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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
- ----
Act of 1934 for the quarterly period ended February 29, 1996 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 (330) 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 March 31, 1996, 77,444,212 RPM, Inc. Common Shares were outstanding.
Exhibit Index on Page 14 of 15 pages.
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RPM, INC. AND SUBSIDIARIES
--------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Consolidated Balance Sheets
February 29, 1996 and May 31, 1995 3
Consolidated Statements of Income
Nine Months and Three Months Ended
February 29, 1996 and February 28, 1995 4
Consolidated Statements of Cash Flows
Nine Months Ended February 29, 1996 and
February 28, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
Exhibit XI - Consolidated Statements of Computations of
Earnings Per Common Share and Common Share Equivalents
Nine Months Ended February 29, 1996 and February 28, 1995 12
PART II. OTHER INFORMATION 13
- ---------------------------
3
3
RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
(In thousands, except per share amounts)
ASSETS
------
February 29, 1996 May 31, 1995
----------------- ------------
Restated *
Current Assets
Cash $ 25,982 $ 19,834
Marketable securities, at cost 11,024 8,132
Trade accounts receivable (less allowance for doubt-
ful accounts $10,773 and $10,007) 188,980 209,886
Inventories 177,753 170,920
Prepaid expenses 20,995 16,648
----------- -----------
Total current assets 424,734 425,420
----------- -----------
Property, Plant and Equipment, At Cost 395,595 363,562
Less: accumulated depreciation and amortization 173,999 157,259
----------- -----------
Property, plant and equipment, net 221,596 206,303
----------- -----------
Other Assets
Costs of businesses over net assets acquired 276,547 211,781
Intangible Assets 160,155 85,375
Equity in unconsolidated affiliates 15,636 14,857
Other 21,523 21,787
----------- -----------
Total other assets 473,861 333,800
----------- -----------
Total Assets $ 1,120,191 $ 965,523
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion of long term debt $ 2,488 $ 907
Notes and accounts payable 69,101 72,065
Accrued compensation and benefits 28,287 29,973
Accrued warranty and loss reserves 30,990 23,897
Other accrued liabilities 16,612 20,325
Income taxes payable (1,644) 6,088
----------- -----------
Total current liabilities 145,834 153,255
----------- -----------
Long-term and Deferred Liabilities
Long-term debt, less current maturities 457,214 407,041
Deferred income taxes 70,157 39,693
Other long-term liabilities 15,129 15,065
----------- -----------
Total long-term liabilities 542,500 461,799
----------- -----------
Shareholders' Equity
Common shares, stated value $.018 per share;
authorized 100,000,000 shares;
issued and outstanding 77,436,990
and 73,302,125 shares, respectively * 1,408 1,334
Paid-in capital 215,263 149,349
Retained earnings 216,280 199,206
Cumulative translation adjustment (1,094) 580
----------- -----------
Total shareholders' equity 431,857 350,469
----------- -----------
Total Liabilities And Shareholders' Equity $ 1,120,191 $ 965,523
=========== ===========
* Data at May 31, 1995 has been restated to reflect a 25% stock dividend paid
on December 8, 1995, and to reflect the January 12, 1996 acquisition of TCI,
Inc. accounted for under the pooling of interests method.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended Three Months Ended
--------------------------- ---------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Restated * Restated *
Net Sales $ 819,513 $ 746,528 $ 255,157 $ 233,384
Cost of Sales 477,454 433,765 150,191 136,861
------------ ------------ ------------ ------------
Gross Profit 342,059 312,763 104,966 96,523
Selling, General and Administrative Expenses 245,916 223,748 84,322 77,452
Interest Expense, Net 19,530 16,579 6,743 5,942
------------ ------------ ------------ ------------
Income Before Income Taxes 76,613 72,436 13,901 13,129
Provision for Income Taxes 32,315 30,324 5,854 5,443
------------ ------------ ------------ ------------
Net Income $ 44,298 $ 42,112 $ 8,047 $ 7,686
============ ============ ============ ============
Earnings per common share and common
share equivalent (Exhibit XI) * $ 0.58 $ 0.57 $ 0.11 $ 0.10
============ ============ ============ ============
Earnings per common share assuming full
dilution (Exhibit XI) * $ 0.56 $ 0.55 $ 0.11 $ 0.10
============ ============ ============ ============
Dividends per common share * $ 0.35 $ 0.33 $ 0.12 $ 0.11
============ ============ ============ ============
* Data for February 28, 1995 has been restated to reflect a 25% stock dividend
paid on December 8, 1995, and to reflect the January 12, 1996 acquisition of
TCI, Inc. accounted for under the pooling of interests method.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended
----------------------------
February 29, February 28,
1996 1995
------------ ------------
Restated *
Cash Flows From Operating Activities:
Net Income $ 44,298 $ 42,112
Depreciation and amortization 31,906 24,531
Items not affecting cash and other (9,569) (3,962)
Changes in operating working capital (3,234) 1,597
------------ ------------
63,401 64,278
------------ ------------
Cash Flows From Investing Activities:
Additions to property and equipment (22,109) (21,002)
Acquisition of businesses, net of cash acquired (45,820) (173,061)
------------ ------------
(67,929) (194,063)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from stock option exercises 1,014 519
Increase (decrease) in long-term debt 37,034 159,109
Dividends (27,372) (23,813)
------------ ------------
10,676 135,815
------------ ------------
Net Increase (Decrease) in Cash 6,148 6,030
Cash at Beginning of Period 19,834 18,240
------------ ------------
Cash at End of Period $ 25,982 $ 24,270
============ ============
Supplemental Schedule of Non-Cash Investing and Financing Activities:
- ---------------------------------------------------------------------
Interest Accreted on LYONs $ 6,452 $ 6,126
Issuance of shares in connection with acquisition of a business $ 65,200
* Data for February 28, 1995 has been restated to reflect a 25% stock dividend
paid on December 8, 1995, and to reflect the January 12, 1996 acquisition of
TCI, Inc. accounted for under the pooling of interests method.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FEBRUARY 29, 1996
-----------------
(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
nine and three months ended February 29, 1996 and February 28, 1995.
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
- --------------------
Inventories were composed of the following major classes:
February 29, May 31,
1996 (1) 1995 (2)
-------- --------
Raw material and supplies $ 63,010 $ 60,385
Finished goods 114,343 110,535
-------- --------
$177,353 $170,920
======== ========
<FN>
(1) Estimated, based on restated components at May 31, 1995
(2) Restated for TCI, Inc. pooling of interests
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RPM, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FEBRUARY 29, 1996
-----------------
(Unaudited)
(In thousands, except per share amounts)
NOTE C - ACQUISITIONS
- ---------------------
The Company acquired all the outstanding shares of Rust-Oleum
Corporation in June 1994, Star Finishing Products, Inc. in August 1995,
and Dryvit Systems, Inc. in September 1995. These transactions were all
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 nine and three months ended
February 29, 1996 and February 28, 1995. 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.
For The Nine For The Three
Months Ended Months Ended
------------ ------------
2/29/96 2/28/95 2/29/96 2/28/95
------- ------- ------- -------
Net Sales $848,513 $820,328 $255,157 $247,636
======== ======== ======== ========
Net Income $ 43,600 $ 41,610 $ 8,047 $ 5,314
======== ======== ======== ========
Earnings per common
share and common
share equivalent $.56 $.54 $.10 $.07
==== ==== ==== ====
Earnings per common
share assuming full
dilution $.54 $.52 $.10 $.07
==== ==== ==== ====
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RPM, INC. AND SUBSIDIARIES
--------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FEBRUARY 29, 1996
-----------------
(Unaudited)
(In thousands, except per share amounts) Continued
NOTE C - ACQUISITIONS - Continued
- ---------------------
In January 1996, the Company acquired all of the outstanding shares of
TCI, Inc. The merger has been accounted for as a pooling of interests.
Accordingly, historical financial data presented in this report has
been restated to include the accounts and transactions of TCI, Inc. as
though TCI were acquired as of June 1, 1994. The following table
reconciles combined net sales, net income and earnings per share of the
separate companies for the nine months ended February 28, 1995.
Fully
Primary Diluted
Earnings Earnings
Per Per
Net Sales Net Income Share * Share *
--------- ---------- ------- -------
RPM as previously
reported $736,509 $ 40,966 $.57 $.55
Effect of TCI, Inc.
pooling 10,019 1,146 - -
-------- -------- ---- ---
Combined $746,528 $ 42,112 $.57 $.55
======== ======== ==== ====
*Share data has been restated to reflect a 25% stock dividend paid
December 8, 1995
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RPM, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
NINE MONTHS ENDED FEBRUARY 29, 1996
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
The Company acquired TCI, Inc., a leading manufacturer of powder
coatings with annual sales of approximately $20 million, on January 12,
1996 on a pooling of interests basis. Prior year results have been
restated to reflect this pooling (refer to Note C for additional
details). Although TCI is expected to have neutral results this year,
it should produce positive results in 1997 and beyond.
The Company's sales increased 10% the first nine months of this year
and 9% in the third quarter, compared with last year. Acquisitions,
primarily those of Rust-Oleum Corporation on June 28, 1994, and Dryvit
Systems, Inc. on September 21, 1995, accounted for approximately
two-thirds of these increases. Existing operations generated the
remaining sales growth from a combination of pricing adjustments that
have averaged less than 3% year-to-year and slightly higher unit
volume. Exchange rate differences and small product line additions had
a slightly positive effect on sales this year over last.
A slight gross profit margin decline during the third quarter caused
this margin to be slightly behind last year's level after the first
nine months. The acquisitions tended to somewhat strengthen this
margin, but did not overcome the effects of increases in material
costs, especially among the consumer product lines. Management
continues to make every effort to effectively negate raw material and
packaging cost increases through the leverage of combined purchasing of
significant materials, pricing adjustments, and product reformulations.
As indicated last quarter, the Company has initiated an expense
reduction campaign in consideration of the slower than planned sales
growth. The positive effects of this campaign were evident during this
past quarter as the Company's selling, general and administrative
expenses were a lower percentage of sales than the third quarter a year
ago, with the nine month levels equal relative to sales. This
improvement was despite the fact that Dryvit, with its unfavorable
seasonality during the Company's third quarter plus its related
acquisition costs, had a slight negative impact on the quarter.
The increase in interest expense after nine months reflects primarily
the indebtedness associated with Rust-Oleum, Dryvit and other
acquisitions with the balance attributable to comparatively higher
interest rates and the LYONs interest accretion. Debt reductions of
approximately $29 million during the past year and slightly higher
interest income reduced net interest expense comparatively.
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RPM, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
NINE MONTHS ENDED FEBRUARY 29, 1996
-----------------------------------
The tax attributes of the TCI acquisition had historically passed
through to its respective shareholders. Consequently, on a restatement
basis, last year's provision for income taxes shows a lower percentage
of pre-tax income than this year's mainly from the effects of this
pooling, plus the tax treatment of certain acquisition related expenses
this year.
The Company's foreign sales and results of operations are impacted by
currency fluctuations. Since most of the Company's foreign operations
are in Belgium, and since the Belgian franc has been a fairly stable
currency in relation to the majority of other currencies in which those
operations conduct their business, this effect has been minimal. In
addition, foreign debt is denominated in the respective foreign
currency, thereby eliminating the exchange impact on earnings.
The Company's earnings per share this year are affected by the
averaging of Company shares issued in connection with the Dryvit
acquisition (more fully described below). All previously reported per
share data have been restated to reflect the 25% stock dividend issued
December 8, 1995, and treated as a 5-for-4 stock split.
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 $63.4 million during the first nine months, down
slightly from $64.3 million a year ago. There had been a significant
one-time reduction of working capital at Rust-Oleum upon its
acquisition in June 1994, without which cash generation from operations
this year would have exceeded that of last year.
INVESTING ACTIVITIES
The Company's capital expenditures generally do not exceed depreciation
and amortization in a given year.
The Company invested $45.8 million in the purchase of Dryvit and
several smaller businesses this year, net of cash acquired. The Company
historically has acquired complementary businesses and this trend is
expected to continue.
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--------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
NINE MONTHS ENDED FEBRUARY 29, 1996
-----------------------------------
FINANCING ACTIVITIES
On June 15, 1995, the Company issued and sold $150 million (aggregate
principal) 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.
The Company completed the acquisition of Dryvit Systems, Inc. on
September 21, 1995 for approximately $32 million in cash, the
retirement of approximately $14.5 million of Dryvit's existing
long-term debt, and the issuance of 4 million (restated for 12/08/95
stock split) Company shares. The Company's revolving credit facility
was utilized for the cash and debt retirement portions of this
transaction. This instrument had an outstanding balance of $92 million
at February 29, 1996, having been reduced by over $19 million so far
this year, net of the uses of this facility for acquisitions.
As a result of primarily the share issuance to acquire Dryvit, the
Company's debt capital ratio improved to 51% from 54% at May 31, 1995.
Working capital increased to $280 million from $272 million at May 31,
1995, with the current ratio improving to 2.9:1 from 2.8:1.
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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CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
---------------------------------------------------
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
---------------------------------------------
(Unaudited)
(In thousands, except per share amounts)
Exhibit XI
----------
Nine Months Ended
---------------------------
February 29, February 28,
1996 1995
------------ ------------
Restated *
Shares Outstanding
For computation of primary earnings per
common share
Weighted average shares 75,737 73,095
Net issuable common share equivalents 427 398
------------ ------------
Total shares for primary earnings
per share 76,164 73,493
For computation of fully-diluted earnings
per common share
Additional shares issuable assuming
conversion of convertible securities 9,767 9,767
Additional common shares equivalents;
ending market value higher than
average market value 0 18
------------ ------------
Total shares for fully-diluted
earnings per share 85,931 83,278
============ ============
Net Income
Net income applicable to common shares for
primary earnings per share $ 44,298 $ 42,112
Add back interest net of tax on convertible
securities assumed to be converted 3,710 3,523
------------ ------------
Net income applicable to common shares for
fully-diluted earnings $ 48,008 $ 45,635
============ ============
Earnings Per Common Share and Common Share
Equivalents $ .58 $ .57
============ ============
Earnings Per Common Share Assuming Full
Dilution $ .56 $ .55
============ ============
* Data for February 28, 1995 has been restated to reflect a 25% stock dividend
paid on December 8, 1995, and to reflect the January 12, 1996 acquisition of
TCI, Inc. accounted for under the pooling of interests method.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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RPM, INC. AND SUBSIDIARIES
ITEM 3 -- LEGAL PROCEEDINGS
- ---------------------------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1995, and as updated in the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1995 and November
30, 1995, Bondex International, Inc., a wholly-owned subsidiary of the Company
("Bondex") was named one of numerous corporate defendants in 401 then pending
asbestos-related bodily injury lawsuits filed on behalf of various individuals
in various jurisdictions in the United States. Subsequently, an additional 21
such cases were filed and 6 such cases were dismissed with prejudice pursuant to
voluntary dismissals by plaintiffs, or dismissals pursuant to summary judgment
based upon the inability of the plaintiffs involved to produce evidence of
exposure to or use of any Bondex asbestos-containing product. Bondex continues
to deny liability in all 416 cases that remain pending and continues to
vigorously defend them. Under a cost-sharing agreement among Bondex and its
insurers effected in February, 1994, the insurers pay the bulk of defense costs
and indemnity payments, if any, in connection with asbestos litigation and
Bondex is responsible for the balance.
Dryvit Systems, Inc., a wholly-owned subsidiary of the company
("Dryvit"), has been named as a co-defendant in six separate but related
attempted class action lawsuits: TODD, ET AL. V. DRYVIT ET AL., filed in U.S.
District Court in North Carolina; CA No. 7-95-CV- 188F(1); RUFF ET AL., V.
DRYVIT, ET AL., filed in the Superior Court in North Carolina; CA No.
96CVS-0059; HANDFIELD ET AL., V. DRYVIT ET AL., filed in U.S. District Court in
South Carolina; CA No. 2:96-207-21; EDMONDSON ET AL., V. DRYVIT ET AL., filed in
the U.S. District Court in North Carolina; CA No. 5:96-CV-130-F2; BAKER V.
DRYVIT, ET AL., filed in U.S. District Court in North Carolina; CA No.
7:96CV-38-BR-3; and MORGAN V. DRYVIT, ET AL., filed in U.S. District Court in
Northern Florida; CA No. 4:96CV127MP. The suits attempt to certify classes
comprised of owners of structures clad with products manufactured by Dryvit or
other similarly situated manufacturers. Several of the suits limit the attempted
class members to owners of residential structures constructed since January 1,
1986, while others attempt to incorporate all such structures, commercial and
residential, constructed since 1969. All of the suits allege that the Dryvit
cladding, known as EIFS (Exterior Insulation Finish System), is defective
because it allegedly traps moisture inside the wall assembly, resulting in
damage to the structure. The EIFS are not alleged to be the source of the
moisture. The suits allege damages in excess of Fifty Thousand Dollars ($50,000)
per individual class member.
All of the cases are in the preliminary discovery stage. Class
certification will be vigorously contested in each case. However, in the RUFF
state court case, the court initially certified the class EX PARTE, and without
notice to the defendants. The defendants, including Dryvit, have appealed that
decision, and have secured a stay of the class certification, pending the
appeal.
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RPM, INC. AND SUBSIDIARIES
Dryvit has denied the allegations of the various complaints
and will vigorously defend them. Dryvit and its co-defendants, to the extent
deemed necessary and appropriate, will also attempt to have these matters
consolidated. Dryvit's defense has been assumed under reservation of rights by a
group of its insurance carriers. Dryvit historically has maintained primary and
excess liability coverage and believes it is adequately insured with respect
to these matters.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Official Exhibit Sequential
Number Description Page Number
---------------- ------------------- -------------
XI Statement regarding 12
computation of per
share earnings
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the quarter
ended February 29, 1996
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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 /s/ Thomas C. Sullivan
--------------------------------
Thomas C. Sullivan,
Chairman & Chief
Executive Officer
By /s/ Frank C. Sullivan
-------------------------------
Frank C. Sullivan,
Chief Financial Officer
Date: April 15, 1996