 263,194
Less: accumulated depreciation and amortization 146,312 112,160
--------------- ---------------
Property, plant and equipment, net 194,490 151,034
--------------- ---------------
Other Assets
Costs of businesses over net assets acquired 156,040 111,598
Intangible assets 164,184 25,328
Equity in unconsolidated affiliates 13,273 12,509
Other 24,743 25,839
--------------- ---------------
Total other assets 358,240 175,274
--------------- ---------------
Total Assets $971,247 $660,838
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $1,024 $1,196
Accounts payable 55,316 49,109
Accrued compensation and benefits 33,608 24,492
Accrued warranty and loss reserves 20,095 12,978
Other accrued liabilities 22,925 18,042
Income taxes payable 13,075 1,719
--------------- ---------------
Total current liabilities 146,043 107,536
--------------- ---------------
Long term and deferred liabilities
Long term debt, less current maturities 435,202 233,039
Deferred income taxes and other 63,223 5,787
--------------- ---------------
Total long term and deferred liabilities 498,425 238,826
--------------- ---------------
Shareholders' Equity
Common shares, stated value $.023 per share;
authorized 100,000,000 shares;
issued and outstanding 56,773,000
and 56,751,000 shares, respectively 1,291 1,291
Paid-in capital 146,195 146,109
Retained earnings 180,377 169,366
Cumulative translation adjustment (1,084) (2,290)
--------------- ---------------
Total shareholders' equity 326,779 314,476
--------------- ---------------
Total Liabilities And Shareholders' Equity $971,247 $660,838
=============== ===============
<FN>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
4
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
-----------------------------
1993
1994 (Restated)
--------- ---------
Net Sales $253,497 $209,347
Cost of Sales 146,524 119,833
--------- ---------
Gross Profit 106,973 89,514
Selling, General and Administrative Expenses 70,163 59,238
Interest Expense, Net 4,826 3,629
--------- ---------
Income Before Income Taxes 31,984 26,647
Provision for Income Taxes 13,593 11,385
--------- ---------
Net Income $18,391 $15,262
========= =========
Earnings per common share and common share
equivalent (Exhibit XI) $0.32 $0.27
========= =========
Earnings per common share assuming full
dilution (Exhibit XI) $0.30 $0.25
========= =========
Dividends per common share $0.13 $0.12
========= =========
<FN>
Data for August 1993 has been restated to reflect the acquisition of Stonhard,
Inc. on October 26, 1993, accounted for as a pooling of interests.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
5
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
-----------------------------
1993
1994 (Restated)
----------- -----------
Cash Flows From Operating Activities:
Net Income $18,391 $15,262
Items not affecting cash and other 2,404 3,754
Changes in operating working capital 12,714 (7,573)
----------- -----------
33,509 11,443
----------- -----------
Cash Flows From Investing Activities:
Additions to property and equipment (6,193) (7,332)
Acquisition of new business, net of cash (173,061) 0
----------- -----------
(179,254) (7,332)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from stock option exercises 86 22
Increase (decrease) in debt 182,163 1,367
Dividends (7,380) (6,287)
----------- -----------
174,869 (4,898)
----------- -----------
Net Increase (Decrease) in Cash 29,124 (787)
Cash at Beginning of Period 18,370 22,885
----------- -----------
Cash at End of Period $47,494 $22,098
=========== ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
- - ---------------------------------------------------------------------
Conversion of Debt to Equity $51,608
Interest Accreted on LYONs $2,013 $1,911
<FN>
Data for August 1993 has been restated to reflect the acquistion of Stonhard,
Inc. on October 26, 1993, accounted for as a pooling of interests.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
6
6
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AUGUST 31, 1994
---------------
(Unaudited)
( In thousands, except per share amounts)
NOTE A - BASIS OF PRESENTATION
- - ------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal, recurring accruals)
considered necessary for a fair presentation have been included for
the three months ended August 31, 1994 and August 31, 1993. For
further information, refer to the consolidated financial statements
and notes included in the Company's Annual Report on Form 10-K for the
year ended May 31, 1994.
NOTE B - INVENTORIES
- - --------------------
Inventories were composed of the following major classes:
August 31, 1994(1) May 31, 1994
--------------- ------------
Raw material and supplies $51,631 $45,286
Finished goods 97,139 85,201
-------- --------
$148,770 $130,487
======== ========
<FN>
(1) Estimated, based on components at May 31, 1994
NOTE C - ACQUISITIONS
- - ---------------------
In June 1994, the Company acquired all the outstanding shares of
Rust-Oleum Corporation in a transaction accounted for by the purchase
method of accounting. The following data summarizes, on an unaudited
pro-forma basis, the combined results of operations of the Company for
the three months ended August 31, 1994 and August 31, 1993. The
pro-forma amounts give effect to appropriate adjustments resulting
from the combination, but are not necessarily indicative of future
results of operations or of what results would have been for the
combined companies.
Three Months Ended August 31, August 31,
------------------ 1994 1993
--------------------------
Net Sales $270,586 $251,155
======== ========
Net Income $ 19,629 $ 12,896
======== ========
Earnings per common share and common
share equivalent $.34 $.23
==== ====
Earnings per common share assuming
full dilution $.32 $.22
==== ====
7
7
RPM, INC. AND SUBSIDIARIES
--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
THREE MONTHS ENDED AUGUST 31, 1994
----------------------------------
RESULTS OF OPERATIONS
- - ---------------------
During the first quarter, the Company's sales and earnings both
advanced 21% from the prior year's first quarter results. On June 28,
1994, the Company acquired Rust-Oleum Corporation, the leading North
American producer of consumer rust-preventative coatings. This
acquisition accounted for 61% or $26.8 million of the $44.2 million
sales increase. Core businesses generated the remaining $17.4 million
or 39% of the sales growth principally from higher unit volume and
product line additions as pricing adjustments continue to be
relatively minor and infrequent. Exchange rate differences had a
negligible effect on sales from quarter to quarter.
The gross profit margin declined to 42.2% from 42.8% a year ago. The
benefits of increased volume and Rust-Oleum's higher than average
gross profit margin were more than offset by certain shifts in product
mix and a number of raw material and packaging cost increases.
Management feels that these cost increases will be effectively negated
through other raw material cost decreases, coordinated purchasing
power of significant materials, and pricing adjustments where
necessary.
Selling, general and administrative expenses improved to 27.7% of
sales from 28.3% primarily as a result of the product mix changes.
Higher sales volume and expense reductions had additional favorable
effects on this category, all partly offset by acquisition expenses
associated with Rust-Oleum Corporation.
Interest expense increased $1.2 million as a result of increased debt
associated with the acquisition of Rust-Oleum Corporation, partly
offset by lower rate refinancing of debt assumed through the October
1993 Stonhard acquisition and the Company's conversion of its $50
million 6.75% Convertible Subordinated Eurobond Debentures due 2005,
completed by the end of July 1993.
The provision for income taxes was comparable as a percentage of
pre-tax income during both periods and net income margins were equal
at 7.3% of sales. Rust-Oleum Corporation operations contributed to
first quarter earnings after covering aquisition related expenses.
Rust-Oleum's strongest anticipated financial impact is during the
Company's first and fourth quarters, with weaker periods during the
middle of the fiscal year.
8
8
CAPITAL RESOURCES AND LIQUIDITY
- - -------------------------------
CASH PROVIDED FROM OPERATIONS
Cash flow from operations continues to be the primary source of
financing the Company's internal growth. The Company generated cash
from operations of $33.5 million for the current quarter, up $22.1
million from the same quarter last year.
The additional cash generated from operations this year was due to
higher net income and the timing of payables and accrued expenses
among the core businesses ($10 million), plus $11.5 million from
seasonal reductions in Rust-Oleum's receivables and inventory.
INVESTING ACTIVITIES
The Company invested $173.1 million, net of cash acquired, in the
purchase of Rust-Oleum Corporation.
The Company's capital expenditures generally do not exceed
depreciation and amortization in a given year.
FINANCING ACTIVITIES
In conjunction with the acquisition of Rust-Oleum Corporation, the
Company negotiated a $300 million revolving credit agreement. At the
time of acquisition, $186 million was used to finance the purchase,
including fees and assumption of $8 million of Rust-Oleum's long term
debt. In addition, $47 million was used to refinance the outstanding
balance of the $55 million revolving credit agreement negotiated in
October 1993. The new credit agreement had a balance outstanding on
August 31, 1994 of $233 million. As a result of this recent financing
activity, the long term debt ratio increased to 57% from 43% at May
31, 1994.
Subsequent to August 31, 1994, the Company increased its
multi-currency revolving credit facility to $45 million from $30
million. Approximately $10 million of this increase was used by
foreign subsidiaries to retire intercompany debt owed to domestic
operations. These funds will in turn be used to reduce the $233
million balance in the domestic revolver.
Working capital increased to $272.5 million from $227.0 million on May
31, 1994, with $26.6 million of this increase attributable to
Rust-Oleum. With a current ratio of 2.2:1, Rust-Oleum also caused
most of the Company's current ratio decline to 2.9:1 from 3.1:1 during
the quarter.
The Company maintains excellent relations with its banks and other
financial institutions to further enable the financing of future
growth opportunities.
9
9
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
---------------------------------------------------
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
---------------------------------------------
(Unaudited)
Exhibit XI
----------
(In thousands, except per share amounts)
Three Months Ended August 31,
-----------------------------
1993
1994 (Restated)
----------- -----------
Shares Outstanding
For computation of primary earnings per
common share
Weighted average shares 56,768 55,345
Net issuable common share equivalents 309 365
----------- -----------
Total shares for primary earnings
per share 57,077 55,710
For computation of fully-diluted earnings
per common share
Additional shares issuable assuming
conversion of convertible securities 7,813 9,147
Additional common shares equivalents;
ending market value higher than
average market value 14 0
----------- -----------
Total shares for fully-diluted
earnings per share 64,904 64,857
=========== ===========
Net Income
- - ----------
Net income applicable to common shares for
primary earnings per share $18,391 $15,262
Add back interest net of tax on convertible
securities assumed to be converted 1,157 1,275
----------- -----------
Net income applicable to common shares for
fully-diluted earnings $19,548 $16,537
=========== ===========
Earnings Per Common Share and Common Share
Equivalents $.32 $.27
==== ====
Earnings Per Common Share Assuming Full
Dilution $.30 $.25
==== ====
<FN>
Data for August 1993 has been restated to reflect the acquisition of Stonhard, Inc. on October 26, 1993,
accounted for as a pooling of interests.
10
10
ITEM 3 -- LEGAL PROCEEDINGS
- - ---------------------------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, Bondex International, Inc., a
wholly-owned subsidiary of the Company ("Bondex"), is one of numerous other
corporate defendants in 340 pending asbestos-related bodily injury lawsuits
filed on behalf of various individuals in various jurisdictions of the United
States. Subsequently, an additional 44 such cases have been filed, and two
have been dismissed (one without payment and one with nominal payment based on
nuisance value). Further, stipulations of dismissal without payment in 67
lawsuits have been voluntarily executed by plaintiffs' counsel and submitted to
the Superior Court, Middlesex County, New Jersey, for dismissal entry. Upon
entry, 315 cases will remain pending. Bondex continues to deny liability in
all asbestos-related lawsuits and continues to vigorously defend them. Under a
cost-sharing agreement among Bondex and its insurers effected in February,
1994, the insurers are responsible for payment of a substantial portion of
defense costs and indemnity payments, if any, with Bondex responsible for a
minor portion of each.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
- - ------------------------------------------
(a) Exhibits
--------
Official Exhibit Sequential
Number Description Page Number
---------------- ------------------- -----------
XI Statement regarding 9
computation of per
share earnings
(b) Reports on Form 8-K
-------------------
During the first fiscal quarter ended August 31,
1994, the registrant filed one Current Report on Form
8-K, dated June 28, 1994, pursuant to Items 5 and 7
in connection with the Rust-Oleum Corporation
acquisition.
11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RPM INC.
By THOMAS C. SULLIVAN
------------------
Thomas C. Sullivan,
Chairman & Chief
Executive Officer
By FRANK C. SULLIVAN
-----------------
Frank C. Sullivan
Chief Financial Officer
Date: October 14, 1994