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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
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ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1995 OR
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_____TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________TO_________.
COMMISSION FILE NO. 0-5132
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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
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (216) 273-5090
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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AS OF SEPTEMBER 30, 1995, 60,233,611 RPM, INC. COMMON SHARES WERE OUTSTANDING.
EXHIBIT INDEX ON PAGE 10 OF 12 PAGES.
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RPM, INC. AND SUBSIDIARIES
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INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
------------------------------ -------
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND MAY 31, 1995 3
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED AUGUST 31, 1995 AND 1994 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1995 AND 1994 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 8
PART II. OTHER INFORMATION 10
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EXHIBIT XI - CONSOLIDATED STATEMENTS OF COMPUTATIONS
OF EARNINGS PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS 12
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RPM, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(UNAUDITED)
(In thousands, except per share amounts)
ASSETS
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August 31, 1995 May 31, 1995
--------------- ---------------
Current Assets
Cash $26,395 $19,870
Marketable securities, at cost 12,259 8,132
Trade accounts receivable (less allowance for doubt-
ful accounts $9,785 and $9,616) 208,775 207,509
Inventories 168,774 169,154
Prepaid expenses 19,140 16,637
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Total current assets 435,343 421,302
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Property, Plant and Equipment, At Cost 366,905 360,706
Less: accumulated depreciation and amortization 160,796 156,657
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Property, plant and equipment, net 206,109 204,049
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Other Assets
Costs of businesses over net assets acquired 220,409 211,781
Intangible assets 91,345 85,375
Equity in unconsolidated affiliates 15,593 14,857
Other 23,684 21,776
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Total other assets 351,031 333,789
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Total Assets $992,483 $959,140
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion of long term debt $1,318 $643
Accounts payable 64,985 70,207
Accrued compensation and benefits 28,343 29,932
Accrued warranty and loss reserves 23,512 23,897
Other accrued liabilities 18,915 20,309
Income taxes payable 15,793 6,088
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Total current liabilities 152,866 151,076
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Long-term Liabilities
Long-term debt, less current maturities 423,585 406,375
Other long-term liabilities 14,672 14,405
Deferred income taxes 43,013 39,693
--------------- ---------------
Total long-term liabilities 481,270 460,473
=============== ===============
Shareholders' Equity
Common shares, stated value $.023 per share;
authorized 100,000,000 shares;
issued and outstanding 56,976,000
and 56,957,000 shares, respectively 1,296 1,296
Paid-in capital 146,690 146,509
Retained earnings 210,985 199,206
Cumulative translation adjustment (624) 580
--------------- ---------------
Total shareholders' equity 358,347 347,591
--------------- ---------------
Total Liabilities And Shareholders' Equity $992,483 $959,140
=============== ===============
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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RPM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended August 31,
------------------------------
1995 1994
----------- -----------
Net Sales $279,146 $253,497
Cost of Sales 160,787 146,524
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Gross Profit 118,359 106,973
Selling, General and Administrative Expenses 77,953 70,163
Interest Expense, Net 6,110 4,826
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Income Before Income Taxes 34,296 31,984
Provision for Income Taxes 14,679 13,593
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Net Income $19,617 $18,391
=========== ===========
Earnings per common share and common share
equivalent (Exhibit XI) $0.34 $0.32
=========== ===========
Earnings per common share assuming full
dilution (Exhibit XI) $0.32 $0.30
=========== ===========
Dividends per common share $0.14 $0.13
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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RPM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
------------------------------
1995 1994
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Cash Flows From Operating Activities:
Net Income $19,617 $18,391
Depreciation and amortization 9,691 8,384
Items not affecting cash and other (3,805) (9,496)
Changes in operating working capital (4,938) 16,402
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20,565 33,681
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Cash Flows From Investing Activities:
Additions to property and equipment (4,678) (6,193)
Acquisition of new businesses, net of cash (19,590) (173,061)
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(24,268) (179,254)
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Cash Flows From Financing Activities:
Proceeds from stock option exercises 181 86
Increase (decrease) in debt 17,885 181,991
Dividends (7,838) (7,380)
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10,228 174,697
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Net Increase (Decrease) in Cash 6,525 29,124
Cash at Beginning of Period 19,870 18,370
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Cash at End of Period $26,395 $47,494
========= ==========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
- --------------------------------------------------------------------
Interest Accreted on LYONs $2,120 $2,013
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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RPM, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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AUGUST 31, 1995
---------------
(UNAUDITED)
(in thousands, except 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, 1995 AND AUGUST 31, 1994. 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, 1995.
NOTE B - INVENTORIES
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INVENTORIES WERE COMPOSED OF THE FOLLOWING MAJOR CLASSES:
AUGUST 31, 1995(1) MAY 31, 1995
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RAW MATERIAL AND SUPPLIES $ 59,663 $ 59,797
FINISHED GOODS 109,111 109,357
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$168,774 $169,154
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<FN>
(1) ESTIMATED, BASED ON COMPONENTS AT MAY 31, 1995
NOTE C - ACQUISITIONS
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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. IN AUGUST 1995, THE COMPANY ACQUIRED ALL THE
OUTSTANDING SHARES OF STAR FINISHING PRODUCTS, INC. 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 COMPANIES FOR THE THREE MONTHS ENDED AUGUST 31,
1995 AND AUGUST 31, 1994. 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,
1995 1994
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NET SALES $281,729 $273,056
======== ========
NET INCOME $ 19,422 $ 19,511
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EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $.34 $.34
==== ====
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION $.32 $.32
==== ====
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RPM, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AUGUST 31, 1995
---------------
(UNAUDITED)
(in thousands, except share amounts)
NOTE D - SUBSEQUENT EVENTS
- --------------------------
ON SEPTEMBER 21, 1995, THE COMPANY ACQUIRED DRYVIT SYSTEMS, INC.,
(THROUGH THE PURCHASE OF ALL THE OUTSTANDING SHARES OF DRYVIT'S NON-
OPERATING PARENT NARRAGANSETT/DSI ACQUISITION CO., INC.) FOR
APPROXIMATELY $32,500,000 IN CASH AND 3,200,000 OF THE COMPANY'S
SHARES.
DRYVIT MANUFACTURES AND MARKETS INSULATED EXTERIOR WALL MATERIALS,
WHICH ARE USED IN BOTH NEW AND RETROFIT CONSTRUCTION.
THIS ACQUISITION WILL BE ACCOUNTED FOR BY THE PURCHASE METHOD OF
ACCOUNTING AND THE DIFFERENCE OF APPROXIMATELY $32,000,000 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 DRYVIT FROM
THE DATE OF ACQUISITION FORWARD.
PRO-FORMA AMOUNTS AS IF DRYVIT HAD BEEN ACQUIRED ON JUNE 1, 1995, ARE
AS FOLLOWS:
THREE MONTHS
ENDED
AUGUST 31, 1995
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NET SALES $300,697
========
NET INCOME $ 21,287
========
EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $.35
====
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION $.33
====
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RPM, INC. AND SUBSIDIARIES
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
--------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
THREE MONTHS ENDED AUGUST 31, 1995
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RESULTS OF OPERATIONS
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DURING THE FIRST QUARTER THE COMPANY'S SALES INCREASED 10% COMPARED WITH
THE FIRST QUARTER RESULTS OF LAST YEAR. ACQUISITIONS, ESSENTIALLY THAT
OF RUST-OLEUM CORPORATION ON JUNE 28, 1994, ACCOUNTED FOR APPROXIMATELY
60% OF THE SALES INCREASE. CORE OPERATIONS GENERATED THE REMAINING SALES
GROWTH FROM A COMBINATION OF HIGHER UNIT VOLUME AND PRICING ADJUSTMENTS
THAT HAVE AVERAGED LESS THAN 3% YEAR TO YEAR. EXCHANGE RATE DIFFERENCES
AND SMALL PRODUCT LINE ADDITIONS HAD A SLIGHTLY POSITIVE EFFECT ON SALES
FROM QUARTER TO QUARTER.
THE GROSS PROFIT MARGIN STRENGTHENED TO 42.4% FROM 42.2% A YEAR AGO. AN
ADDITIONAL MONTH OF RUST-OLEUM (WITH A HIGHER THAN AVERAGE GROSS PROFIT
MARGIN) IS THE PRIMARY REASON BEHIND THIS IMPROVEMENT. THIS POSITIVE
EFFECT WAS OFFSET SOMEWHAT BY A NUMBER OF SIGNIFICANT RAW MATERIAL AND
PACKAGING COST INCREASES WHICH MANAGEMENT HAS EFFECTIVELY CONTROLLED
THROUGH THE LEVERAGE OF COMBINED PURCHASING OF SIGNIFICANT MATERIALS,
PRICING ADJUSTMENTS WHERE NECESSARY, AND PRODUCT REFORMULATIONS. RAW
MATERIAL PRICE INCREASES HAVE DECLINED SOMEWHAT IN RECENT MONTHS, AND
THE COMPANY IS CONFIDENT THESE WILL CONTINUE TO BE EFFECTIVELY MANAGED.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES INCREASED TO 27.9% OF SALES
AGAINST 27.7% LAST YEAR, PRINCIPALLY AS A RESULT OF THE RUST- OLEUM
ACQUISITION.
THE INTEREST EXPENSE INCREASE REFLECTS COMPARATIVELY HIGHER INTEREST
RATES, THE ADDITIONAL MONTH OF INDEBTEDNESS ASSOCIATED WITH THE
RUST-OLEUM ACQUISITION AND THE LYONS INTEREST ACCRETION. DEBT
REDUCTIONS DURING THE PAST YEAR TOTALLING NEARLY $41 MILLION REDUCED
INTEREST EXPENSE COMPARATIVELY.
THE PROVISION FOR INCOME TAXES IS SLIGHTLY HIGHER, AS EXPECTED, BECAUSE
OF CONTINUING INCREASES IN STATE AND LOCAL TAXES AND THE TAX TREATMENT
OF CERTAIN ACQUISITION RELATED EXPENSES.
THE COMPANY'S FOREIGN SALES AND RESULTS OF OPERATIONS ARE IMPACTED BY
CURRENCY FLUCTUATIONS. THE COMPANY HAS MOST OF ITS FOREIGN OPERATIONS
IN BELGIUM AND THE BELGIAN FRANC HAS BEEN A FAIRLY STABLE CURRENCY
COMPARED WITH THE CURRENCIES PRIMARILY TRANSACTED WITH BY THOSE
OPERATIONS. FOREIGN DEBT IS DENOMINATED IN THE RESPECTIVE FOREIGN
CURRENCY, THEREBY ELIMINATING THE EXCHANGE IMPACT ON EARNINGS.
SUBSEQUENT TO QUARTER END, ON SEPTEMBER 21, 1995, THE COMPANY COMPLETED
THE ACQUISITION OF DRYVIT SYSTEMS, INC. HEADQUARTERED IN PROVIDENCE,
RHODE ISLAND. DRYVIT HAS ANNUAL SALES OF APPROXIMATELY $75 MILLION AND
IS NORTH AMERICA'S LEADING PRODUCER OF COATINGS FOR EXTERIOR WALL
INSULATION AND FINISHING SYSTEMS. THIS ACQUISITION IS NOT EXPECTED TO
BE DILUTIVE IN 1996.
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RPM, INC. AND SUBSIDIARIES
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
--------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
THREE MONTHS ENDED AUGUST 31, 1995
----------------------------------
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 $20.6 MILLION DURING THE CURRENT QUARTER, DOWN FROM
$33.7 MILLION A YEAR AGO. THERE HAD BEEN AN IMMEDIATE AND SIGNIFICANT
REDUCTION OF WORKING CAPITAL AT RUST-OLEUM UPON ITS ACQUISITION A YEAR
AGO, ACCOUNTING FOR ESSENTIALLY ALL OF THIS DIFFERENCE.
INVESTING ACTIVITIES
THE COMPANY'S CAPITAL EXPENDITURES GENERALLY DO NOT EXCEED DEPRECIATION
AND AMORTIZATION IN A GIVEN YEAR.
THE COMPANY INVESTED $19.6 MILLION, NET OF CASH ACQUIRED, IN THE
PURCHASE OF SEVERAL SMALLER BUSINESSES DURING THE QUARTER. THE COMPANY
HISTORICALLY HAS ACQUIRED COMPLEMENTARY BUSINESSES AND THIS TREND IS
EXPECTED TO CONTINUE.
FINANCING ACTIVITIES
ON JUNE 15, 1995, THE COMPANY ISSUED AND SOLD $150 MILLION AGGREGATE
PRINCIPAL AMOUNT OF 7% SENIOR UNSECURED NOTES DUE 2005. THE TOTAL NET
PROCEEDS OF THIS OFFERING WERE USED TO REDUCE THE $190 MILLION BALANCE
OF THE COMPANY'S $300 MILLION REVOLVING CREDIT AGREEMENT TO $40 MILLION.
THE COMPANY HAS SINCE REDUCED ITS REVOLVING CREDIT FACILITY TO $150
MILLION AND EXTENDED ITS FINAL MATURITY TO 2000. THIS INSTRUMENT HAD AN
OUTSTANDING BALANCE OF $56 MILLION AT AUGUST 31, 1995.
THE COMPANY'S DEBT TO CAPITAL RATIO REMAINS AT 54% FROM MAY 31, 1995.
WORKING CAPITAL INCREASED TO $282 MILLION FROM $270 MILLION AT MAY 31,
1995, WITH THE CURRENT RATIO REMAINING AT 2.8:1.
SUBSEQUENT TO QUARTER END, THE COMPANY COMPLETED THE ACQUISITION OF
DRYVIT SYSTEMS, INC. FOR APPROXIMATELY $32.5 MILLION IN CASH, THE
RETIREMENT OF APPROXIMATELY $14.5 MILLION OF DRYVIT'S EXISTING LONG TERM
DEBT, AND THE ISSUANCE OF 3.2 MILLION COMPANY SHARES. THE COMPANY'S
REVOLVING CREDIT FACILITY WAS UTILIZED FOR THE CASH AND DEBT RETIREMENT
PORTIONS OF THIS TRANSACTION. THE SHARE ISSUANCE WILL RAISE THE
COMPANY'S EQUITY LEVEL BY $65.2 MILLION THEREBY STRENGTHENING THE
COMPANY'S BALANCE SHEET.
THE COMPANY MAINTAINS EXCELLENT RELATIONS WITH ITS BANKS AND OTHER
FINANCIAL INSTITUTIONS TO FURTHER ENABLE THE FINANCING OF FUTURE GROWTH
OPPORTUNITIES.
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RPM, INC. AND SUBSIDIARIES
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ITEM 3 -- LEGAL PROCEEDINGS
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AS PREVIOUSLY REPORTED IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED MAY 31, 1995, BONDEX INTERNATIONAL, INC., A
WHOLLY-OWNED SUBSIDIARY OF THE COMPANY ("BONDEX"), IS ONE OF NUMEROUS CORPORATE
DEFENDANTS IN 400 PENDING ASBESTOS- RELATED BODILY INJURY LAWSUITS FILED ON
BEHALF OF VARIOUS INDIVIDUALS IN VARIOUS JURISDICTIONS OF THE UNITED STATES.
SUBSEQUENTLY, AN ADDITIONAL 20 SUCH CASES WERE FILED AND 30 SUCH CASES WHICH
HAD BEEN FILED IN THE SUPERIOR COURT OF MIDDLESEX COUNTY, NEW JERSEY WERE
SETTLED BY BONDEX'S INSURERS FOR NOMINAL AMOUNTS BASED UPON NUISANCE VALUE,
LEAVING A TOTAL OF 390 SUCH CASES 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
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(A) EXHIBITS
--------
OFFICIAL EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------------- ------------------- ------------
XI STATEMENT REGARDING 12
COMPUTATION OF PER
SHARE EARNINGS
(B) REPORTS ON FORM 8-K
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DURING THE FIRST QUARTER ENDED AUGUST 31, 1995,
PURSUANT TO ITEM 7., THE COMPANY FILED CERTAIN
FINANCIAL INFORMATION WITH RESPECT TO THE THEN
PROPOSED (AND SUBSEQUENTLY COMPLETED) ACQUISITION OF
NARRAGANSETT/DSI ACQUISITION COMPANY, INC., ON A FORM
8-K CURRENT REPORT DATED JULY 24, 1995.
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SIGNATURES
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
RPM INC.
BY THOMAS C. SULLIVAN
------------------
THOMAS C. SULLIVAN,
CHAIRMAN & CHIEF
EXECUTIVE OFFICER
BY FRANK C. SULLIVAN
-----------------
FRANK C. SULLIVAN,
CHIEF FINANCIAL OFFICER
DATE: OCTOBER 12, 1995