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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended May 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
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
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
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: (330) 273-5090
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
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(Title of Class)
Liquid Yield Option Notes(TM) Due 2012
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(Title of Class)
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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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ___
As of August 23, 1996, 77,471,058 Common Shares were
outstanding, and the aggregate market value of the Common Shares of the
Registrant held by non-affiliates (based upon the closing price of the Common
Shares as reported on the NASDAQ National Market on August 23, 1996) was
approximately $1,193,350,309. For purposes of this information, the 2,299,385
outstanding Common Shares which were owned beneficially as of August 23, 1996 by
executive officers and Directors of the Registrant were deemed to be the Common
Shares held by affiliates.
Documents Incorporated by Reference
Portions of the following documents are incorporated by
reference to Parts II, III and IV of this Annual Report on Form 10-K: (i)
definitive Proxy Statement to be used in connection with the Registrant's Annual
Meeting of Shareholders to be held on October 18, 1996 (the "1996 Proxy
Statement") and (ii) the Registrant's 1996 Annual Report to Shareholders for the
fiscal year ended May 31, 1996 (the "1996 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this
Annual Report on Form 10-K is as of May 31, 1996.
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(TM)Merrill Lynch & Co., Inc.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
RPM, Inc. ("RPM" or the "Company") was organized in 1947 as an
Ohio corporation under the name Republic Powdered Metals, Inc. On November 9,
1971, the Company's name was changed to RPM, Inc. As used herein, the terms
"RPM" and the "Company" refer to RPM, Inc. and its subsidiaries, unless the
context indicates otherwise. The Company has its principal executive offices at
2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, and its telephone number is
(330) 273-5090.
RECENT DEVELOPMENTS
Since RPM's offering of Common Shares to the public in
September 1969, the Company has made a number of significant acquisitions that
have been described in previous reports on file with the Securities and Exchange
Commission. RPM's acquisition strategy focuses on companies with high
performance and quality products which are leaders in their respective markets.
RPM expects to continue its acquisition program, although there is no assurance
that any acquisitions will be made.
ACQUISITIONS. As part of this acquisition program, in August
1995, the Company acquired all of the outstanding shares of Star Finishing
Products, a manufacturer of furniture finishes. In addition, in September
1995, the Company completed the acquisition of Dryvit Systems, Inc. (through
the purchase of all the outstanding shares of Dryvit's non-operating parent
Narragansett/DSI Acquisition Co., Inc.), a manufacturer of coatings for
exterior wall insulating and finishing systems. In addition, in January 1996,
the Company acquired all of the outstanding shares of TCI, Inc., a
manufacturer of powdered coatings with annual sales of approximately $20
million.
Subsequent to the fiscal year-end, in June 1996, the Company
acquired all of the outstanding shares of Okura Holdings, Inc., a manufacturer
of molded and pultruded fiberglass reinforced plastic grating products, used for
pedestrian walkways, platforms, staircases and similar types of industrial
structures. In addition, in July 1996, the Company's Carboline subsidiary
purchased a majority interest in Chemrite Coatings Limited, a South African
licensee that provides industrial coatings throughout South Africa and
neighboring countries. Chemrite has manufactured and sold Carboline products
under license for 16 years.
NOTE OFFERING. On June 20, 1995, the Company privately placed
$150 million principal amount of 7.0% Senior Notes Due 2005 (the "Old Notes")
pursuant to a Purchase Agreement dated as of June 15, 1995, by and among the
Company, and Chase Securities, Inc. and Bear, Stearns & Co., Inc. Pursuant to
the terms of the Purchase Agreement, in November 1995, the Company completed an
exchange offer whereby the Old Notes were exchanged for an equal amount of
registered 7.0% Senior Exchange Notes Due 2005 (the "New Notes").
The form and term of the New Notes are the same as the form
and terms of the Old Notes except that the New Notes have been registered under
The Securities Act of 1933, and, therefore, the New Notes do not bear legends
restricting their transfer.
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BUSINESS
RPM operates principally in one business segment, the
manufacture and marketing of protective coatings. These protective coatings
products are used for both industrial and consumer applications. For industrial
applications, RPM manufactures and markets coatings for waterproofing and
general maintenance, corrosion control, and other specialty chemical
applications. For consumer applications, RPM manufactures do-it-yourself
products for the home maintenance, automotive repair, and consumer hobby and
leisure markets. RPM, through its operating companies, serves niche markets
within these broader categories, thus providing a foundation for its strategy of
growth through product line extensions.
The protective coating products manufactured by RPM are used
primarily on property which already exists. RPM is not involved to any great
degree in new construction and, therefore, is generally less affected by
cyclical movements in the economy. RPM markets its products in approximately 130
countries and operates manufacturing facilities in 56 locations in the United
States, Belgium, Canada and The Netherlands.
INDUSTRIAL PRODUCTS
RPM's industrial products represent approximately 60% of the
Company's sales. The numerous protective coatings manufactured by the Company
are used in a variety of industrial applications including waterproofing,
general maintenance, corrosion control and other specialty chemical
applications.
The Company manufactures a number of products designed for
waterproofing applications. These waterproofing products include sealants, deck
coatings, membranes and water-based coatings for commercial and industrial
maintenance produced by the Company's Mameco International, Martin Mathys,
Consolidated Coatings and ESPAN businesses.
The Company also manufactures a variety of products used for
general commercial and industrial maintenance. These products include roofing
products, such as asphaltic aluminum roof deck coating produced by RPM's
original business unit, Republic Powdered Metals, and Geoflex and Hy-Shield
premium single-ply roofing materials, as well as high-performance polymer
floors, linings and wall systems produced by Stonhard. The Company's general
maintenance product line has been expanded by recent acquisitions including the
following products: Dryvit coatings and adhesives for exterior wall insulation
and finish systems and TCI powdered coatings.
The Company's industrial product line also includes a
broad-line of high-performance corrosion control coatings. The Company's
Carboline subsidiary manufactures high-performance corrosion-resistant
protective coatings, fireproofing, tank linings and floor coatings, and markets
these products to industrial, architectural and applicator companies throughout
the world. The Company's various other corrosion-resistant coatings include the
Rust-Oleum, Plasite and Alox brands.
The Company also produces a variety of specialty chemical
products within selected niche markets. Products manufactured for specialty
chemical applications include: Day-Glo and Radiant Color fluorescent colorants
and pigments; Mohawk, Star and Chemical Coatings furniture repair and
restoration coatings; Chemspec commercial carpet cleaning solutions; ValvTect
diesel fuel additives; American Emulsions dye additives for textile dying and
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finishing; and concrete admixtures sold by Euclid Chemical, RPM's 50-50 joint
venture with Holderbank.
CONSUMER PRODUCTS
RPM's consumer products represent approximately 40% of the
Company's sales. The Company's consumer products include products designed for
the household do-it-yourself, automotive repair and hobby and leisure markets.
RPM's primary consumer do-it-yourself businesses are
Rust-Oleum, Zinsser, Kop-Coat and Bondex International. Rust-Oleum manufactures
high quality corrosion-resistant and decorative coatings for the household
maintenance and light industrial markets. Zinsser manufactures a broad line of
specialty primers and sealants and is the nation's leading producer of shellac
items used as pharmaceutical glazes, confectioner's glazes, citrus fruit
coatings and wood coatings. Kop-Coat manufactures pleasure marine coatings and
compounds and wood treatment products. Bondex International produces a
nationwide line of household patch and repair products, in addition to basement
waterproofing products. Other consumer do-it-yourself products include: fabrics,
window treatments and wall coverings sold by Design/Craft Fabric and Richard E.
Thibaut; and Wolman deck coatings, sealants and brighteners. RPM's consumer
do-it-yourself products are marketed through thousands of mass merchandise, home
center and hardware stores throughout North America.
The Company also manufactures products for the hobby and
leisure markets including: Testor's model kits and accessory products; the
Craft House line of crafts and hobby products for children, including
Paint-by-Number and pre-school activity sets; Linberg advanced model kits; and
Floquil/Polly S Color hobby, art and craft coatings. RPM's consumer hobby and
leisure products are marketed through thousands of mass merchandise, toy and
hobby stores throughout North America.
Other consumer product lines include repair and auto body
paints and specialty products for the automotive aftermarket manufactured by the
Company's Dynatron/Bondo and Mar-Hyde businesses. Products marketed by these
units include spray paints, body fillers, vinyl colors, bumper repair products
and other specialty repair products.
FOREIGN OPERATIONS
The Company's foreign operations for the year ended May 31,
1996 accounted for approximately 11.9% of its total sales, although it also
receives license fees and royalty income from numerous license agreements and
joint ventures in foreign countries. The Company has manufacturing facilities in
Canada, Belgium and The Netherlands, and sales offices or public warehouse
facilities in the Czech Republic, England, France, Iberia, Mexico, the
Philippines, Singapore and several other countries. Information concerning the
Company's foreign operations is set forth in Note I (Industry Segment and
Geographic Area Information) of Notes to Consolidated Financial Statements,
which appear elsewhere in this Annual Report on Form 10-K.
COMPETITION
The Company is engaged in a highly competitive industry and,
with respect to all of its major products, faces competition from local and
national firms. Several of the companies with which RPM competes have greater
financial resources and sales organizations than the Company. While no accurate
figures are available with respect to the size of or the Company's position in
the market for any particular product, management believes that the Company is a
major producer of
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aluminum coatings, cement-based paint, hobby paints, marine coatings, furniture
finishing repair products, automotive repair products, industrial corrosion
control products, consumer rust-preventative coatings, polymer flooring,
fluorescent coatings and pigments, exterior wall and finishing systems and
shellac-based coatings. The Company, however, does not believe that it has a
significant share of the total protective coatings market.
PATENTS, TRADEMARKS AND LICENSES
No single patent, trademark (other than the marks Day-Glo(R),
Rust-Oleum(R) and Carboline(R), which are material), name or license, or group
of these rights, is material to the Company's business.
Day-Glo Color Corp., a subsidiary of the Company, is the owner
of over 50 trademark registrations of the mark and name "DAY-GLO(R)" in numerous
countries and the United States for a variety of fluorescent products. There are
also many other foreign and domestic registrations for other trademarks of the
Day-Glo Color Corp., for a total of over 100 registrations. These registrations
are valid for a variety of terms ranging from one year to 20 years, which terms
are renewable as long as the marks continue to be used. Renewal of these
registrations is done on a regular basis.
Rust-Oleum Corporation, a subsidiary of the Company, is the
owner of over 50 United States trademark registrations for the mark and name
"RUST-OLEUM(R)" and other trademarks covering a variety of rust-preventative
coatings sold by Rust-Oleum Corporation. There are also many foreign
registrations for "RUST-OLEUM(R)" and the other trademarks of Rust-Oleum
Corporation, for a total of nearly 400 registrations. These registrations are
valid for a variety of terms ranging from one year to 20 years, which terms are
renewable for as long as the marks continue to be used. Renewal of these
registrations is done on a regular basis.
Carboline Company, a subsidiary of the Company, is the owner
of a United States trademark registration for the mark "CARBOLINE(R)." Carboline
Company is also the owner of several other United States registrations for other
trademarks. Renewal of these registrations is done on a regular basis.
The Company's product trademarks also include: ALOX(R),
ALUMANATION(R), AVALON(R), B-I-N(R) PRIMER-SEALER, BITUMASTIC(R), BONDO(R),
BONDEX(R), BULLS EYE(R) SHELLAC, COLOR DOUGH(R), CRAFT HOUSE, DRYVIT(R),
DYNALITE(R), DYNATRON(R), EASY FINISH(R), EPOXSTEEL(R), FLOQUIL(R), GEOFLEX(R),
LUBRASPIN(TM), MAR-HYDE(R), MOHAWK(R), PARASEAL(R), PERMAROOF(R), PETTIT(TM),
PLASITE, SANITILE(R), STONCLAD(R), STONHARD(R), STONLUX(R), TALSOL(R),
TESTORS(R), ULTRALITE(TM), VULKEM(R), WOOLSEY(R), ZINSSER(R) and Z-SPAR(R); and,
in Europe, RADGLO(R) and MARTIN MATHYS.
RAW MATERIALS
The Company believes that alternate sources of supply of raw
materials are available to the Company for most of its raw materials. Where
shortages of raw materials have occurred, the Company has been able to
reformulate products to use more readily available raw materials. Although the
Company has been able to reformulate products to use more readily available raw
materials in the past, there can be no assurance as to the Company's ability to
do so in the future.
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SEASONAL FACTORS
The Company's business is seasonal due to outside weather
factors. The Company historically experiences strong sales and income in its
first, second and fourth fiscal quarters comprised of the three month periods
ending August 31, November 30 and May 31, respectively, with weaker performance
in its third fiscal quarter (December through February).
CUSTOMERS
No one customer accounted for 10% or more of the Company's
total sales. The Company's business is not dependent upon any one customer or
small group of customers and is dispersed over thousands of customers.
BACKLOG
The Company historically has not had a significant backlog of
orders, nor was there a significant backlog during the last fiscal year.
RESEARCH
The Company's research and development work is performed in
various laboratory locations throughout the United States. During fiscal years
1996, 1995 and 1994, the Company invested approximately $13.7 million, $12.3
million and $11.1 million, respectively, on research and development activities.
The customer sponsored portion of such expenditures was not significant.
ENVIRONMENTAL MATTERS
Several of the Company's subsidiaries are involved in various
environmental claims or proceedings relating to facilities currently or
previously owned, operated or used by such subsidiaries, or their predecessors.
In addition, the Company or its subsidiaries, together with other parties, have
been designated as potentially responsible parties ("PRPs") under federal and
state environmental laws for the remediation of hazardous waste at certain
disposal sites (see ITEM 3. LEGAL PROCEEDINGS). In connection with its
evaluation of these PRP sites, the Company's management takes into consideration
the input of outside legal counsel, the number of parties involved at the site,
joint and several liability of other PRPs, and the level of volumetric
contribution which may be attributed to the Company relative to that
attributable to other parties at such sites. Based on the above analysis,
management estimates, to the extent possible, the restoration or other clean-up
costs and related claims for each site.
The Company's environmental-related accruals are established
and/or adjusted as information becomes available upon which more accurate
costs can be reasonably estimated. Actual costs may vary from these estimates
due to the inherent uncertainties involved. In management's opinion, based
upon information presently available, the outcome of these environmental
matters will not have a material adverse effect on the Company's financial
position, results of operations or liquidity. However, such costs could be
material to results of operations in a future period.
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EMPLOYEES
The Company employs approximately 5,300 persons, of whom
approximately 900 were represented by unions under contracts which expire at
varying times in the future. The Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES.
The Company's corporate headquarters and a plant and offices
for one subsidiary are located on an 80-acre site in Medina, Ohio, which is
owned by the Company. The Company's operations occupy a total of approximately
5.3 million square feet, with the majority, approximately 4.3 million square
feet, devoted to manufacturing, assembly and storage. Of the approximately 5.3
million square feet occupied, 4.3 million square feet are owned and 1.0 million
square feet are occupied under operating leases. The Company's facilities of
200,000 square feet or larger, as of May 31, 1996, are set forth in the table
below.
APPROXIMATE
SQUARE FEET
TYPE OF OF LEASED OR
LOCATION FACILITY FLOOR SPACE OWNED
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Pleasant Prairie, Manufacturing and 298,000 Owned
Wisconsin Warehouse (Rust-Oleum
Corporation)
Toledo, Manufacturing, Office and 280,000 Owned
Ohio Warehouse (Craft House
Corporation)
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For information concerning the Company's rental obligations,
see Note E (Leases) of Notes to Consolidated Financial Statements, which appear
elsewhere in this Annual Reoprt on Form 10-K. Under all of its leases, the
Company is obligated to pay certain varying insurance costs, utilities, real
property taxes and other costs and expenses.
The Company believes that its manufacturing plants and office
facilities are well maintained and suitable for the operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
Bondex.
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Bondex International, Inc., a wholly owned subsidiary of the
Company ("Bondex"), was dismissed with prejudice from seven asbestos-related
bodily injury lawsuits which had been filed against Bondex and other corporate
defendants. The dismissals resulted from the inability of plaintiffs to produce
evidence of use of or exposure to any Bondex asbestos-containing product. One
additional such lawsuit was settled by Bondex's insurers for a nominal amount.
With the addition of 22 newly-filed cases, there are currently pending against
Bondex a total of 430 asbestos-related bodily injury lawsuits filed on behalf of
various individuals in various jurisdictions in the United States. All of these
lawsuits name numerous other corporate defendants and all allege
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bodily injury as a result of the exposure to or use of asbestos-containing
products. Bondex continues to deny liability in all of these cases and
continues to vigorously defend them. Under a cost-sharing agreement among
Bondex and its carriers 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.
Carboline.
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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, Carboline Company, a wholly owned
subsidiary of the Company ("Carboline"), has been named as one of 21 corporate
defendants in Rufino O. Cavazos, et al., vs. Ceilcote Company, et al., District
Court, 73rd Judicial District, Bexar County, Texas; Cause No. 89-CI-12651, filed
in March 1990, and in similar suits subsequently filed on behalf of individuals
(and, where applicable, their spouses and children) employed at the Comanche
Peak Nuclear Plant and the South Texas Nuclear Plant. Several supplemental
petitions have been filed in Bexar County for the purpose of adding other
spouses and children of the worker plaintiffs, bringing the total number of
Bexar County plaintiffs to 10,556. Another suit with virtually identical
allegations was filed on December 29, 1993 in Rusk County, Texas. That suit,
Cause No. 93-470; Mary Gunn, et al. vs. Southern Imperial Coatings Corp., 4th
District Court, Rusk County, Texas, involves 201 worker plaintiffs and 128
spouses. All of the suits allege bodily injury as a result of exposure to
defendants' products. The litigation is continuing in the discovery stage. With
respect to the Bexar County cases, the court has indicated the summary jury
trials involving 10 plaintiffs each will be scheduled, although specific trial
dates have not been set. Carboline has denied all liability in these cases and
is conducting a vigorous defense. Several of Carboline's insurance carriers, and
Carboline, are defending the lawsuits under a cost sharing agreement.
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 November 30, 1995, in
September 1991, Our Lady of the Lake Hospital, Inc. ("OLOL") filed suit
captioned Our Lady of the Lake Hospital, Inc. vs. Carboline Company, et al.,
Number 373,498, Division "J", Nineteenth Judicial District Court, Parish of East
Baton Rouge, State of Louisiana, alleging damages to the structural steel of the
hospital which it owns and operates in Baton Rouge, Louisiana. The petition
alleged that the damages resulted from its use of a fireproofing product known
as Pyrocrete 102 manufactured and supplied by Carboline; that Pyrocrete 102 is
extremely corrosive when applied to structural steel, contains a latent defect,
and is defective. On July 13, 1994, OLOL filed a Second Supplemental and
Amending Petition which joined as party defendants Sun Company, Inc. ("Sun") and
Carboline Company, a Missouri corporation which was merged into Sun pursuant to
a statutory merger in 1980 ("Carboline Missouri"); claimed that the product was
not fit for its intended purpose, claimed fraud, breach of contract, breach of
warranty and product liability and sought punitive damages and attorneys fees.
In July 1995, OLOL filed a motion seeking leave of court to further amend its
petition and allow it to make additional allegations of fraud, concealment,
misrepresentation, failure to warn, and breach of contract; claimed damages from
the presence of chlorides and amended its claim for punitive damages, attorneys
fees, and interest. Pursuant to an agreement between Carboline and Sun,
Carboline provided a defense for Sun in this litigation. The Petition did not
set forth the amount of damages being claimed; however, in one of the briefs
filed in the appellate court, OLOL claimed it would cost in excess of $20
million to repair the damage to the hospital building. In addition, OLOL claimed
that it suffered lost revenues, lost profits, and other damages which exceeded
the claim for repair damages.
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In August 1992, OLOL filed suit against Sun captioned Our
Lady of the Lake Hospital, Inc. vs. Sun Company, Inc., Number 384,867, Division
"I", Nineteenth Judicial District Court, Parish of East Baton Rouge, State of
Louisiana, making allegations similar to the allegations in Number 373,498,
described above, and seeking to recover alleged damages to the structural steel
of the OLOL hospital. In addition, in the original petition filed in this suit,
OLOL alleged that Carboline Missouri manufactured and supplied the Pyrocrete to
OLOL and thereafter merged with Sun in January 1980, with Sun remaining as the
surviving corporation responsible for the obligations of Carboline Missouri. On
June 29, 1993, OLOL filed a First Supplemental and Amending Petition ("Amended
Petition") which added Carboline as an additional defendant. The Amended
Petition generally alleged that Carboline damaged OLOL through fraud and also
breached a contractual obligation of service after the sale. The Amended
Petition alleged that OLOL will incur expenses and costs in excess of $20
million to repair the damages. Pursuant to an agreement between Carboline and
Sun, Carboline provided a defense for Sun in this litigation. In June 1994, the
court transferred and consolidated this suit with Case Number 373,498. On
August 30, 1995, the claims filed in Case Number 384,867 were dismissed without
prejudice on the grounds that the claims were now included in Case Number
373,498. A related suit against Sun captioned Our Lady of the Lake Hospital,
Inc. vs. Sun Company, et al., Case Number 395,932 in the same court was also
dismissed without prejudice.
Carboline denied the allegations of both OLOL's claims and
vigorously contested them. Carboline's defense was assumed by First Colonial
Insurance Company ("First Colonial"), a wholly-owned insurance subsidiary of the
Company.
In May 1995, Carboline filed a Supplemental and Amended Third
Party Demand in Case Number 373,498, against a number of its primary and excess
insurance carriers seeking, among other things, a judgment that the insurance
carriers are obligated to defend and/or indemnify Carboline against the claims
alleged by OLOL. In their Answers to Carboline's Supplemental and Amended Third
Party Complaint, the insurance carriers have raised a number of exceptions and
defenses to Carboline's claims for defense and indemnity.
On July 10, 1996, OLOL, Carboline and Sun entered into a
confidential Settlement Agreement with respect to all claims and disputes
presented in, arising out of, or relating in any way to the claims filed by OLOL
in Case Numbers 373,498; 384,867; and 395,932. The confidential settlement
payment to OLOL was primarily funded with payments and commitments from several
Carboline insurers, along with a contribution by Carboline. Pursuant to the
settlement, OLOL's petitions, as supplemented and amended, in Case Numbers
373,498; 384,867; and 395,932, were dismissed with prejudice.
Carboline has entered into confidential settlements with a
number of its insurers who have been or will be dismissed from the litigation.
Carboline's third party claims against certain non-settling insurers and other
parties remain pending in Case Number 373,498. Carboline is currently engaged in
settlement negotiations with the remaining third party defendants. The trial of
Carboline's third party claims is scheduled for March 1997.
In 1995, the Company and Carboline were joined as defendants
in La Gloria Oil & Gas Company vs. Carboline Company, et al., Cause No. 95-959-C
in the 241st Judicial District Court of Smith County, Texas. Sun is also named
as a defendant based on its prior ownership of Carboline. In that case, the
Plaintiff, an owner and operator of a petroleum refinery in Tyler, Texas,
contends that a fireproofing product previously designed and manufactured by
Carboline, Pyrocrete 102, is defective and not fit for its intended purpose.
More specifically, the Plaintiff contends that the product resulted in
deterioration and corrosion of various steel components at the refinery.
Additionally, the Plaintiff contends that Carboline has been engaged in fraud
and a civil conspiracy
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in connection with the alleged failure to disseminate information concerning
Pyrocrete 102. The Plaintiff has alleged similar claims against Sun. On July 1,
1996, Plaintiff served Answers to Carboline's First Set of Interrogatories
which allege, among other things, that Plaintiff seeks compensatory damages in
excess of $10 million as well as exemplary damages. The Company was joined in
the litigation as a defendant based upon the contention that it was also
involved in fraud and a conspiracy with respect to the subject product. The
Company filed a special appearance, contending that the Texas court did not
have personal jurisdiction over the Company. On July 19, 1996, the court
sustained the special appearance, and dismissed all claims and causes of action
against the Company. The case continues against Carboline and Sun, as well as
co-defendants Brown & Root, Inc. and Fluor Daniel, Inc., and is in the early
discovery stages. Pursuant to an agreement between Carboline and Sun, Carboline
is providing a defense for Sun in this litigation.
Carboline has denied the allegations in the litigation and
intends to vigorously defend the case. Although there has been some diminishment
of insurance policy limits available to Carboline as a result of the settlement
of the Our Lady of the Lake Hospital, Inc. vs. Carboline Company, et al.,
litigation described above, the Company believes that the ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position or results of operations.
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1995, Carboline was, in May 1993, named
by the U.S. Environmental Protection Agency ("EPA") together with 36 other
entities as a PRP under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended ("CERCLA") in connection with the Powell Road
Landfill Site, Huber Heights, Ohio (the "Site"). Carboline is alleged to be
associated with the Site as a consequence of disposal of waste originating at
its Xenia, Ohio plant. Carboline joined with other PRPs (now totaling 45) in a
"PRP Organization Agreement" for the purpose of conducting a common response to
any claim for removal or response action asserted by the EPA or the State of
Ohio or conducting a common defense to any such claim. An intensive
investigation to identify other PRPs was conducted which identified 321
generator PRPs (296 of which contributed de minimis amounts to the Site),
several municipal generator PRPs and transporter PRPs. Between 1987 and 1991,
the owner of the Site, Waste Management, Inc., conducted a remedial
investigation ("RI") and feasibility study ("FS") and, in 1991, submitted the
RI/FS to EPA. The EPA approved the RI in March 1992 and approved the FS in March
1993. Based on the RI/FS, EPA issued its Record of Decision ("ROD") in September
1993, in which it selected the remedy for the cleanup of the Site. The ROD
estimates the remedy will cost $20.5 million and take six years to implement.
Four PRPs, including the owner of the Site (but not Carboline), have entered
into an Administrative Order on Consent with EPA to prepare the Remedial Design
for the selected remedy. The final design has been submitted to the EPA for
approval. Based upon the final design submitted, Waste Management, Inc.
estimates that the total costs for investigation, design, construction,
operation and maintenance activities at the Site will be $30.8 million. Based
upon Carboline's estimated allocated share of total waste volume at the Site
(which ranges between 0.5% to 1.552%) the Company believes that ultimate
resolution of this matter will not have a material adverse effect on the
Company's financial position or results of operations.
Mac-O-Lac.
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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, the Company has been identified as
a PRP under CERCLA in connection with the Rose Township Dump Site, Rose
Township, Michigan (the "Rose Township Site") and the Springfield Township Dump
Site, Springfield Township, Michigan (the "Springfield
11
12
Site") as a consequence of the disposal of waste originating at Mac-O-Lac
Paints, Inc., a former subsidiary of the Company whose assets were sold in
February 1982.
With respect to the Rose Township Site, the Company and eleven
other PRPs signed a Consent Decree which, on July 18, 1989, was entered by the
Court in United States of America as AKZO Coatings of America, Inc. et al., U.S.
District Court, Eastern District of Michigan, Southern Division; Civil Action
No. 88-CV-73784-DT. Pursuant to the agreement, the PRPs established a $9 million
fund to cover costs of remediation, of which the Company's share, $300,000, has
been paid. The PRPs have installed a soil vapor extraction system as a method of
remediation to replace soil flushing which was the originally specified
remediation approach. The EPA had previously concluded that neither soil
flushing nor enhanced soil flushing would achieve target cleanup levels for
certain materials within the time frames specified in the remedial action plan
attached to the Consent Decree. It is anticipated that soil vapor extraction
will effectively perform the required cleanup.
With respect to the Springfield Site, the Company and other
PRPs have been actively engaged in negotiations with the EPA and the Michigan
Department of Natural Resources in an effort to reach agreement on mutually
acceptable remediation parameters and have negotiated Administrative Orders on
Consent Regarding Selected Response Activities and for Cost Recovery Settlement.
Based upon a July 14, 1995 decision of the United States Court
of Appeals for the Sixth Circuit in United States of America vs. Cordova
Chemical Company et al.; Case No. 92-2288, the Company believes it has no
liability under CERCLA with respect to either the Rose Township Site or the
Springfield Township Site, and therefore has declined to participate in any
further PRP efforts at either site which would require the payment of
significant additional monies by the Company. The Cordova Chemical decision is
being reconsidered by the Court of Appeals through an en banc review. In the
event the decision is reversed, the Company will reconsider its position.
Dryvit.
-------
As previously reported in the Company's Quarterly Report on
Form 10-Q for the quarter ended February 29, 1996, Dryvit Systems, Inc.
("Dryvit"), a wholly owned subsidiary of the Company, is a co-defendant in
several separate but related lawsuits. These suits allege, under various causes
of action, that Dryvit's wall cladding product (exterior insulation finish
systems or "EIFS") is defective and has caused structural damage to the
plaintiffs' homes or buildings. In the suits enumerated below, plaintiffs seek
to certify classes comprised of owners of structures clad with EIFS products
manufactured by Dryvit and other EIFS manufacturers.
Currently, there are four actions seeking class certification:
In Re Stucco, filed in Eastern District of North Carolina (96-CV-28-BR [2]), is
a consolidation of four related cases which seeks to certify a class of owners
of homes constructed since January 1, 1986; the Handfield case, filed in U.S.
District Court in South Carolina, Charleston Division (2:96-207-21), seeks to
certify a class of owners of structures constructed since January 1, 1969; the
Morgan case, filed in U.S. District Court in Northern Florida (4:96CV127MP),
seeks to certify a class of owners of residential and commercial structures
constructed since January 1, 1969; and the Ruff case, filed in North Carolina
State Court (96-CVS-0059), seeks to certify a class of North Carolina owners of
EIFS homes or buildings constructed since January 1, 1969.
A hearing in Ruff is scheduled in August to reconsider the
court's ex-parte class certification. Plaintiffs in the Handfield case have
filed a petition with the Judicial Panel on
12
13
Multi-District Litigation ("MDL") requesting that the related federal court
cases be assigned to the MDL docket and transferred to U.S. District Court in
South Carolina. The defendants, including Dryvit, are opposing the MDL
petition. The other cases are either in the discovery phase with respect to
class certification issues or are stayed pending resolution of the MDL petition.
Dryvit, through a joint defense arrangement, is conducting a
vigorous defense both contesting the class certification requests and
challenging the merits of the plaintiffs' claims. Dryvit believes that it is
fully and adequately insured against the risks posed by these claims and
Dryvit's insurance carriers are expected to defend Dryvit subject to a
reservation of rights. Dryvit has also received a notice of Civil Investigative
Demand ("CID") from the State of North Carolina Attorney General's office. The
focus of the CID seeks documents with respect to whether Dryvit has
misrepresented its EIFS products in its marketing, literature and advertising
programs. Dryvit is cooperating fully with the Attorney General's office in the
investigation and is confident of a favorable outcome.
Mohawk and Westfield.
---------------------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1995, Mohawk Finishing Products, Inc.
("Mohawk") and Westfield Coatings Corporation ("Westfield"), both wholly owned
subsidiaries of the Company, were notified by EPA of their status as PRPs under
CERCLA with respect to environmental contamination at the Solvents Recovery of
New England Site (the "SRS Site") located in Southington, Connecticut. Since
June 1992, the EPA has named in excess of 1,700 entities as PRPs in connection
with the SRS Site. The EPA recently issued a volumetric list in which Mohawk was
assigned a reduced volumetric share of 0.11118% of the waste sent to the SRS
Site and Westfield was assigned a reduced volumetric share of 0.89440%. The PRPs
have not as yet agreed to any final allocation formula, whether based on volume
or otherwise. EPA has completed an early de minimis settlement with almost 1,000
PRPs who had sent less than 10,000 gallons to the SRS Site. Neither Mohawk nor
Westfield qualified for that settlement. To date, EPA and the State of
Connecticut have expended in excess of $5 million in connection with the SRS
Site but the EPA has not yet selected the final remedial action. Several hundred
PRPs, including Mohawk and Westfield, have consented to an administrative orders
to perform non-time critical removal actions to contain contaminated water in
the aquifer at the SRS Site and to perform both the Remedial Investigation and
Feasibility Study.
In January 1994, the EPA notified Westfield of its status as
one of approximately 300 PRPs at the Old Southington Landfill Superfund Site
(the "Landfill") on the basis that process wastes from the SRS Site were sent to
the Landfill prior to October 1967. The EPA has not issued a volumetric list for
the Landfill, although it has issued a volumetric list of PRPs who sent
materials to the SRS Site prior to October 1967. Westfield's share on that list
is 0.90247%. In September 1994, EPA issued a Record of Decision which selected a
source control remedy that consisted of installation of a cap on the Landfill
together with a gas collection system. The estimated cost of the source control
remedy is $16.1 million. EPA has deferred to a second operable unit the issue of
whether to actively remediate groundwater at the Landfill, but is insisting that
certain groundwater studies be performed which will likely cost several million
dollars. EPA and the PRPs are currently engaged in mediation in an attempt to
reach a settlement with respect to response costs at the Landfill.
The Company believes that the ultimate resolution of the SRS
Site and the Landfill matters will not have a material adverse effect on the
Company's financial position or results of operations.
13
14
Testor.
-------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1995, the Testor Corporation, a wholly
owned subsidiary of the Company ("Testor"), which had been identified by the EPA
as a PRP under CERCLA in 1985 in connection with the Acme Solvent Site in
Rockford, Illinois (the "Acme Site"), participated with other Acme Site PRPs in
a voluntary remedial action pursuant to a Sharing Agreement entered into in
1986. That remedial action, Phase I of which is completed, involved removal and
disposal of contaminated source materials from the Acme Site and a Supplemental
Technical Investigation conducted by consultants to determine actions required
for permanent remediation of soils and groundwater at the Acme Site in Phase II.
Testor's share of Phase I remedial action costs totaled approximately $965,000.
In September 1991, Testor entered into a Consent Decree with the EPA and a
Sharing Agreement with 30 other Acme Site PRPs with respect to Phase II remedial
action at the Acme Site, which also provided for reimbursement of the EPA for a
portion of its past response costs, of which Testor's share of $60,000 was paid
to the EPA in December 1991. Testor incurred and paid a sum of $206,015 toward
Phase II remediation costs during the fiscal year ending May 31, 1994. Testor
further incurred and paid the additional sums of $30,349 on July 20, 1995 and
$22,927 on June 3, 1996 toward Phase II remediation costs.
A levy has been authorized by the Executive Committee of the
Acme Site PRP group which will be payable on or about September 1, 1996.
Testor's portion of such levy is expected to be in the approximate sum of
$36,700.
Future cost estimates have been provided by the environmental
contractor working on behalf of the PRPs. Total expenditures during calendar
year 1996 at the Site are expected to total $2,479,000. During calendar year
1997 expenditures of $2,931,000 are anticipated. From calendar years 1998
through 2026 operation and maintenance costs are projected in a total sum of
$9,635,000 at a rate of $280,000 for each of the first five years and $260,000
in each of the remaining 23 years, in addition to regulatory review costs. Each
of these projections includes a contingency of 30%. Testor's share of such costs
is currently assessed at 4.5853%, but is subject to change if new members are
added to the settlor's coalition or present members withdraw.
Testor had filed a declaratory judgment action against its
primary and excess insurers which had issued comprehensive generally liability
(CGL policies) over an interval from 1962 through 1986 which sought an
adjudication of the duty to defend and indemnify it in connection with the Acme
Site. That case was settled for the sum of $2,200,000 which was received by
Testor in January 1996. Testor had previously received additional payments
toward the defense costs which it had incurred at the Site in the total amount
of $364,000. The amounts received by Testor are in total satisfaction of any
liability which the insurers may have incurred for the response costs which are
expected to terminate in the 2026. The Company believes that the amounts
received will be adequate to pay all future assessments made against Testor for
expenses arising at the Acme Site. Accordingly, for purposes hereof, this matter
is deemed finalized.
Rust-Oleum.
-----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1995, the EPA, in November 1979,
commenced an action captioned United States of America vs. Midwest Solvent
Recovery, Inc., et al.; United States District Court for the Northern District
of Indiana, Eastern Division; Civil No. H-79-556, pertaining to pollution
allegedly occurring at and around real property located at 7400 West Fifteenth
Street, Gary, Indiana ("MIDCO I") and 5900 Industrial Highway, Gary, Indiana
("MIDCO II") (collectively, the "MIDCO Sites"). The Complaint was subsequently
amended in January 1984 to join Rust-Oleum
14
15
Corporation, a wholly owned subsidiary of the Company ("Rust-Oleum"), and other
entities as additional defendants. Rust-Oleum, one of approximately 130
identified PRPs, is alleged to be associated with the MIDCO Sites as a
consequence of disposal of waste originating at its former Evanston, Illinois
plant in the mid-1970's. The Court approved a Consent Decree in June 1992 under
which Rust-Oleum entered into a Settlement Agreement with the other settling
PRPs for the voluntary cleanup of the MIDCO Sites consistent with the EPA Record
of Decision. All surface hazardous wastes have been removed from the MIDCO Sites
and cleanup is now in the groundwater remediation stage. Remediation should be
complete by the year 2002, with monitoring continuing for an undetermined
period. Total remediation and monitoring costs are currently estimated to be $35
million. Included in the Consent Decree is an Agreement between the Settling
PRPs, including Rust-Oleum, and third parties who had been sued for contribution
by the generator PRPs, providing for payment by the third parties of their fair
share of the MIDCO Sites remedial and response costs. Third party funds have
been placed into the MIDCO Trust Fund, which has been created to fund the MIDCO
Site remedial actions. Rust-Oleum, as a settling PRP, has provided financial
assurance for its share of the cleanup costs in the form of a Letter of Credit.
In March 1988, the EPA named Rust-Oleum and 240 other entities
as PRPs under CERCLA in connection with the Ninth Avenue Site at 7537 Ninth
Avenue, Gary, Indiana (the "Ninth Avenue Site"). Rust-Oleum is alleged to be
associated with the Ninth Avenue Site as a consequence of disposal of waste
originating at its former Evanston, Illinois plant in the 1970's. Rust-Oleum has
cooperated with over twenty other PRPs in a voluntary cleanup under Phase I and
Phase II Participation Agreements and Implementation Trust Agreements. Total
Ninth Avenue Site remediation and monitoring costs are estimated to be
approximately $36 million, including past costs and the Final Site Remedy, which
includes groundwater remediation planned for completion by 1997 and ongoing
monitoring for an undetermined period. The EPA issued an Amended Record of
Decision on September 13, 1994 regarding the Final Site Remedy and an Amended
Unilateral Administrative Order to Rust-Oleum and the other participating PRPs
on December 27, 1994 to undertake the Final Site Remedy. Rust-Oleum and eighteen
other PRPs have entered into a Final Participation Agreement for Final Remedial
Action at the Ninth Avenue Site. Rust-Oleum's allocation of cost is currently
6.048%, with approximately $500,000 remaining to be paid subject, however, to
reduction to the extent settlements are made with non-participating PRPs and
funds are made available from a Trust Fund established by the EPA for de minimis
settlors. Rust-Oleum has provided financial assurance for its share of the Final
Site Remedy in the form of a Letter of Credit.
Based upon prior settlement agreements with insurance carriers
for potential costs and remediation liabilities in connection with the MIDCO
Sites and the Ninth Avenue Site, Rust-Oleum has established appropriate reserves
to cover such costs and liabilities. Accordingly, the Company believes that
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
15
16
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 15, 1996 are as follows:
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
Thomas C. Sullivan 59 Chairman of the Board and Chief Executive Officer
James A. Karman 59 President and Chief Operating Officer
John H. Morris, Jr. 54 Executive Vice President
Frank C. Sullivan 35 Executive Vice President and Chief Financial Officer
Richard E. Klar 63 Vice President and Treasurer
Paul A. Granzier 69 Vice President, General Counsel and Secretary
Glenn R. Hasman 42 Vice President - Administration
Charles R. Brush 60 Vice President - Environmental Affairs
Keith R. Smiley 34 Controller
<FN>
- -----------------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Thomas C. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since October 1971. From June 1971 through
September 1978, Mr. Sullivan served as President and, prior thereto, as
Executive Vice President of the Company. Mr. Sullivan's employment with the
Company commenced in 1961, and he has been a Director since 1963. Mr. Sullivan
is employed as Chairman and Chief Executive Officer under an employment
agreement for a five-year period ending June 1, 2001. Mr. Sullivan is the father
of Frank C. Sullivan, Executive Vice President and Chief Financial Officer of
the Company.
James A. Karman has been President and Chief Operating Officer
since September 1978. From October 1982 to October 1993, Mr. Karman also was the
Chief Financial Officer of the Company. From October 1973 through September
1978, Mr. Karman served as Executive Vice President, Secretary and Treasurer,
and, prior thereto, as Vice President-Finance and Treasurer of the Company. Mr.
Karman's employment with the Company commenced in 1963, and he has been a
Director since 1963. Mr. Karman is employed as President and Chief Operating
Officer under an employment agreement for a five-year period ending June 1,
2001.
John H. Morris, Jr. has been Executive Vice President since
January 1981. Prior to that time, he was Corporate Vice President of the
Company, having been elected to that position in September 1977. Mr. Morris was
elected a Director of the Company in 1981. Mr. Morris is employed as Executive
Vice President under an employment agreement for a period ending July 31, 1997.
Frank C. Sullivan was elected Executive Vice President in
October 1995 and has been the Chief Financial Officer of the Company since
October 1993. Mr. Sullivan served as a Vice President from October 1991 to
October 1995. Prior thereto, he served as Director of Corporate Development of
the Company from February 1989 to October 1991. Mr. Sullivan served as Regional
Sales Manager, from February 1988 to February 1989, and as a Technical Service
Representative, from February 1987 to February 1988, of AGR Company, an Ohio
General Partnership owned by the Company. Prior thereto, Mr. Sullivan was
employed by First Union
16
17
National Bank from 1985 to 1986 and Harris Bank from 1983 to 1985. Mr. Sullivan
is employed as Executive Vice President and Chief Financial Officer under an
employment agreement for a period ending July 31, 1997. Mr. Sullivan is the son
of Thomas C. Sullivan, Chairman of the Board and Chief Executive Officer of the
Company.
Richard E. Klar was elected Vice President in October 1981 and
has been Treasurer since July 1980. He served as Chief Accounting Officer from
July 1980 to October 1990. Mr. Klar was Treasurer of Mameco International, Inc.,
a wholly owned subsidiary which was acquired by the Company in February 1979,
from 1979 to 1980 and was Mameco's Controller prior thereto. Mr. Klar is
employed as Vice President and Treasurer under an employment agreement for a
period ending July 31, 1997.
Paul A. Granzier has served as Secretary since July 1988, and
as Vice President and General Counsel since October 1987. Prior thereto, he
served as General Counsel since he joined the Company in May 1985. Mr. Granzier
was engaged in the private practice of law from 1981 until he joined the
Company. Prior thereto, he served as Assistant Corporate Counsel and Assistant
Secretary of Midland-Ross Corporation. Mr. Granzier is employed as Vice
President, General Counsel and Secretary under an employment agreement for a
period ending July 31, 1997.
Glenn R. Hasman has served as Vice President-Administration
since October 1993. From July 1990 to October 1993, Mr. Hasman served as
Controller. From September 1982 through July 1990, Mr. Hasman served in a
variety of management capacities, most recently Vice President-Operations and
Finance, Chief Financial Officer and Treasurer, of Proko Industries, Inc., a
former wholly owned subsidiary of the Company. From 1979 to 1982, Mr. Hasman
served as RPM's Director of Internal Audit and from 1976 to 1979 he was
associated with Ciulla, Smith & Dale, LLP, independent accountants. Mr. Hasman
is employed as Vice President-Administration under an employment agreement for a
period ending July 31, 1997.
Charles R. Brush has served as Vice President-Environmental
Affairs of the Company since October 1993. From June 1991 to October 1993, he
served as the Company's Director of Environmental & Regulatory Affairs. Prior
thereto, from 1988 to June 1991, he served as Vice President-Environmental &
Risk Management of Kop-Coat, Inc., a wholly owned subsidiary of the Company.
Keith R. Smiley has served as Controller of the Company since
October 1993. From January 1992 until the present, Mr. Smiley also has served as
the Company's Internal Auditor. Prior thereto, he was associated with Ciulla,
Smith & Dale, LLP.
17
18
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RPM Common Shares, without par value, are traded on the NASDAQ
National Market. Common Share prices are quoted daily under the symbol RPOW. The
high and low sales prices for the Common Shares, and the cash dividends paid on
the Common Shares, for each quarter of the two most recent fiscal years is set
forth in the table below.
RANGE OF SALES PRICES
---------------------
Dividends Paid
Fiscal 1996 High Low Per Share
------------- ---- --- ---------
1st Quarter * $ 16-11/16 $ 15-1/2 $0.112
2nd Quarter * 17-3/16 15-5/16 0.120
3rd Quarter 17-1/4 14-3/4 0.120
4th Quarter 6-5/8 14-1/2 0.120
Dividends Paid
Fiscal 1995 High Low Per Share
----------- ---- --- ---------
1st Quarter * $ 14-5/8 $ 13 $0.104
2nd Quarter * 15-11/16 14 0.112
3rd Quarter * 15-3/8 14-1/8 0.112
4th Quarter * 16-1/2 14-1/2 0.112
<FN>
- --------------------
* Restated for the 25% stock dividend on December 8, 1995.
Source: The Wall Street Journal
Cash dividends are payable quarterly, upon authorization of
the Board of Directors. Regular payment dates are approximately the 30th day of
July, October, January and April. RPM maintains a Dividend Reinvestment Plan
whereby cash dividends, and a maximum of an additional $5,000 per month, may be
invested in RPM Common Shares purchased in the open market at no commission cost
to the participant.
The number of holders of record of RPM Common Shares as of
August 23, 1996 was approximately 37,736.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
data of the Company for each of the five years during the period ended May 31,
1996 including the fiscal 1996 acquisition of TCI, Inc., which was accounted for
on a pooling-of-interests basis. The data was derived from the annual
Consolidated Financial Statements of the Company which have been audited by
Ciulla, Smith & Dale, LLP, independent accountants.
18
19
FISCAL YEARS ENDED MAY 31,
--------------------------
1996 1995* 1994* 1993 1992
---- ----- ----- ---- ----
RESTATED RESTATED
(Amounts in thousands except per share
data)
Net sales $1,136,396 $1,030,736 $825,292 $768,372 $680,091
Income before income taxes 119,886 108,492 89,207 66,136 61,101
Net income 68,929 62,616 53,753 39,498 38,481
Return on sales % 6.1 6.1 6.5 5.1 5.7
Primary earnings per share 0.90 0.85 0.74 0.59 0.58
Fully diluted earnings per share 0.86 0.81 0.70 0.57 0.57
Shareholders' equity 445,833 350,469 316,444 243,899 233,360
Shareholders' equity per share 5.82 4.76 4.33 3.66 3.54
Return on shareholders' equity % 17.3 18.8 19.2 16.6 17.1
Average shares outstanding 76,548 73,660 73,003 66,584 65,988
Cash dividends paid 35,597 31,259 27,949 22,370 20,685
Cash dividends per share 0.47 0.44 0.41 0.38 0.35
Retained earnings 231,896 199,527 169,687 146,852 129,846
Working capital 275,722 271,635 231,684 191,872 205,419
Total assets 1,155,076 965,523 665,966 648,524 623,346
Long-term debt 447,654 407,041 233,969 258,712 273,871
Depreciation and amortization 42,562 37,123 26,050 22,283 20,436
<FN>
- ---------------
All per share data has been restated to reflect the 25% stock dividend
on December 8, 1995.
*Data for fiscal years 1995 and 1994 have been restated to include
the fiscal 1996 acquisition of TCI, Inc.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is set forth at pages
20 through 21 of the 1996 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages
22 through 32 of the 1996 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
19
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as to the Directors of the
Company appearing under the caption "Election of Directors" in the Company's
1996 Proxy Statement is incorporated herein by reference. Information required
by this item as to the Executive Officers of the Company is included as Item 4A
of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to
Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation
S-K is set forth in the 1996 Proxy Statement under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 1996
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is set forth in the 1996
Proxy Statement under the heading "Share Ownership of Management," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth in the 1996
Proxy Statement under the heading "Election of Directors," which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this 1996 Annual Report
on Form 10-K:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the 1996 Annual Report to Shareholders on pages
22 through 32, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets - May 31, 1996 and 1995
Consolidated Statements of Income -
years ended May 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders'
Equity - years ended May 31, 1996, 1995
and 1994
20
21
Consolidated Statements of Cash Flows -
years ended May 31, 1996, 1995 and 1994
Notes to Consolidated Financial
Statements (including Unaudited Quarterly
Financial Information)
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of the Company and its subsidiaries and the report of
independent auditors thereon are filed as part of this Annual Report on Form
10-K and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the 1996 Annual
Report to Shareholders:
Schedule Page No.
-------- --------
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying S-2
Accounts and Reserves
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits.
--------
See the Index to Exhibits at page E-1 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K.
-------------------
There were no Current Reports on Form 8-K filed during the
fourth fiscal quarter ended May 31, 1996.
21
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 29, 1996 By: /s/ Thomas C. Sullivan
------------------------
Thomas C. Sullivan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature and Title
- -------------------
Chairman of the Board of
/s/ Thomas C. Sullivan Directors and Chief Execu-
- --------------------------------- tive Officer (Principal
Thomas C. Sullivan Executive Officer)
/s/ James A. Karman President and Chief Operating
- --------------------------------- Officer and a Director
James A. Karman
/s/ Frank C. Sullivan Executive Vice President and Chief
- --------------------------------- Financial Officer (Principal
Frank C. Sullivan Financial Officer) and a Director
/s/ Glenn R. Hasman Vice President-Administration
- --------------------------------- (Principal Accounting Officer)
Glenn R. Hasman
/s/ Max D. Amstutz Director
- ---------------------------------
Max D. Amstutz
/s/ Edward B. Brandon Director
- ---------------------------------
Edward B. Brandon
/s/ Lorrie Gustin Director
- ---------------------------------
Lorrie Gustin
/s/ Roy H. Holdt Director
- ---------------------------------
Roy H. Holdt
22
23
/s/ E. Bradley Jones Director
- ---------------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- ---------------------------------
Donald K. Miller
/s/ John H. Morris, Jr. Executive Vice President
- --------------------------------- and a Director
John H. Morris, Jr.
/s/ Kevin O'Donnell Director
- ---------------------------------
Kevin O'Donnell
/s/ William A. Papenbrock Director
- ---------------------------------
William A. Papenbrock
Date: August 29, 1996
23
24
RPM, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended Articles of Incorporation, as amended...........................................
3.2 Amended Code of Regulations ............................................................
4.1 Specimen Certificate of Common Shares, without par value, of RPM,
Inc..................................................................................... (B)
4.2 Specimen LYONs(TM)Certificate .......................................................... (A)
4.3 Specimen Note Certificate for 7.0% Senior Notes Due 2005................................ (D)
4.4 Indenture, dated as of June 1, 1995, between RPM, Inc. and The First National Bank of
Chicago, as trustee, with respect to the 7.0% Senior Notes Due 2005..................... (D)
4.5 Indenture, dated as of September 15, 1992, between RPM, Inc. and The First National
Bank of Chicago, as trustee, with respect to the LYONs ................................. (A)
*10.1 Amended Employment Agreement, dated as of July 22, 1981, by and between RPM, Inc. and
Thomas C. Sullivan, Chairman of the Board and Chief Executive Officer ..................
*10.1.1 Amendment to Amended Employment Agreement, dated as of July 17, 1996, by and between
RPM, Inc. and Thomas C. Sullivan, Chairman of the Board and Chief Executive Officer ....
*10.2 Amended Employment Agreement, dated as of July 22, 1981, by and between RPM, Inc. and
James A. Karman, President and Chief Operating Officer .................................
*10.2.1 Amendment to Amended Employment Agreement, dated as of July 17, 1996, by and between
RPM, Inc. and James A. Karman, President and Chief Operating Officer ...................
*10.3 Employment Agreement, dated as of July 15, 1992, by and between RPM, Inc. and Frank C.
Sullivan, Executive Vice President and Chief Financial Officer ......................... (F)
*10.4 Form of Employment Agreement entered into by and between RPM, Inc. and each of John H.
Morris, Jr., Executive Vice President, Richard E. Klar, Vice President and Treasurer,
Paul A. Granzier, Vice President, General Counsel and Secretary, and Glenn R. Hasman,
Vice President - Administration ........................................................
*10.4.1 Form of Amendments to Employment Agreements, dated as of July 17, 1996, by and between
RPM, Inc. and each of John H. Morris, Jr., Executive Vice President, Richard E. Klar,
Vice President and Treasurer, Paul A. Granzier, Vice President, General Counsel and
Secretary, Glenn R. Hasman, Vice President - Administration, and Frank C. Sullivan,
Executive Vice President and Chief Financial Officer ...................................
*10.5 RPM, Inc. 1979 Stock Option Plan, as amended, and form of Stock Option Agreements
used in connection therewith ...........................................................
*10.6 RPM, Inc. 1989 Stock Option Plan, as amended, and form of Stock Option Agreements to be
used in connection therewith ...........................................................
*10.7 RPM, Inc. Retirement Savings Trust and Plan, as amended ................................
*10.8 RPM, Inc. Benefit Restoration Plan .....................................................
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25
Exhibit No. Description
- ----------- -----------
*10.9 RPM, Inc. Board of Directors' Deferred Compensation Agreement, as
amended and restated .................................................................. (C)
*10.10 RPM, Inc. Deferred Compensation Plan for Key Employees ................................. (C)
*10.11 RPM, Inc. Incentive Compensation Plan...................................................
*10.12 Form of Indemnification Agreement entered into by and between the Company and each of
its Directors and Executive Officers ...................................................
10.13 Credit Agreement, dated as of December 14, 1993, by and between RPM, Inc., RPOW
(France) S.A., RPM Europe B.V., Radiant Color, N.V., Credit Lyonnais Chicago Branch,
Credit Lyonnais Cayman Island Branch and Credit Lyonnais Belgium ....................... (C)
10.14 Credit Facility, dated as of June 23, 1994, by and among RPM, Inc., National City Bank
and The First National Bank of Chicago, as Co-Agents, and The Chase Manhattan Bank
(National Association), as Administration Agent......................................... (E)
10.15 Amendment No. 1, dated August 2, 1995, to the Credit Facility, dated as of June 23,
1994, by and among RPM, Inc., National City Bank and the First National Bank of
Chicago, as Co-Agents, and The Chase Manhattan Bank (National Association) as
Administration Agent. ..................................................................
11.1 Computation of Net Income per Common Share..............................................
13.1 Financial Statements contained in 1996 Annual Report to Shareholders....................
21.1 Subsidiaries of the Company ............................................................
23.1 Consent of Independent Certified Public Accountants ....................................
27.1 Financial Data Schedule ................................................................
<FN>
- ------------------------------
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
(A) Incorporated herein by reference to the appropriate exhibit
to the Company's Registration Statement on Form S-3 (Reg. No. 33-50868).
(B) Incorporated herein by reference to the appropriate exhibit
to the Company's Registration Statement on Form S-3 (Reg. No. 33-39849).
(C) Incorporated herein by reference to the appropriate exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1994.
(D) Incorporated herein by reference to the appropriate exhibit
to the Company's Registration Statement on Form S-4 as filed with the Commission
on August 3, 1995.
(E) Incorporated herein by reference to the appropriate exhibit
to the Company's Current Report on Form 8-K dated as of June 28, 1994.
(F) Incorporated herein by reference to the appropriate exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1992.
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26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and
Shareholders
RPM, Inc. and Subsidiaries
Medina, Ohio
The audits referred to in our report to the Board of Directors and Shareholders
of RPM, Inc. and Subsidiaries dated July 3, 1996, relating to the consolidated
financial statements of RPM, Inc. and Subsidiaries included the audit of the
schedule listed under Item 14 of Form 10-K for each of the three years in the
period ended May 31, 1996. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
Ciulla, Smith & Dale, LLP.
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27
Schedule II
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
(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, 1996
- -----------------------
Allowance for doubtful accounts $ 9,813 $ 3,448 $ 721 $ 3,989 (1) $ 9,993
======== ======== ======== ======== ========
Accrued loss reserves $ 23,897 $ 12,771 $ 9,096 $ 12,033 (2) $ 33,731
======== ======== ======== ======== ========
Year Ended May 31, 1995 (Restated)
- -----------------------
Allowance for doubtful accounts $ 8,198 $ 3,247 $ 1,248 $ 2,880 (1) $ 9,813
======== ======== ======== ======== ========
Accrued loss reserves $ 12,978 $ 12,767 $ 5,420 $ 7,268 (2) $ 23,897
======== ======== ======== ======== ========
Year Ended May 31, 1994 (Restated)
- -----------------------
Allowance for doubtful accounts $ 6,935 $ 4,275 $ 70 $ 3,082 (1) $ 8,198
======== ======== ======== ======== ========
Accrued loss reserves $ 13,753 $ 7,312 $ $ 8,087 (2) $ 12,978
======== ======== ======== ======== ========
<FN>
(1) Uncollectible accounts written off, net of recoveries
(2) Primarily claims paid during the year
S-2