1
EXHIBIT 99.4
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
MAY 31, 1995
------------
2
Independent Auditor's Report
----------------------------
To Board of Directors and
Shareholders
RPM, Inc. and Subsidiaries
Medina, Ohio
We have audited the accompanying consolidated balance sheets of RPM, Inc. and
Subsidiaries as of May 31, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three year period ended May
31, 1995, in conformity with generally accepted accounting principles.
/s/ Ciulla Stephens & Co.
_______________________________
Ciulla Stephens & Co.
Cleveland, Ohio
July 7, 1995
3
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands except per share amounts)
ASSETS
------
May 31
----------------------------
1995 1994
-------- --------
Current Assets
Cash and short-term cash investments $ 19,870 $ 18,370
Marketable securities, at cost (Note A) 8,132 7,029
Trade accounts receivable (less allowances
of $9,616 in 1995 and $8,148 in 1994) 207,509 162,256
Inventories (Note A) 169,154 130,487
Prepaid expenses and other current assets 16,637 16,388
-------- --------
Total current assets 421,302 334,530
-------- --------
Property, Plant and Equipment, At Cost (Note A)
Land 18,868 14,677
Buildings and leasehold improvements 131,178 96,019
Machinery and equipment 210,660 152,498
-------- --------
360,706 263,194
Less allowance for depreciation and
amortization 156,657 112,160
-------- --------
Property, plant and equipment, net 204,049 151,034
-------- --------
Other Assets
Cost of businesses over net assets acquired,
net of amortization (Note E) 211,781 111,598
Other intangible assets, net of amortization
(Note E) 85,375 25,328
Equity in unconsolidated affiliates 14,857 12,509
Other 21,776 25,839
-------- --------
Total other assets 333,789 175,274
-------- --------
Total Assets $959,140 $660,838
======== ========
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
----------------------------
1995 1994
-------- --------
Current Liabilities
Accounts payable $ 70,207 $ 50,737
Current portion of long-term debt (Note B) 643 1,196
Accrued compensation and benefits 29,932 20,458
Accrued warranty and loss reserves 23,897 12,978
Other accrued liabilities 20,309 16,930
Income taxes payable (Notes A and C) 6,088 1,719
-------- --------
Total current liabilities 151,076 104,018
Long-Term Liabilities
Long-term debt, less current maturities (Note B) 406,375 233,039
Other long-term liabilities 14,405 4,772
Deferred income taxes (Notes A and C) 39,693 4,533
-------- --------
Total liabilities 611,549 346,362
-------- --------
Shareholders' Equity
Common shares, stated value $.023 per
share; authorized 100,000,000 shares,
issued and outstanding 56,957,000;
56,751,000 in 1994 (Note D) 1,296 1,291
Paid-in capital 146,509 146,109
Cumulative translation adjustment (Note A) 580 (2,290)
Retained earnings 199,206 169,366
-------- --------
Total shareholders' equity 347,591 314,476
-------- --------
Total Liabilities and Shareholders' Equity $959,140 $660,838
======== ========
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
---------------------------------------------------
1995 1994 1993
---------- -------- --------
Net Sales $1,016,954 $815,598 $768,372
Cost of Sales 581,246 476,146 448,079
---------- -------- --------
Gross Profit 435,708 339,452 320,293
Selling, General and Administrative
Expenses 305,429 237,931 236,955
Interest Expense, Net 23,422 13,427 17,202
---------- -------- --------
Income Before Income Taxes 106,857 88,094 66,136
Provision for Income Taxes (Note C) 45,758 35,454 26,638
---------- -------- --------
Net Income $ 61,099 $ 52,640 $ 39,498
========== ======== ========
Average shares outstanding (Note D) 57,243 56,717 53,267
========== ======== ========
Earnings per common share and common
share equivalents (Note D) $1.07 $.93 $.74
===== ==== ====
Earnings per common share assuming
full dilution (Note D) $1.01 $.89 $.72
===== ==== ====
Cash dividends per common share $.55 $.51 $.47
==== ==== ====
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, 1992 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 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
Net income 61,099 61,099
Dividends paid (31,259) (31,259)
Business combinations 108 3 ( 252) ( 249)
Stock option exercises 98 2 652 654
Translation adjustments 2,870 2,870
-------- -------- -------- -------- ---------- --------
Balance at May 31, 1995 56,957 $ 1,296 $146,509 $ 580 $199,206 $347,591
======== ======== ======== ======== ======== ========
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
------------------------------------------
1995 1994 1993
-------- -------- --------
Cash Flows From Operating Activities:
Net income $ 61,099 $ 52,640 $ 39,498
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 36,946 25,905 22,283
Increase (decrease) in deferred liabilities ( 697) ( 916) ( 254)
(Earnings) loss of unconsolidated affiliates ( 2,638) ( 1,732) ( 2,303)
Distribution from joint venture 1,000 1,220 1,000
Changes in assets and liabilities, net of effect
from purchases and sales of businesses:
(Increase) in marketable securities ( 1,104) ( 2,375) ( 316)
(Increase) in accounts and notes receivable ( 10,485) ( 1,066) ( 8,112)
(Increase) in inventory ( 20,182) ( 2,195) ( 733)
(Increase) in prepaids and other assets ( 644) ( 7,198) ( 4,582)
Increase (decrease) in accounts payable 10,609 ( 9,985) 7,975
Increase (decrease) in accrued liabilities 7,942 ( 2,034) 8,052
Other ( 601) ( 781) ( 858)
-------- -------- --------
81,245 51,483 61,650
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures ( 28,192) (25,700) ( 18,320)
Acquisition of new businesses, net of cash
acquired (173,483) ( 4,094) ( 10,161)
-------- -------- --------
(201,675) (29,794) ( 28,481)
-------- -------- --------
Cash Flows From Financing Activities:
Additions to long-term debt 251,726 72,320 147,496
Reductions of long-term and short-term debt ( 98,942) (69,528) (153,655)
Cash dividends paid ( 31,259) (30,126) ( 27,855)
Exercise of stock options 654 567 664
Other ( 249) 563 ( 1,282)
-------- -------- --------
121,930 (26,204) ( 34,632)
-------- -------- --------
Net Increase (Decrease) in Cash 1,500 ( 4,515) ( 1,463)
Cash at Beginning of Year 18,370 22,885 24,348
-------- -------- --------
Cash at End of Year $ 19,870 $ 18,370 $ 22,885
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 16,375 $ 7,461 $ 13,646
Income taxes 42,086 37,708 25,401
Supplemental Schedule of Non-cash Investing and
Financing Activities:
Conversion from debt to equity 48,550
Interest accreted on LYONs 8,228 7,812 4,999
See Notes to Consolidated Financial Statements.
8
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
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 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 was accounted for by the purchase method of
accounting and the difference of $102,000,000 (including
$36,000,000 in deferred tax liabilities) between the fair
value of net assets acquired and the purchase consideration
has been allocated to goodwill. The Company's financial
statements 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, 1993, are as follows:
Year Ended May 31
------------------------------
1995 1994
---------- --------
(Unaudited)
(In thousands except
per share amounts)
Net Sales $1,034,043 $955,845
========== ========
Net Income $ 62,349 $ 49,563
========== ========
Earnings per common share and common
share equivalent $1.09 $.87
===== ====
Earnings per common share assuming
full dilution $1.03 $.84
===== ====
During the year ended May 31, 1994, the Company acquired
Dynatron/Bondo Corporation and Stonhard, Inc. in exchange for
5,678,000 shares in transactions accounted for as poolings of
interests.
9
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------
MAY 31, 1995, 1994 and 1993
---------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
---------------------------------------------------
(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) Cash Equivalents
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.
(5) Marketable Securities
Marketable securities are included in the accompanying
consolidated balance sheets at cost, which approximates market.
(6) 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
-------------------------------
1995 1994
-------- --------
(In thousands)
Raw material and supplies $ 59,797 $ 45,286
Finished goods 109,357 85,201
-------- --------
Total Inventory $169,154 $130,487
======== ========
(7) 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
10
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
---------------------------------------------------
(8) 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, 1995, were
$12,337,000, $11,081,000 and $9,952,000, respectively. The
customer sponsored portion of such expenditures was not
significant.
(9) 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, 1995 was $1,645,000,
$856,000 and $1,317,000, respectively.
(10) 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, 1995, is shown as a noncurrent
liability of $39,693,000 (net of a noncurrent asset of
$11,396,000). At May 31, 1994, the noncurrent liability was
$4,533,000 (net of a noncurrent asset of $8,264,000). The
Company does not intend to distribute the accumulated earnings
of consolidated foreign subsidiaries amounting to $26,347,000
at May 31, 1995, and $22,234,000 at May 31, 1994, and
therefore no provision has been made for the taxes which would
result if such earnings were remitted to the Company.
11
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------
MAY 31, 1995, 1994 and 1993
---------------------------
NOTE B - BORROWINGS
A description of long-term debt follows:
May 31
----------------------------
1995 1994
-------- --------
(In thousands)
$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 $20.85 ($19.80 at May 31, 1994)
and are redeemable by the holder for the issuance 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. $162,923 $154,695
Revolving credit agreement for $300,000,000 with nine banks
through June 28, 1997. Interest, which is tied to one of various
rates, was 6.57% at May 31, 1995. (See Note L) 190,000
Revolving credit agreement for $55,000,000 refinanced with
proceeds from the credit agreement described above. 45,000
Multi-currency revolving credit agreement for $45,000,000
($30,000,000 at May 31, 1994) with a bank through December 14,
1996. Interest, which is tied to one of various rates, averaged
5.22% on the $18,321,000 Dutch Guilder component and 6.01% on the
$20,842,000 Belgian Franc component at May 31, 1995. 39,163 30,732
6.75% unsecured senior notes due to an insurance company in
annual installments from 1997 through 2003. 12,000
Other notes and mortgages payable at various rates of interest
due in installments through 2005, substantially secured by
property. 2,932 3,808
-------- --------
407,018 234,235
Less current portion 643 1,196
-------- --------
Total long-term debt, less current
maturities $406,375 $233,039
======== ========
Additionally, at May 31, 1995, the Company had an unused short-term
line of credit with a bank for $17,727,000.
The aggregate maturities of long-term debt for the five years
subsequent to May 31, 1995, are as follows: 1996 - $643,000; 1997 -
$39,683,000; 1998 - $192,108,000; 1999 - $2,105,000; 2000 -
$2,105,000.
12
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
NOTE C - TAXES
--------------
The provision for taxes on income includes the following:
Year Ended May 31
------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
Federal income tax rate of 35% in
1995 and 1994, 34% in 1993, applied
to income before income taxes $ 37,400 $ 30,833 $ 22,486
Increase (decrease) in taxes result-
ing from:
Tax credits ( 411) ( 439) (275)
State and local taxes - Net of
federal income tax benefit 4,793 3,705 3,326
Foreign taxes in excess of U.S.
Federal tax rate 1,440 1,282 870
Permanent differences between tax
and book basis, related to
acquisitions 1,880 1,093 939
Difference between tax and book
income, related to pooled entities - (1,137) (153)
All other items, none of which
exceed 5% of computed tax 656 117 (555)
-------- -------- --------
Actual tax expense $ 45,758 $ 35,454 $ 26,638
======== ======== ========
Actual tax rate 42.82% 40.25% 40.27%
====== ====== ======
The provision for income taxes consists of the following:
Current
Federal $ 34,292 $ 24,674 $ 19,358
State 7,374 5,700 5,040
Foreign 4,789 3,717 2,745
-------- -------- --------
46,455 34,091 27,143
Deferred
Federal (809) 2,059 (493)
Foreign 112 ( 696) ( 12)
-------- -------- --------
Actual tax expense $ 45,758 $ 35,454 $ 26,638
======== ======== ========
Deferred income taxes result from timing differences in recognition of
revenue and expense for book and tax purposes, primarily from the tax
timing differences relating to business combinations.
13
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
NOTE D - COMMON SHARES
----------------------
There are 100,000,000 common shares authorized with a stated value of
$.023 per share. At May 31, 1995 and 1994, there were 56,957,000 and
56,751,000 shares outstanding respectively, each of which is entitled
to one vote. See consolidated statements of shareholders' equity for
more information.
Earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding during each year
(57,243,000 in 1995, 56,717,000 in 1994, and 53,267,000 in 1993). 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 February 2005. At May 31, 1995, 1,433,000 shares
(1,795,000 May 31, 1994) were available for future grant.
Transactions during the two years are summarized as follows:
Shares Under Option
-------------------
1995 1994
------ ------
(In thousands)
Outstanding, beginning of year 1,252 1,084
Granted during the year 362 256
Expired during the year ( 23) ( 4)
Exercised during the year (at prices
ranging from $7.33 to $18.00 per
share) (128) (84)
------ ------
Outstanding, end of year (at an
average price of $14.53 ranging
from $6.75 to $19.25 per share) 1,463 1,252
===== =====
Exercisable, end of year (at an
average price of $11.82 ranging
from $6.75 to $18.00 per share) 748 656
===== =====
14
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
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, 1995 was $5,888,000,
$3,688,000 and $3,265,000, respectively. Cost of businesses over net
assets acquired is shown net of accumulated amortization of
$26,630,000 at May 31, 1995 ($20,007,000 at May 31, 1994).
The cost of formulae, 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 ending May 31, 1995, was
$4,991,000, $1,142,000 and $1,960,000, respectively. Intangibles are
shown net of accumulated amortization of $12,940,000 at May 31, 1995
($7,859,000 at May 31, 1994).
NOTE F - LEASES
---------------
At May 31, 1995, 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, 1995, for all
noncancellable leases are as follows:
May 31 (In thousands)
------ --------------
1996 $ 3,915
1997 3,052
1998 2,333
1999 992
2000 294
Thereafter 211
--------
Total minimum lease commitments $ 10,797
========
Rental expenses for all operating leases totalled $6,936,000 in 1995,
$5,873,000 in 1994 and $5,777,000 in 1993. Capitalized leases were
insignificant for the three year period ended May 31, 1995.
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 those used for financial reporting.
15
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
NOTE G - RETIREMENT PLANS - Continued
-------------------------
The net periodic pension cost for the three years ended May 31, 1995,
included the following components:
1995 1994 1993
-------- -------- --------
(In thousands)
Service cost - Benefits earned
during the period $ 3,524 $ 2,750 $ 2,087
Interest cost on projected
benefit obligations 2,533 2,171 1,919
Actual return on plan assets 1,753 (1,678) (1,783)
Net amortization and deferral (3,540) ( 514) 536
-------- -------- --------
Net pension cost $ 4,270 $ 2,729 $ 2,759
======== ======== ========
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected
benefit obligations were 8.5% (7.5% for May 31, 1994) and 5%,
respectively. The expected long-term rate of return on assets was
8.5% (8.0% for 1993). 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
------------------------------
1995 1994
-------- --------
(In thousands)
Actuarial present value of projected benefit
obligation:
Vested employees $ 41,970 $ 22,174
Nonvested employees 1,359 1,223
-------- --------
Accumulated benefit obligation 43,329 23,397
Additional amount related to projected
salary increases 7,297 7,530
-------- --------
Total projected benefit obligation 50,626 30,927
Funded assets at fair value 41,542 24,003
-------- --------
Projected benefit obligation in excess
of assets ( 9,084) (6,924)
Unamortized net asset existing at date
of adoption ( 586) ( 657)
Unrecognized prior service cost 731 1,477
Unrecognized net loss 3,994 5,511
-------- --------
Accrued pension cost $( 4,945) $ ( 593)
======== ========
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, 1995.
In addition, the Company maintains a non-contributory 401(K) Plan for
substantially all non-union employees in the United States.
16
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
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 three years
ended May 31, 1995 were as follows:
1995 1994 1993
-------- -------- --------
(In thousands)
Immediate recognition of
transition obligation $ $ $ 1,091
Service cost - Benefits
earned during this period 47 10
Interest cost on the
accumulated obligation 763 199 199
Net amortization 20
-------- -------- --------
Net periodic postretirement
expense $ 830 $ 199 $ 1,300
======== ======== ========
The accumulated postretirement obligation recognized on the
May 31, 1995 and May 31, 1994 balance sheets are comprised of
the following components:
1995 1994
-------- --------
Current retirees $ 8,385 $ 2,314
Future retirees 1,427 282
Unrecognized net loss (315)
-------- --------
Accumulated postretirement benefit
obligation $ 9,497 $ 2,596
======== ========
An 8.5% (8% at May 31, 1994) discount rate was used in determining the
accumulated postretirement benefit obligation. A 12% increase in the
cost of covered health care benefits was assumed for fiscal 1995.
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. A 1% increase in
the health care costs trend rate would have increased the accumulated
postretirement benefit obligation as of May 31, 1995 by $953,000 and
the net postretirement expense by $83,000.
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.
17
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
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, 1995, 1994 and
1993 and for the years then ended is summarized as follows:
Other
United European Foreign Corporate
States Operations Operations Office Total
-------- ---------- ---------- -------- -------
Net Sales
---------
May 31, 1995 $899,337 $ 85,537 $ 32,080 $ $1,016,954
May 31, 1994 714,968 71,912 28,718 815,598
May 31, 1993 659,795 77,628 30,949 768,372
Net Income
----------
May 31, 1995 72,928 2,404 876 (15,109) 61,099
May 31, 1994 60,805 502 80 ( 8,747) 52,640
May 31, 1993 51,628 (2,938) (1,242) ( 7,950) 39,498
Assets Employed
---------------
May 31, 1995 775,329 123,639 16,926 43,246 959,140
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
The above sales do not include approximately $96,000,000 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.
18
RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
MAY 31, 1995, 1994 AND 1993
---------------------------
NOTE K - INTERIM FINANCIAL INFORMATION (Unaudited)
--------------------------------------
The following is a summary of the unaudited quarterly results of
operations for the years ended May 31, 1995 and 1994:
Three Months Ended
---------------------------------------------------------------------
August 31 November 30 February 28 May 31
--------- ----------- ----------- ------
(In thousands except per share amounts)
1995
----
Net Sales $253,497 $253,229 $229,783 $280,445
-------- -------- -------- --------
Gross Profit 106,973 107,113 95,309 126,313
-------- -------- -------- --------
Net Income 18,391 15,272 7,303 20,133
-------- -------- -------- --------
Primary Earnings
Per Share $.32 $.27 $.13 $.35
==== ==== ==== ====
Fully Diluted Earnings
Per Share $.30 $.25 $.13 $.33
==== ==== ==== ====
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
==== ==== ==== ====
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.
NOTE L - SUBSEQUENT EVENTS
--------------------------
On June 15, 1995, the Company issued and sold $150,000,000 aggregate
principal amount of 7% Senior Notes Due 2005. The net proceeds of the
offering were used to reduce the balance of the Company's $300,000,000
revolving credit agreement from $190,000,000 to $40,000,000.
19
RPM, INC.
---------
ANNUAL REPORT ON FORM 10-K
--------------------------
FOR THE FISCAL YEAR ENDED MAY 31, 1995
--------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
20
Report of Independent Public Accountants
----------------------------------------
In connection with our examination of the consolidated financial statements of
RPM, Inc. and Subsidiaries at May 31, 1995 and May 31, 1994, and for each of
the three years in the period ended May 31, 1995 which report thereon dated
July 7, 1995 is incorporated by reference in this Annual Report on Form 10-K,
we also examined the financial statement schedule listed in the accompanying
index at Item 14(a)(2). In our opinion, this financial statement schedule
presents fairly, when read in conjunction with the related consolidated
financial statements, the financial data required to be set forth therein.
/s/ Ciulla Stephens & Co.
----------------------------
Ciulla Stephens & Co.
Cleveland, Ohio
July 7, 1995
21
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Schedule II
----------------------------------------------
(In Thousands)
Additions
Charged To
Balance at Selling and Balance at
Beginning General and End
Of Period Administrative Acquisitions Deductions Of Period
---------- -------------- ------------ ---------- ----------
Year Ended May 31, 1995
-----------------------
Allowance for doubtful accounts $ 8,148 $ 3,097 $ 1,248 $ 2,877(1) $ 9,616
======== ======== ======== ======== ========
Accrued warranty and loss reserves $ 12,978 $ 12,767 $ 5,420 $ 7,268(2) $ 23,897
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
<FN>
(1) Uncollectible accounts written off, net of recoveries
(2) Claims paid during the year